Killer Arguments Against LVT, Not (291)

Paragraphs 3.16 to 3.23 of the CPRE's report on "property taxation" of 2005 are all fairly positive about LVT, then we get into the "ah, buts"...

3.24 An LVT appears to have desirable incentive properties for using vacant sites close to existing amenities, and encouraging the upgrading of the existing stock.(1) One concern is that the land-value tax increases pressures to develop all land;(2) there may be added incentives to develop on greenfield sites(3) which would also be subject to a holding tax.(4) Also, the LVT may lead to “concrete jungles” in urban areas, since the holding costs mean fewer land-owners are willing to maintain open spaces.(5)

1) Correct.

2) Nope. What does he mean by "all"? For sake of argument, let's assume we stick with existing planning rules. As LVT is based on the annual site premium assuming optimum permitted use, LVT on land without planning would never be more than its agricultural value of peanuts.

3) Not true, in fact quite the opposite. Agreed, it is much easier to build houses on greenfield sites (no demolition costs, fewer neighbours to impeded things, but the costs of extending all the utilities connections and so on are higher).

However, the main driver for this is, in the absence of LVT, that the land value uplift is enormous. If you own farmland and are given planning permission, its value goes up a hundred-fold, the landowner/builder, taken together can earn an extra £50,000 - £100,000 for each house they build compared to...

... a builder who buys urban land for a price which already includes the value of the planning permission. He can only earn money by actually building houses, which is difficult, risky, expensive and so on, there is no windfall.

So the town spreads outwards while the centre rots. See this fine article by an Lib Dems ALTER member in the Daily Mail.

With LVT in place, the incentives would be entirely the other way round. There would be no windfall gain on rezoning greenfield, and there would be pressure on owners of empty or derelict buildings in urban areas to bring them back into use ASAP, or, in extremes, knock them down and start again.

Would things automatically be perfect? Nope. Would they better than now? Yup.

4) Who says? What "holding tax"? Does he mean LVT? In his footnotes, he says "This problem could be reduced if agricultural land were exempted from the LVT." Surely he knows that if agricultural land subsidies were scrapped, the rental value of UK farmland would be so close to zero as to be barely worth taxing (under a full-on, fiscally neutral LVT only system, the tax would be about £16/acre per year, about one-tenth the average value of food produced per acre).

5) This is a town planning issue rather than a tax issue, but realistically, how many privately owned "open spaces" (which I take to mean public parks etc) are there, which have actual planning permission for development (and are not subject to a restrictive covenant etc) but where the owner generously lays some paths and benches and flower beds for the general public instead?

Answer, pretty much none*. So the problem is non-existent.

Under LVT, there is a trade-off, if a private owner (like the original owner of Leicester Square) says that he is happy for his land to be used as an "open space", then what is the rental value of that plot? More or less nothing, might even be negative. So what's the LVT? Nothing.

And as we know, open spaces in urban areas vastly add to the rental value of surrounding plots, so there is an overall net increase in rental values if some land is left "open". So given a reasonably sane council which wants to maximise LVT receipts, they would make sure that ten or twenty per cent of land is set aside as public parks, bowling greens, five-a-side pitches etc.

* Developers are not totally stupid either, one of the reasons why the original owner of Leicester Square [might have] placed the restrictive covenant on it was because he also owned the surrounding plots, so he gained £2 in extra rental value from those for every £1 he "lost" by not building on the square itself. It is unfortunately only larger developers who can take this wider view, if you only have one plot, you've no incentive to turn it into a park, in which case it is the planning authority which has to take the wider view.