Tacking the housing crisis requires a concerted cross-party effort at all levels of government from Downing Street to the parish council.
The All Party Parliamentary Group (APPG) report Capturing Land Value for the Public Benefit to be published on 31st October 2018 says:
There needs to be greater devolution of Land Value Capture mechanisms to mayoral and local authorities. Following the announcement by the Prime Minister of the government’s intention to remove the cap on local authority borrowing, consideration should be given to a netting of land assets from existing prudential borrowing limits; reform of the 1961 Land Compensation Act, to provide for public acquisition of land at close to existing use values; replacement of business rates with site value rating; and making council tax more proportional to land rental values.
The report calls for:
• The enacting of legislation with a view to devolving powers, enabling Mayoral and local authorities to deliver necessary infrastructure and housing.
• Coupled with the announced removal of the cap on local authority borrowing, netting off of land assets against overall public sector borrowing limits.
• Reform of the Land Compensation Act of 1961 in order to make it possible to meet the goal of building at least 300,000 new homes each year.
• Collaboration between central and local government to facilitate the public acquisition of land, at prices as close as possible to existing use values.
• The assembly of land for affordable residential development.
• Local authority access to finance for new home construction.
• A rapid increase in the supply of truly affordable housing.
• An increased focus on collection of land rents for the public purse.
• The reform of current property taxes – Council Tax and Business Rates.
The APPG was officially inaugurated in February 2018 to create a forum for Parliamentarians and interested stakeholders to discuss and develop innovative proposals to capture increases in land value, for the public benefit.
The first report of the APPG on Land Value Capture will be presented by the Chair of the group, Sir Vince Cable MP; Vice-Chairs Ruth Cadbury MP, Caroline Lucas MP; and David Drew MP.
Sir Vince Cable MP said;
Evidence submitted to the inquiry has demonstrated that Land Value Capture and collection of annual ground rents has the potential to deliver a far-reaching impact on enabling housing development; on recovering the cost of public works; on stabilising house prices, incentivising downsizing for (mostly older) property owners; and importantly, reducing income and wealth disparities.
Vice-Chair, Kevin Hollinrake MP said:
3.6 million people in the UK live in poverty after housing costs and young people were spending three times more of their income on housing compared to their counterparts in the 1960s. Gains should be shared more fairly between landowners and communities. This is the principle behind land value capture.
Liberal Democrats have already adopted site value rating for business rates at the 2018 autumn conference. Next year it is hoped that progress can be made across all parties with the reforms highlighted in this report.
* Joe is a member of Hounslow Liberal Democrats and Chair of ALTER.
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8 Comments
As you said in a post yesterday, Joe, the devil is in the detail. Let’s hope it doesn’t turn into another Universal Credit fiasco.
This is just another general expression of a desire to make housing more affordable without house prices actually having to fall. In other words we in the UK want affordable high-priced housing for our young people.
I’m not sure how this is going to be possible. If house prices stay high then young people are priced out of the market. If house prices fall then millions will be trapped in negative equity and the economy will collapse too. I suppose we could stoke up a general inflation so that wages and prices (except house prices) rise quickly but that’s probably not going to go down too well with the older generation.
There are no easy options. The problem has been, of course, that Govts have relied on the creation of cheap credit to keep the economy moving. Cheap credit has created a asset price bubble in the housing market.
Land Value Capture or Land Value Taxation may well have its place in a sensible mix of taxes but it won’t do anything at all to solve this particular problem.
Presumably, if land value taxation proceeds go to local authorities, there will me more incentive for them to improve infrastructure as they will reclaim some of the investment from the tax. However, it does seem a tad regressive with better infrastructure causing more businesses and so more tax receipts. Some ratio of the proceeds going to central and local government might work.
Peter Hirst,
If Land Value Tax (LVT) was used for both national and local government finance, only one level of government would need to be responsible for its administration. As is the case now with parish & town councils, in two-tier local authority areas, and with the GLA, other levels of government could ‘precept’ into the LVT tax base: setting budgets to cover their own expenditure and then setting a tax rate to be collected by the ‘billing authority’, which could be HM Treasury (if LVT was embedded within income tax and/or corporation tax).
There are advantages and disadvantages to either using LVT only for local government (Site Value Rating) or only for national government. For LVT as a national tax, these are just a few advantages:
● National government nowadays invests huge amounts in ways that can benefit (or harm) land values everywhere. Why should Town/County Hall recover the fruits of that investment (or have to compensate those harmed by it), while Whitehall does not?
● Land values in London and south-east England are much higher than in less prosperous areas of the UK. This is a consequence of their relative attractiveness for investors. If LVT were collected by national government, it would provide a natural, simple to administer, means of equalising geographic wealth inequalities.
