Memorandum by Land Value Taxation Campaign
I About the land value taxation campaign
II General background considerations
III Housing, affordable housing, and land
IV Answers to the questions
Appendix 1 Definition of land value taxation
Appendix 2 Definition of land value
The "housing problem" has been with
us seemingly for ever. We have had a century of legislation circling
around the topicrent control, large-scale redevelopment
of public sector building programmes, abolition of rent control,
right-to-buy, the rise of the housing association movement. Each
measure has either failed to achieve what was hoped or has proved
counter-productive. Not only is this an indictment of successive
policy makers, there is also a cost in the misery of individuals
and families obliged to live in unsuitable and inadequate homes.
Taxation policy over the last 40 years has turned
home ownership into a form of tax haven. In 1963, owner-occupiers
were relieved of "Schedule A" tax. The privileged status
of owner-occupied housing was further enhanced when the capital
gains tax was introduced but a principal place of residence was
exempted. Value Added Tax was likewise not put on new buildings
(though it was applied to ordinary repair work). In the interlude
between domestic rating and the council tax, the community charge
actually lifted taxation off housing as property, and placed it
instead on its occupants. Inflation has been an additional factor,
the family home being seen as the average man's safest hedge against
this scourge. The result of all this has been to divert personal
savings into housing and away from more productive investments
such as equities, while simultaneously helping to bid up house
The Campaign argues that the persistent failures
in housing policy arise from refusal to recognise the "housing
problem" for what it really isa land problem. There
is essentially no shortage of building materials nor of men and
women able and willing to work in building trades. There is not
even a dearth of housing overall, the apparent shortage of "affordable
housing" being a phenomenon confined to a few areas of high
demand. The Campaign's case is developed below, in Part III.
PART I ABOUT
The Land Value Taxation Campaign ("the
Campaign") is a non-party organisation established with the
aim of securing legislation which will fundamentally change the
basis of public revenue in the United Kingdom. It proposes that
existing taxes on wages, goods and services, saving and spending,
be progressively replaced by a property tax on the annual site
rental value of all land,
including land occupied by residential property and vacant sites
zoned for such development. The policy is here referred to as
land value taxation ("LVT") and is defined in the attached
appendices 1 and 2 in Part V, below. The Campaign recognises that
LVT would be implemented in a series of steps, but aims to see
(as nearly as is practicable) the full rental value of land collected
in this way.
PART II GENERAL
1. Confusions arise through imprecise definitions
of "land", or rather through use of otherwise precise
definitions. At law, land means immovable property ("real
property") which puts man-made developments together with
land proper. The Campaign, on the other hand, uses the term in
its meaning in political economy, namely "the whole of the
material universe outside of man and his products". In economic
analysis, a landowner is not necessarily a freeholder: anyone
with a beneficial interest in land (a holding which could be let
or sold at profit) is to that extent a landowner. Popular usage
more nearly corresponds to the Campaign's: people do not normally
think of houses, shops, factories, or farm buildings as "land".
To add to the potential for confusion, however, book-keepers drawing
up balance sheets regard land as capital, which in political economy
it definitely is not.
2. Although the Campaign promotes the case
for a national land-value tax, it is worthy of note that, as
is the case with all forms of property tax, LVT is suitable for
all tiers of government and could be readily adapted to any multi-tiered
structure, for example that resulting from devolution in Scotland,
Northern Ireland, and Wales, or to the Greater London Authority
and any future English regional bodies.
3. The Campaign points out that LVT is morally
justified, being in accordance with the "benefit principle".
Land value is created and sustained by the presence and activities
of the community today. Any arrangement made in the past is of
little comtemporary relevance, for land value rests on the assumption
that public services and a state of civil order will be maintained
tomorrow, the week after, and for the foreseeable future.
PART III HOUSING,
1. A house consists of a building sited
on a plot of land. The building is man-made. The land is not.
The value of the land depends on its location and its natural
endowments, but, above all, on the intensity of the economic activity
of the community as a whole and its consequent demand for livng,
working, and recreational space.
