How would Land Value Based Fiscal Reform contribute towards good, secure, affordable housing?

In the face of a deep and ever worsening housing crisis there is widespread frustration at the failure to increase the rate of house building to address the imbalance of supply and demand. A large part of the problem is that the profits of the development industry are intrinsically linked to inflated land values which are boosted by artificial scarcity. It is not in the interests of developers to flood the market with new builds as this would have a price supressing effect and hit their bottom line.plymouth-houses

At present it is all too common for land owners to sit on development sites and demand an unrealistically high price from others who want to bring them forward, or otherwise demand that local authorities lift the obligation to build sub-market affordable homes in order to make schemes more profitable. The viability discussion, a circular argument over the relationship between site value and planning obligations, can be typified as a stand-off between the developer and the planning authority with the latter commonly lowering its affordable housing requirement in the hope that this will result in stalled sites being taken forward.

Land value based fiscal reform would strike at the root of the problem by fundamentally shifting the balance in favour of productive land use, rewarding the industrious and penalising the speculator. It would do this by introducing a modest annual cost on the land owner regardless of whether land is used productively or not. In return, one-off costs that developers currently face such as Community Infrastructure Levy and Stamp Duty Land Tax on development land could be eliminated in a revenue neutral way. These existing taxes are not paid by those holding land idle but are only levied once the decision is made to sell or develop the site. The revenue neutral fiscal shift could be extended further to the elimination of other taxes on house building companies and construction workers including VAT, corporation tax, income tax and national insurance. Reducing these harmful taxes would lower the cost of development.

The net result would be a saving for those who proceed quickly with development and mounting costs for those that do not. The reform would prove to be an effective antidote to unproductive land banking and speculative behaviour which drives up the cost of land. Stalled sites, previously developed, underused and derelict land in both the public and private sectors would be unlocked and the build-out of development schemes would be accelerated. The surge of available land would have the effect of lowering its price, enabling new developers, including smaller house builders, self-builders and housing associations to join established volume house builders in providing a plentiful supply of affordable housing as well as creating additional jobs in the construction industry.

The fiscal shift would also result in a more efficient use of the existing housing stock. Bringing empty homes back into use would be rewarded and an incentive would be created for existing households to downsize where possible. Not only would this mean a greater number of larger homes coming onto the market but it would also reduce the requirement for greenfield land to facilitate urban expansion.

huge-tracts-of-landThousands of hectares of land would be freed up and millions of new homes would be delivered across the country. Housing supply would increase to meet demand causing a fall in house prices as well as lower rents. At the same time the fiscal shift would mean higher after tax incomes and greater spending power for the majority of people which would make homes more affordable to the population at large. Furthermore, the end to scarcity that increased supply would bring would result in better quality housing and a more equal relationship between landlords and tenants, reducing the insecurity of tenure and poor conditions currently experienced by many in the private rented sector. In essence, a land value based fiscal reform would tackle the monopolisation of land which lies at the heart of our current housing crisis.

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2 Comments

  1. If Land cost nothing to produce, then high land values cannot make housing unaffordable in aggregate can it?

    They can only make housing unaffordable for some parts of our society when they are capitalised into selling prices/rental incomes because they act as a transfer payment. Typically from the young/poor to the elderly/rich. Which is why affordability issues are concomitant with excessive individual, inter generational and regional inequalities.

    Thus, these issues can only be solved permanently with a 100% tax on the rental value of land which would instantly end that transfer payment. It would also allow the market to rationalise our existing housing stock, ending excessive vacancy, under occupation and the tendency for urban sprawl. Negating the need to build much, if any of the extra new housing we currently have planned in the UK, saving massive costs.

    On the other hand, adding more supply will not come close to ending that transfer payment and will add further inefficiencies and costs onto an already dysfunctional housing market.

    In other words, affordability is not a supply side issue and until we sort out the demand side elephant in the room first, then the market will not be able to tell the quantities, type, or location for any new housing in the future.

    Reply
    • I couldn’t agree more Ben. But to get the politicians to move we have to speak to them in a language they understand. This means building arguments within the current paradigm as they are currently unable to grasp the full Georgist one.

      Reply

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