Could a tax on land solve our housing and economic problems?

At present, there is no empty land tax. This is a situation that one left-wing thinktank has recently highlighted as fuelling speculation and high land prices, resulting in housing bubbles and a difficult market for buyers. The solution, they say, is a long in the tooth policy of land value taxes that, although oft debated, has never become reality in Britain.

The idea of a land value tax has its origins in the days of prominent Scottish economist Adam Smith. Around a hundred years later, in 1879, economist Henry George published his seminal work Progress and Poverty, now a principal authority on the matter, in which he argued the case for an ad valorem (‘according to value’) tax on land that could replace all other taxes. The tax, unlike other current taxes, would disregard the value of buildings and personal assets, focusing on the unimproved value of the land only.

Variations on the idea have become reality in a number of countries around the world, including Denmark, Estonia, the Netherlands, Russia and sub-regions of Australia and the United States, but the UK has, despite pressure from various left-wing groups for over a century, not yet legislated to bring in such a tax.

That could change in the next Government, however, following a report by left-wing thinktank CLASS (Centre for Labour and Social Studies) which laid out the arguments for a Land Value Tax in the hope that they will become a firm manifesto pledge in the build up to the next general election. Although an unlikely Tory policy, the Labour party has been depicted as not yet offering a realistic solution to the UK’s economic woes and proponents argue that a radical change in taxation could give them the popular support required to make inroads.

The full report is available here.

The reasons why a party may adopt this policy are that CLASS believes a land value tax could create what they call a “house-building revolution”, something which would solve both Britain’s economic problems and its much publicised housing shortage in one fell swoop. In addition, the tax would focus on wealthy landowners and speculators, whilst sparing land underneath ‘normal’ houses. Those on limited incomes could defer payment. Landowners who buy land simply as an investment would pay a levy on that, just as property investors currently pay stamp duty, and thus developers with large stocks of land would be encouraged to develop it, rather than let it appreciate and restrict the market.

They believe this will encourage the efficient use of land, making brownfield sites a more attractive prospect and reducing the amount of land held dormant by investors. Proponents believe this could have a moderating effect on the market, reducing house price inflation and having some ‘ironing out’ effect on the boom and bust cycle.

Andy Hull, the author of the paper, says:

“Introducing a land value tax here will take political courage. It will mean facing down vested interests, not least the big land-banking developers who deliberately drip-feed properties onto the market, making large profits on small volumes of output, even though they have the land and the country desperately needs more homes.

“It will take a manifesto commitment, a real mandate, and no doubt a battle in parliament. But, at least in some sense, this land is ours. And our tax system should reflect that fact.”

The first section of that quote perhaps highlights the greatest obstacle to any form of land value tax becoming reality. With a number of wealthy landowners and landowning companies pressuring the government, and many actually in Government, any Bill proposing a land tax would do very well to even find call for its creation, let alone enough support to push it through.

Nevertheless, CLASS will be hoping that the Labour party will adopt the policy and, with the potential for enough popular support and a majority Government after the next election, have the power to make it a reality.

09/05/2013                                                                                                      SRJ / LCB

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