Land value tax – issues


This week we have ruminated on the issue of the land value tax (LVT).

Supporters of the land value tax seem to regard it as a panacea to rising house prices or do they? Comments that the tax would capture the increased value of land created by the community imply that it is not so much the price of land they are concerned about, but who gets the benefit from higher land values.

Then there is the vexed question of the community. This is more complex than is often assumed. For example, where the taxpayer funds say an infrastructure project that enables land to be developed, it seems fair enough that some of the increased value of the land is returned to the community as the community has funded an element of the increase in value. But what is the community element if say a second home purchase pushes up the price of housing in an area. Do existing owners of property in the area owe something to the community when the community has not in fact aided the increase in value?

It could be argued that if the public provide infrastructure which enables second home owners to travel to their property in less time than before then they should contribute to the cost of provision but should this be based on land values or their income?
[If the infrastructure, say an airport was privately funded presumably LVT would not be applied to land in the area which might still see increases in value!].

Then there is the interplay between land, wealth and income. As we have argued before, all three have to be considered. A household with assets additional to their property would find it relatively easy to pay additional land tax. They could still bid up land values using their other resources. Would Sir Tim Rice be dissuaded from buying a property if he had to pay more in land tax – we think not. He has the assets to ignore the impact of such a tax.

LVT is an apparently simple solution but if we are serious about the issues we need to take a broader perspective on wealth and income.

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