2. The cry for affordable housing does of
course presuppose that for a good number of people housing is
unaffordable. Why? Presumably it will sometimes be a poverty problemin
which case one should be looking for a solution to involuntary
poverty. The Campaign will gladly advise. Housing provision itself
is best tackled by assessing and collecting site rental values
to bring more land to the market at progressively lower cost.
Full LVT will eliminate the buying/selling price of land (sites)
and allow taxation to be taken off labour and capital and their
products. It will no longer be necessary to buy land but only
the building, fencing, driveway, and other improvements such as
those made to the garden. Mortgages will therefore be much smaller.
More and better housing will become available, and those who want
it will be able to afford it, as buyers or tenants. All that officialdom
need do is ensure planning permissions respond to demand (in which
task guidance will be available from evidence in the land value
maps and registers).
3. Provision of affordable housing means
provision at a subsidised cost. Workmen will not accept less than
the going rate. The going rate of interest on capital will have
to be paid. Therefore it is the beneficial owner of land who has
to give. This has recently taken the form of a section 106 agreementa
"planning gain" deal, in which planning permission for
a project will be made dependent on provision of "social"
housing, meaning housing built at below full land acquisition
cost. This treats individual landowners arbitrarily, and some
will prefer to draw back, waiting for what they perceive will
be more profitable times. Furthermore it can work only where that
land value gain is so high that an owner cannot resist the "half
a loaf" argument. Where land value is low, there is insufficient
gain to bother about sharing it. In any case, the game cannot
be played in the many instances where planning permission is not
required, for example where sub-standard housing is already in
place and a stimulus is needed to redevelopment. LVT assessments
assume optimum site use within planning and similar constraints.
There is thus a compelling incentive to appropriate use and to
periodic adaptation of redevelopment in response to social and
economic change. The present system of property taxation rewards
inaction and speculation whilst penalising development in line
with its extent and qualitythe better the building the
higher the UBR or council tax! It is amazing that anything so
absurd can have survived into the 21st century.
4. The Government was allegedly (and presumably
still is) "under pressure to raise public sector pay levels
in London, where homes cost 79 per cent more than the national
average" (Barry Riley, "Financial Times," 13 January
2001). Why is this? Plant and machinery are the same to buy and
run. Materials such as cement, bricks, stone, tiles, slate, wood,
and glass cost the same, and so do items like sinks, lampshades,
carpets, and refrigerators. The wages of architects, building
tradesmen, and general labourers are not greatly out of line.
The big difference is land. No more is being produced, and it
cannot be moved from where it has little or no value to where
there is great call for it. All that can happen when demand rises,
is an increase in price, followed by further increases as demand
persists. Land is, literally, a natural monopoly.
LVT is the leveller, securing the rental value
of land for the public exchequer. This accomplished, similar houses
would in general command similar prices everywhere. The outgoings
on a home would exclude taxes on the house and other improvements,
and would be limited to the annual site value. " The amenities
provided by natural surroundings, society, and government, make
some places so obviously more congenial than others. Justice demands
that those who enjoy these amenities should pay for the privilege
according to the degree of benefit accruing to the position they
occupy" (Sir Kenneth Jupp, "Land and Liberty,"
Spring 2000, quoted in "Practical Politics," bulletin
of the Land Value Taxation Campaign, Issue No.103, February 2001).
5. Offering affordable housing to maintain
a workforce on expensive land is a hidden subsidy to businesses
operating in the vicinity, who would otherwise have to pay more
to attract labour from a broader catchment area. This is distorting
what might be a tendency to disperse work activities to the periphery,
or elsewhere entirely. Adding public transport subsidies aggravates
the problem, because a supply of labour at below true cost enables
city centre landowners to keep raising rents. Do those formulate
public policy ever follow through to examine the consequences
of their actions?
