TP1. What is Land Value Taxation?

Land Value Taxation is designed to replace, in part or in whole, many of our existing taxes, which not only cost us a lot of money, but are objectionable in other ways as well. The thinking behind it needs to be explained.

Land.

What is called a “house”, or a “shop”, or a “farm”, or a “factory” consists of two very different things, each of which has a commercial value. There are the “improvements” – the things which the owner or his predecessors have put on the site: the buildings, the growing crops, the added fertiliser, the machinery and so on. But there is another value as well: the value of the site – or “land” as we will call it ,on which the “improvements” rest. Land value does not derive from the activities of the owner or his predecessors. That value may be due to nature: one piece of land, for example, is naturally fertile, or has minerals underneath it. Or the value may be due to the community: there are, for example, good transport communications, or nearby shops and schools. It is very important to distinguish between “land” values and “improvement” values, in order to leave in the owner’s hands the value which he or his predecessors have created, while collecting for the community the value which nature or the community have created.

Land Value Taxation (LVT).

Land Value Taxation is the way to do this. Each site would be valued, and then revalued from time to time, on market evidence, in accordance with the optimum use of the land within existing planning restrictions. This valuation would be concerned exclusively with the value of the site, and would ignore the value of any “improvements” on it. Different pieces of land have enormously different site values. An acre of land in the middle of a town, for example, may be worth many thousands of times as much as an acre of remote moorland. A tax would then be levied on the basis of that valuation. LVT wouldn’t be an extra burden on the taxpayer. As the revenue from LVT increased, it would be used to reduce, and in some cases perhaps abolish, existing “bad” taxes.

Advantages of LVT

1. It is more just to tax people on the basis of some benefit which they enjoy which they have not created, rather than on the basis of something they have done – (which is what happens, for example, when they are taxed on the income they get from working) – or on the basis of how they want to spend their money – (which is what happens, for example, when they pay VAT)

2. As land cannot be hidden, and its value is plain for everybody to see, LVT is easy and cheap to assess and collect. Nor can LVT be avoided. Land cannot go to an offshore tax haven, or get lost in cyberspace.

3. LVT does not hinder productive activity. If we tax – for example – income, or capital accumulation, or good buildings, we discourage people from earning, or from accumulating savings, or from bettering their property. A tax on land values is unaffected by whether the landowner makes good or bad use of his land. It therefore pays him to use his land in the best way possible, consistent with planning law. By reducing other taxation which falls on labour and production, it would stimulate new employment and reduce the need for welfare benefits.

4. Unlike most taxes, LVT cannot be passed on by the taxpayer to others in prices. Market forces make it impossible for a person producing goods on valuable (and therefore highly-taxed) land to charge more for them than somebody producing similar goods on less valuable land.

5. LVT would reduce “inner city blight” and benefit the environment. Great areas of inner cities are today undeveloped, or under-developed, because it suits the landowner to hold them in a dilapidated condition, or even completely out of use, for speculative purposes. If the urban landowner were taxed on the value of his land whether he used it or not, he would not be able to afford this kind of speculation, and would either develop it or sell it to somebody who could. This would bring derelict inner-city areas into use, and simultaneously reduce the pressure for public authorities to authorise development on Green Belt land.

6. LVT would help to cure the housing shortage by encouraging full occupation of empty and unoccupied housing.

7. The Boom-Bust cycle, whose basic cause is speculation in land values, would be greatly reduced.

How would LVT be introduced?

Gradually. “Hardship cases” would be provided for, as with other kinds of legislation. There already exists model legislation for introducing LVT in the London Rating (Site Values) Bill of 1939.

Does it work?

LVT has been introduced, to a limited extent in various parts of the world, including Denmark, various parts of Australia, and New Zealand. It is becoming increasingly popular and widespread in many cities in the United States. The results have always been beneficial.

Is it just?

The great 19th Century economist Henry George deserves the last word:

The tax upon land values is the most just and equal of all taxes. It falls only upon those who receive from society a peculiar and valuable benefit and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common sense.

Further reading

The Prosperity Paradox The Economic Wisdom of Henry George – Rediscovered see chapter 4 “The Land for the People” pub Chatsworth Village pty Ltd Australia 2000

Location Matters – recycling Britain’s Wealth pp7-10 pub Shapheard-Walwyn 2007

Progress and Poverty by Henry George 1879, pub (HGF) The Hogarth Press 1953