● Central government currently relies on several more regressive taxes than local government does, such as Stamp Duty land Tax. With national LVT, some such taxes could be abated or phased out entirely, with a greater (and beneficial) impact on economic efficiency and wealth inequalities than if it was only available to local government.
On the other hand, a good case can be made for local government to use LVT:
● ‘Rates’ based on property values have always been the preserve of local government: even Council Tax is a ‘hybrid’ form of rates. It is the case in most countries that property taxes are assigned to local government.
● Planning decisions are made locally and are the most obvious source of changing land values for voters. At present it is “NIMBY costly” to award planning permission, whereas refusing is ‘free’. Aligning local decision making with the local finance tax base seems democratic.
● To a large extent land values reflect the economic performance of communities and the quality of their governance. Local government should be rewarded for good performance.
Peter Martin,
this article gives a succinct summary of LVT http://thefultumpost.com/conservative-case-land-value-tax/ from a Conservative perspective:
“Those with education in macroeconomics may worry about the efficiencies of a Land Value Tax, and its effect on the economy. However, LVT is favoured by even the most free market of economists, with Milton Friedman describing it as the ‘least bad tax’, and this is for good reason.
In theory, there is no inefficiency at all which comes from the implementation of LVT, making it unique as taxes go. To understand why, we must consider the market for land. Usually, the implementation of a tax in a market results in a reduction in the supply for the marketed item. Land, though, cannot have its supply altered – supply is fixed. This means that any tax on land cannot be passed onto the buyer through a reduction in supply, so land prices remain constant.
There is a stark contrast here with Britain’s current stamp duty tax on housing – the supply of housing can easily be restricted, meaning plenty of the tax is paid by buyers.
By implementing a Land Value Tax, and imposing a tax on landowners which they cannot easily pass onto buyers, we would be seeing a truly fair and progressive tax in action. LVT is almost impossible to avoid as land, unlike income or wealth, cannot be transferred abroad to a tax haven. Further, landowners are primarily the most well off in our society, and benefit the most from infrastructure and other public investment spending projects. It is only fair that the funding for these projects comes from a tax on the value that they create.
Conservatives must support taxation on the value of land to modernise the UK economy. If they do not, it will become even more difficult to tackle issues like land banking and the housing shortage, while its implementation could allow for scrapping outdated taxes such as corporation tax and help to bring about a surge in productivity and growth. The economic case is clear – but putting it to the electorate will be significantly less so.”
Having just seen a conservative budget committing £100 billion of additional spending and deliberately increasing the deficit, is it not possible that we will see a Conservative Chancellor agreeing with Vince Cable and John McDonald and the Green Party on the efficacy of Land Value Tax?
The report of the APPG ‘Capturing Land Value for the Public Benefit’ is now available online at http://bit.ly/APPG-LVC-Report-1
Taken to absurdity, imagine a LVT were localized to a postcode level. So for example, LVT receipts from Mayfair are kept in Mayfair. Obviously this solves nothing.
LVT works because of re-distribution. So best as a national tax, re-distributed as a equal per capita grant to the regions, to spend or even rebate as they wish.
Regarding the report, it is based on ignorance and expediency regarding UK housing supply. Data is unequivocal there is no shortage and only 160,000 new homes need to be supplied in order to keep up with household formation.
Indeed, housing in the UK is grossly misallocated and over consumed because owner occupiers are not paying their full housing(location) costs. This means 12 million bedrooms are misallocated which a fair, thus optimally efficient market would rationalise. Its just plain dishonest to talk about a supply shortage until that is dealt with first, else we are simply adding to existing inefficiencies with associated costs.
What is needed to address both affordability and efficiency issues is in principle simple. Scrap all existing property taxes (CT, CGT, SDLT, IHT) and reformulate Council Tax to make it reflect the underlying site value. Not hard. Then just ramp up rate, thus revenues it brings in, while reducing VAT in an equal measure.
House prices would gradually fall, while the disposable incomes of those that find housing unaffordable now would go up.
Poor Widows in Mansion can be offered roll up and deferment, as a quid pro quo for not having to pay IHT. Or if they wish to move to save that, elimination of SDLT will no longer impede.
Sorted.
Benjamin,
“Regarding the report, it is based on ignorance and expediency regarding UK housing supply.Data is unequivocal there is no shortage and only 160,000 new homes need to be supplied in order to keep up with household formation.”
The report is based on the evidence of those with responsibility for delivery of housing (Mayor’s and local authority leaders) and researchers with longstanding experience and expertise in the housing sector. The last page of the report includes a list of contributors.