6. Affordable housing in areas of high land
value exacerbates the problem of regional imbalance. Such a policy
in effect favours London and the south-east of England against
the rest of the Kingdom. The present tax system takes no account
of locational disadvantage, the same rates of PAYE, VAT, and automotive
fuel duty being payable everywhere, for example. At and close
to the economic margin, these burdens tip potentially viable businesses
into unprofitability, destroying jobs and promoting migration
to the already most densely populated parts of the country. LVT,
as a replacement tax, by definition falls more lightly, lightly,
or not at all on such areas, in effect creating tax havens precisely
where they are most needed.
Meanwhile there are reputedly some three quarters
of a million empty homes, many of them rundown or even derelict,
and disproportionately to be found in geographically disadvantaged
locations. Something is wrong if there is no incentive to redevelop
and no penalty attached to misuse of land on this scale. LVT is
both stick and carrot. It is a payment based on the annual site
value of the land, regardless of whether or how well it is used.
Withholding land from use of seriously under-using it, does not
save the landholder from having to meet the full LVT bill, so
in effect he is obliged to make good use of the site. LVT, though,
is a replacement for existing taxes, so that the returns to labour
and capital are progressively untaxed and the rewards of redevelopment
correspondingly greater. Of course if there really is no demand
for housing of any sort, and no alternative use for the site,
then the duty payable will be nil, for this will be marginal of
PART IV ANSWERS
1. Whether the funds in the Comprehensive
Spending Review will achieve the Government's target of a decent
home for everyone by 2010
No. LVT is the essential underpinning for all
economic and most social policy.
2. How spending of the new resources should
be balanced between social housing and options for owner occupation
for those who cannot afford to buy (including shared ownership)
and the mechanisms to be used for their distribution
LVT, fully and correctly implemented, would
lead to resolution of the problem without market intervention.
A determined start, accompanied by a published programme of progressive
extensions, would have an effect far beyond the immediate implication
of the percentage levy at introduction of the measure.
3. The role of planning obligations in providing
Planning obligations should be met through LVT,
as increases in land value released through grant of planning
consent would automatically be recouped by this means.
4. The effectiveness of the Housing Market
Renewal Fund in tackling housing needs in areas with low demand
By creating what are in effect tax havens where
they are most needed (disadvantaged locations of low land value),
LVT and its concomitant, the significant replacement of existing
taxes, reduce regional imbalancethe underlying reason for
areas of low demand. The removal of taxes targeted at labour and
capital and their products, encourages enterprise and effort and
penalises withholding and wasteful use of land.
5. How the quality of new affordable housing
can be ensured and the poor design of previous housebuilding programmes
The quality of new affordable housing cannot
be ensured by any measure; however, where housing is allocated
rather than selected by the occupants, mismatch and dissatisfaction
are more likely, and the seeds of future trouble thereby sown.
PART V APPENDICES
LVT is a tax on the annual rental value of land.
The valuation is the current annual market rental value of the
land alone, disregarding buildings and other improvements.
Each unit of land is assessed at its unimproved
site value, with all surrounding land taken as being in its existing
All land, including vacant and agricultural
land is subject to the tax, and the valuation is on the basis
of optimum use within whatever permissions and constraints apply.
In practice, LVT would operate in much the same
way as the present national non-domestic rate, with the difference
that no land would be exempt and buildings and other improvements
would in effect be de-rated.
The following definition of land value is that
given in Section 3 of London Rating (Site Values) Bill, 1939.
"The annual site value of a land unit shall
be the annual rent which the land comprising the land unit might
be expected to realise if demised with vacant possession at the
valuation date in the open market by a willing lessor upon a perpetually
5 The term land is used here not in its legal sense
but is given its meaning as defined in political economy, ie "that
part of the material world other than human beings and the products
of their labour." Thus it includes, for example, fishing
and mineral rights, and radio spectrum. Back
Copies of the full text of the Bill are available on request
from the Campaign, which distributes it following consultation
with Messrs. Dyson, Bell & Co., and Mr J. Hastings, Clerk
of the Journals, House of Commons, confirming that there was no
objection to distribution. Back