A Quick Take on Annual Land Value Tax

David Wetzel

[27 October, 2011. David Wetzel is Chair of The Professional Land Reform Group,
based in London, England]

• Land is necessary for the very survival of mankind.
  
• Land is a free gift of nature.
  
• Who should benefit from increased land wealth - an individual land owner or the whole community?
  
• Human-made wealth is created by applying human effort to land and natural resources.
  
• Land is very different from human-made wealth.
  
• Buildings, machinery, tools, consumer goods and food all rot, rust, corrode, and/or decay and revert to nature if left unattended but land is a part of nature itself - like the wind, sunshine, the oceans, space and the electromagnetic spectrum.
  
• Wealth made by human endeavour should belong to the person or people whose mental and physical effort has created it.
  
• Humans cannot survive without direct or indirect access to land and the free gifts that Planet Earth provides. Land values arise from our need to access land (a finite resource) for the provision of food and homes, extraction of oil, natural gas and minerals (including under the sea), for the building of business premises and for the provision of leisure activities etc. Consequently, it is the actions of all people that create land values.
  
• Different land sites have different values arising from their natural or locational differences i.e. according to the advantages that one site enjoys in relation to another (e.g., better natural fertility, better transport links etc.). These differences are not dependant on the actions of an individual landowner.
  
• Landowners do not create land value but they can increase the productivity of a site by erecting buildings, drainage, irrigation, the use of machinery, fertilisers etc. (i.e. by applying labour and capital).The benefit of all these improvements belong to the people who made them and unlike the present system should not be a target for taxation and so improvements are not included in the value of the land for LVT purposes.
  
• Taxing human enterprise whether by income taxes, National Insurance, sales taxes (VAT) or property taxes (council tax and business rates) etc. increases the prices and therefore reduces the consumption of products. This leads to inefficiencies in our economic system and decreases the opportunities for employment. Thus creating further need for taxation to address the resulting effects of poverty, deprivation and loss of self-respect.
  
• A tax on the annual rental value of land (Land Value Tax or "LVT") does not reduce production.
  
• The valuation for LVT is based on rental value of a site arising from the optimum permitted use of the site and ignores "hope" or "speculative" value. The valuation must also exempt all human-made improvements on the land and the revenue collected to be used to reduce existing taxes and/or to improve public services and infrastructure.
  
• Depending on the rate of LVT the effect will be to:

  1. Reduce the selling price of land and thus making homes, farms and commercial premises etc. more affordable.
     
  2. Encourage the owners of empty buildings and sites to recoup their annual LVT payments by bringing these sites into use. Thus creating jobs, making our towns and cities more efficient and reducing the need for urban sprawl.
     
  3. With the reduction of other taxes, those firms and potential firms, prevented from making a profit because of narrow margins, will be able to start-up, flourish and grow.
     
  4. With the reduction of other taxes, those areas with the lowest land values will operate like natural enterprise zones where businesses and people will be encouraged to locate thus relieving pressure from "overheated" areas like London and the South-East. One obvious beneficial example will be the growth of regional international airports and London relieved of the pressure for new runway capacity which would take land from more productive and beneficial uses.
     
  5. Land values increase as a result of population growth, increased productivity, new infrastructure and improved services. E.g. in Newcastle the price of unwanted houses rose from 50p to £125,000 when local policing improved and crime fell dramatically. In London, it cost national taxpayers £3.5bn to build the Jubilee Line Extension but land values within 1000 metres of the eleven new stations rose by £13bn. In relation to housing this was a benefit for owner-occupiers but despite contributing the same proportion of personal tax to build the line, housing tenants saw their rents rise.
     
  6. Unlike other taxes - LVT is impossible to avoid. (You can't take land to a tax haven in a suitcase!)
     
  7. Unlike income tax - LVT is simple to operate and so cheap to collect.
     
  8. Because land is immovable, LVT offers no tax loopholes such as transfer pricing and taking assets overseas.
     
  9. We currently tax people on what they contribute to the community but with LVT we would tax people on the land value the community contributes to them.
     
  10. Even landowners could benefit from LVT as the other taxes that fall on production and distribution for the goods and services they purchase fall.

• A part of land wealth is already collected in Hong Kong, Taiwan and parts of Australia and USA - with beneficial effects.
  
• LVT can be used as a model for other countries to adopt to benefit the world's population of today and for generations to come.