Barker Review of Housing Supply
The Labour Land Campaign has viewed with interest the development of the Barker Review of Housing Supply. Following publication of the Interim Report in December, the Campaign made its own submission, lending encouragement to suggestions that land value taxation was under consideration. Despite the undoubted merit and value of the research which it has encompassed, the Labour Land Campaign are disappointed with the conclusions of the final report.
Although it does acknowledge that land value taxation is ‘a good method for raising revenue without distorting behaviour; and indeed it could encourage better behaviour’, the Review concludes that most land value taxes ‘appear to be of limited use in stimulating the supply of land for housing given the nature of the planning process’. We disagree most strongly with this statement and fail to understand what is meant by ‘most land value taxes’. There is only one valid definition of land value taxation which we recognise: a rate on the rental value of all land (net of improvements).
Please see below our response to other more specific arguments against the employment of land value taxation to solve the housing shortage problem.
‘The impact on housing supply of national land value taxation at an acceptable rate would be limited’ (4.10)
‘Taxing the land at current value would provide little incentive to sell’ (4.12)
The mere announcement of the introduction of land valuation at any rate, and with the stated intention of increasing that rate significantly over time, would have an immediate impact on both the price and the availability of land. The essential problem with the land market is that there is no cost of ownership, especially in cases where no debt has to be serviced. Giving a cost to land ownership would send the correct signal to the market that you either use your land or sell it to someone who will use it. There are vast acres of land in desirable areas which have remained in the hands of wealthy families (nowadays vested in offshore trusts for tax purposes) for centuries. Of course, there will be some particularly rich individuals who will be prepared to pay the price – since land and property is desirable for itself and not just for long-term investment purposes. But essentially, the land monopoly will be broken for good.
‘It could be considered unfair to tax the value of land in order to create an incentive for residential development but then to deny the possibility for such use ….through a restrictive planning system’ (4.11)
‘The local authority decides which pieces of land are allocated for development and, therefore, which are liable for a tax and subsequently uses the sequential test to decide which pieces of land should be brought in to the system first’ (4.16)
The value of land is determined by its current use. Under full land value taxation there is no ‘hope’ value to tax. The land should continue to be exploited at its current use until such time as change of use is granted. When consent is given, the LVT will increase and produce the incentive to develop. Land does not wear out like man-made commodities and idle land is a dead loss to the community. The owners of lower value land still have a duty to recompense the community for the benefit they receive from this gift from Mother Nature and this will provide much needed revenue without harm to the economy.
‘A national land value tax would also require additional resources … regular valuations would be needed in order to tax accurately the underlying value of land assets’ (4.14)
Surely for any property-based tax, frequent valuation is essential. Land is easier to value than improvements and we already have a regime of regular revaluation for Business Rates, whilst delayed revaluation of domestic properties has always caused severe problems both in this country and around the world.
The Review then appears to abandon hope of using any form of taxation to encourage development and concentrates on capturing the windfall gains available when change of use to residential land is obtained.
‘… it is fair to say that development gains are more obviously present on Greenfield land in comparison to brownfield development. This would imply that green field economic rents could be taxed at a higher rate…’ (4.37)
Land value taxation will achieve this in a much more straightforward way.
There is no need for differential rates when the underlying values are different
anyway.
.
We fail to understand the necessity to introduce a new tax specifically
to claw back some of the land price hike when planning permission for housebuilding
is granted. This will do nothing to increase development now and will most
surely have a disastrous effect when the land price bubble peaks.
A better ‘quick-fix’ for achieving a suitable levy would be for planning consents to be auctioned – a temporary solution which at least works with the market.
If brownfield sites are truly too expensive to develop, even in, say, the middle of London, LVT may induce owners to surrender ownership altogether, in which case the community would have a duty to take over the site and redevelop to provide much needed social housing. All public investment in the site would be more than recovered, via LVT, as the land (rental) value increased.
