A land value tax is all very well, but it must be coupled with planning reform to be fair

September 22, 2010

I don’t normally defend property speculators, but there’s an important concern that Vince’s endorsement of a land value tax in his speech fails to address. It’s the corollary of the little old lady argument; that LVT is unfair because it could potentially force out a little old lady who lives in a house that’s been rising in price over her lifetime owing to factors outside her control. That can be mitigated if the tax is implemented in a progressive (in the technical, non-wanky sense) way, but there’s another objection which is less endearing but still important.

Say you own a plot of land on the outskirts of the city. As the city expands, and development around your plot of land increases, the value of your land – and the tax you pay on it – will also rise. Say you decide to cash in by building houses on that land. You apply for planning permission, only to be refused on the grounds of residential amenity for the people already living there. Your tax will continue to rise, but you won’t be able to profit from your land, and you certainly won’t be able to sell a piece of land that can only ever represent a financial drain.

I’m sure many won’t weep for property speculators, but it doesn’t stop that from being unfair. LVT should work hand in hand with planning reform, otherwise it’ll be illiberal.


10 Responses to “A land value tax is all very well, but it must be coupled with planning reform to be fair”

  1. Praguetory said

    Good point. I’ve always said that whilst LVT is an important ingredient in helping solve the housing crisis it needs to be supported by planning liberalisation. This is a good back-up argument.

  2. Praguetory said

    Although land without planning permission is worth less so LVT could conceivably take this into account…

    • declineofthelogos said

      It could – although unless the level of LVT for land without planning permission is negligible, it’ll still cause anyone who owns land with a rising value to lose money through no fault of their own.

  3. James said

    Praguetory’s right, if you can’t get planning permission for the land the value won’t rise by much. The amount it does rise is still a windfall to you, and it’s up to you to use the land effectively and pay the tax, or sell it for more money. Not a bad dilemma.

    • declineofthelogos said

      The problem is that the ‘value’ of the land will not be determined by the market, but rather by state interpretation of the market. You may end up with land that you can’t sell at the price that the Government tells you it’s worth. Witness Council Tax bands.

  4. Adam Smith Fan said

    If housing land is rising in value, the usual reason is that it’s within commuting distance of well paying jobs and either the commuting cost has dropped (because of new rail links, improved roads, cheaper petrol, etc.) or a new higher-paying employer has moved into the area. So you will profit from the land rise whether you get planning permission or not because your travelling costs will haved dropped or your wages will have risen. Even if the tax rise is caused by a new high-paying employer and you don’t have the skills required for the new jobs, you can sell the house and land to someone who does, so you still win.

    Planning permission is a side issue for most people who only intend to develop their property for themselves. In any case as praguetory says, land without planning permission isn’t worth so much and therefore won’t be taxed as much

    • declineofthelogos said

      You’re rather presuming that you live on land that you own. Given that 70% of UK land is owned by 1% of the population, that seems a bit unlikely. You’re also claiming that you already have a house on the land, which, given that the article was about not getting planning permission to build houses seems a bit odd.

      I’m not against LVT; I just think it’s unfair without planning reform.

      • Praguetory said

        Wouldn’t it be better if more people live on the land they own? LVT is likely to secure that type of change. There are great social benefits to widening property ownership.

  5. declineofthelogos said

    It would be better if people lived on the land they owned, and LVT would help with that. I’m not opposed to LVT – I think in principle it’s a great idea – I just think it needs to be implemented hand in hand with planning reform.

  6. Fraggle said

    I think we need to be clear what sort of problem we’re dealing with here. You have to ask yourself why, under an LVT system would someone hold onto land idly when they won’t get the benefit of any value rises? In the steady state, this situation simply can’t arise, because there’s no benefit for someone to do that, and everyone would know it.

    I’m assuming the question then is whether someone who is holding land when LVT is introduced would be short-changed if denied planning permission. In theory no, because the value of the land in part depends on planning permission. The land isn’t worth much if you’re *not allowed* to do anything with it. Any landlord who tried to charge as much as nearby plots without giving the same rights would find that no-one would be interested in using the land and government would be no different in that regard. It’s in government’s interest to use accurate assessments so as to maximise revenue. The Laffer Curve, I submit, starts at full market rent.

    I totally agree with you though, LVT won’t make as great an impact if planning reform is left undone. I’d like to think though that LVT being introduced would help shine a light on the planning problem.

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