Economic Justice Group
Land Value Tax
Frances Voelcker writes ...
Land Value Tax is a tax reform idea that would tax the unearned wealth represented by land ownership, providing both Local and Central government with regular and fairly predictable income.
Proponents claim that Inheritance Tax, Capital Gains Tax, Commercial rates and Council tax could all be abolished. Over time it should greatly reduce boom and bust in property values due to land speculation. It may even reduce house prices and encourage a better fit between home size and the number of occupants. By now both Labour and Liberal Democrats are looking at some form of LVT very seriously; last year there was a Cross-party enquiry into it that came out strongly in favour.
LVT is an old idea - most famously the American political economist Henry George advocated it back in the 1870s but it was already supported by Adam Smith and David Ricardo. As you can imagine, it is the chiefly the landowning minority that oppose it. However it is used in one form or another in several countries, States and Provinces already.
Why do we need a Land Value Tax?
In the 1930s, the average house cost three to four times average income; in 1945, it was five to six times; by the 1990s it was ten times and rising.
Land price is the main driver of house cost: the bricks and mortar are roughly the same. A developer will not build unless there will be a certain amount of profit. The more the developer has to pay for land, the more the standard of construction (size, energy efficiency) etc will be scrimped on, and to the extent that there is a minimum build standard, the sale price will go up, and the more the developer will resist including ‘affordable‘ units.
The ratio of population to number of dwellings is pretty constant. Demand is not the same thing as need, because demand is made up of the number of buyers (both homemakers and investors), plus preferences, plus purchasing power. The demand has inflated because of (location) preferences and (wealthy) purchasing power.
There has been a shift in perception from homes as dwellings to an asset class.
Banks have created ever more new money (by ‘securitisation of debt’, i.e. chopping up and shifting the risk from their own books to other investors), and with reduced interest rates they could lend to people who could not previously have taken on mortgages. The banks doubled the money supply in the decade leading up to the 2007 crash. Now, having been bailed out, they carry on – loan/income ratio has now passed the level it was at the time of the crisis.
The government meanwhile is not doing anything to counter the trend. Instead they offer Help to Buy. The new rules on mortgage-lending don’t in any case apply to Buy-to-Let which has increased 40% since the crisis, whereas home ownership has increased by only 2%.
BTL landlords benefit from the end of rent control, with shorthold tenancies.
In the years 2001 – 2011, empty homes increased by 21% - second homes etc due to an explosion in the incomes of the top 5%.
On the Supply side, the state is now not building, and private developers have never built enough. Private developers retreat when the housing market drops, they don’t build when the market is insecure. They have no interest in building as many dwellings as are needed, as then house prices would drop.
Land ownership is not transparent. (Hard to find who owns quite a high proportion of the UK even now, and UK government recently attempted to privatise the Land Registry even though it makes a small profit for the state currently.) Significant percentage of UK property is owned by non-resident non-British-nationals.
There is currently a free-for-all for landlords to dismantle tenants’ rights in the face of austerity and cuts in housing benefit.
When the banks were vulnerable, the state (i.e. we taxpayers) bailed them out. Government debt is seen as a problem so justifying welfare cuts, although government debt is low by historic standards, and low compared to private debt.
What can Quakers do?
There is a new Quaker group being set up, Quaker Land Value Tax group, which will hold its inaugural meeting/study workshop on Saturday 1 June in Mount Street Meeting House, Manchester, 10.30 - 16.00. The initiator, Jocelyn Gaskell, has been awarded a small QPSW grant to enable a small group of interested Quakers to understand LVT and devise Quaker-friendly guidance.