What it is essential to remember here is that LVT reduces the capital value of land but not the rental value (on which the tax is based). The main problem with housing in Great Britain is high site values, which make it virtually impossible to meet social housing needs in the South East. Subsidies provided to help the situation will inevitably produce externalities and lead to corruption.
Whilst we recognise that the report is primarily aimed at encouraging new development, we would maintain that the present shortage of housing needs to be seen in the context of general failure of the land market to allocate this most precious of resources to best use. Other manifestations of land market failure in the economy are: obscene concentration of land ownership (70% owned by 1% - which itself contributes to the shortage of land for housing), house price inflation, consumer debt, the relentless increase in wealth inequality, low savings and investment ratios, higher than necessary interest rates. Land value taxation is the simple solution to land market failure.
The following is an extract from a paper written many years ago by Victor
Blundell, late of the Henry George Foundation. We urge you to take heed
of these words before this Labour Government is responsible for yet another
disastrous development land tax. The fifth paragraph is particularly apposite.
Post-war Governments, particularly Labour Governments, have repeatedly legislated
with the object of making more land available for use, bringing down land
prices, curbing speculative profits arising from the implementation of regional
and national plans, enabling local authorities to acquire land cheaply and
collecting for the community those land values which were created by the
community. A great many people whose politics were not Labour have sympathised
strongly with these objects.
Yet legislators who have attempted to deal with such problems have been unwilling to look beyond expedients like betterment levies, bureaucratic control of land use, and semi-nationalisation. Although the Acts were eventually abolished by political action, this was nothing more than the coup de grace to legislation which was manifestly not achieving the objects for which it was originally introduced.
The Acts failed for a variety of reasons. In the first place, they were
complex pieces of legislation, and the more complex a law is the more likely
it will be riddled with anomalies and unintended side-effects.
In the second place, there has been real confusion about what the word "land"
means in different contexts, and people who sought to produce an effect
on land in one sense of the word often in practice produced a completely
different effect.
Thirdly, the legislators have been preoccupied with the speculative profits made by dealers and developers. This has led them to concentrate on capturing some of the gains which arise at the point of development and sale, or when planning permission is granted. Yet the value of land at any time does not differ in any essential from subsequent increases in land value. The value is merely the aggregate of increases which have accumulated since the time when land had no market value, and should not be treated differently from more recent increases. All that a betterment levy or similar expedient does is to tap the pool of land value at a point in time and to draw off a little; but in general it keeps the status quo.
Fourthly, there was no attempt to harness the self-interest of landowners. Instead of inviting cooperation, the Acts provoked resistance or inertia.
Fifthly, the effect of the post-war land legislation on all three occasions (1947, 1965, 1976) was to deter development and the better use of land, to encourage land hoarding by owners and to produce an artificial scarcity of sites.
An effective and satisfactory way of achieving the essential objects which the three post-war Labour Governments all seem to have had in mind would have been to levy a tax on all land values - vacant land included, and regardless of its state of development. The value of different sites of land vary enormously according to a variety of factors which (unlike the value of improvements) have nothing to do with the activities of the landowner or his predecessors in title. These factors include fertility, the presence of minerals, ease of communications, proximity of towns, and the kinds of use permitted by planning and other environmental legislation. These factors would all be taken into account in assessing the tax.
A full exposition of the theory and practice of land-value taxation may
be found elsewhere - but, briefly, its virtues are as follows.
1. It treats all landowners alike.
2. It takes cognisance of increases or decreases in land values at revaluations.
3. It is a natural and buoyant source of revenue.
4. It is payable irrespective of the actual state of development, and acts
as an incentive for owners of idle land for which development is lawfully
permitted (e.g. in decayed inner cities) to develop it or put it on the
market.
5. The tax cannot be avoided or evaded.
6. Land would be cheaper to buy and dearer to hold. As more land was made
available, its price would fall, and therefore houses, etc., would be cheaper
to buy.
The success of any measure of land reform will depend not so much upon what it sets out to accomplish, but on how strictly it conforms to the principles and logic of land economics.