In this May 30, 2017, episode, we speak with Stephen Barton, co-chairman of the Committee for Safe & Affordable Homes, established to support passage of a windfall profits tax on residential landlords. Last November, Berkeley passed Measure U1, nicknamed the “Landlord Tax.” It increased the tax rate for landlords of five or more rental units. Behind the bill was Barton, who’s been working for affordable housing for decades. On the side, he’s been writing about the Georgist history of Berkeley’s leadership.
Barton explained that Measure U1 in Berkeley was targeted at residential landlords in the San Francisco Bay Area, who “are reaping tremendous windfall profits from rising rents and the result is a massive transfer of wealth from tenants to real estate investors.”
“So the idea was to recapture some of this windfall and put the money to use to create permanently affordable housing for the low-income tenants who are hardest hit by all this, and to help prevent homelessness.”
Value captured by landlords, even those owners of rent-controlled properties, was primarily the creation of the community due to its attractiveness and was thus owed to everyone, Barton said.
“We have businesses that thrive off of that diverse and creative culture and happen to be creating quite an economic boom in the area, so the entire community is making this a really great attractive place to live. And the result is you get increasing demand for moving into the area that’s increasing far faster than the housing supply can possibly increase, and the result then is that landlords — a small sector of the community, those people who own real estate — are particularly able to take the value that the whole community has created and charge higher rents.”
Barton also serves on the Board of the Bay Area Community Land Trust, which specializes in the development of limited-equity housing cooperatives and is active in East Bay Housing Organizations and Democratic Socialists of America. He is the author of numerous articles on housing policy and economics, as well as on the history of the Georgist and Socialist movements and has a Ph.D. in City & Regional Planning from the University of California, Berkeley.
Starting in 2017, EarthSharing.org has been collaborating with KZSU Stanford 90.1 FM to create a weekly hour-long radio show. The Henry George Program is a platform for interviews, roundtable discussions, and debates on economic justice and policy.
Tune in for challenging content on the housing crisis in the Bay Area and beyond, economic stagnation, widening wealth inequality, and environmental degradation ― can Henry George’s ideas offer a path forward that unfettered capitalism and incremental socialism lack?
An archive of the Henry George Program can be found here.
Well we’re movin’ on up, To the east side, To a deluxe apartment in the sky. Movin on up, To the east side. We finally got a piece of the pie…
We Can Have it All
Who says that a big house surrounded by nature can only be found in the country? Do you have to sacrifice high wages and the convenience of city life for some peace and quiet?
We want everyone living in cities to have space, views, and creature comforts. This sounds like a pipe dream, but it isn’t. To house more people without displacement, it is possible to stimulate the construction of new affordable housing and guarantee existing residents at least the same size home for no more than their current rent.
Paris, for instance, is one of the densest cities in the world. It’s also arguably the most beautiful. They do not have many skyscrapers. Instead of capping the height of buildings at 2 stories, as San Francisco does, Paris consistently has 6 story buildings. Whatever a city’s needs are, and however tall people feel comfortable building, rapid construction is not an external physical constraint.
We’ve been building tall stuff for centuries, and construction technology has only become safer, faster, and more modular. Chinese company Broad Sustainable Building has broken numerous records with its prefabricated construction, completing a 15-story hotel in 48 hours and a 57-story complex in just 19 days. With the right economic incentives, this technology could improve faster even as it becomes more sustainable. Necessity is the mother of invention and if there is one thing that the San Francisco Bay Area has in spades it’s the ability to take innovative ideas and run with them.
But skyscrapers alone do not improve density. There are tall buildings everywhere that sit empty for much of the year. What’s more, landowners in the urban core won’t build if they can coast along on the increases in value of their land being generated by all of the activity around them. Their lot becomes worth more and more simply because of location, so there’s little incentive to use land to generate as much rent as possible. There is really only one way to make sure that urban core landowners actually improve the real supply of housing for everybody and thus lower market rents throughout a city. There must be a strong incentive to use land and buildings for people’s needs.
Strong Cores: Restrict Land Value Tax to the urban core as a transitional measure.
Reduce other taxes such as sales and wage taxes in and outside the core.
Freeze the rent of urban core renters.
Movin’ On Up: Offer a free upgrade, in terms of location, unit quality, and cost, for those whose building is replaced.
The Transition to a Winning Solution
Land Value Taxation is a proven and sorely needed policy. If you need a primer, start here. With LVT in place, landowners have to use their land productively to cover the tax. Rather than construct luxury units to be held vacant as a store of wealth, they are going to build sites for rich, middle class, and poor renters alike that actually generate rent. Right now, new development in the urban core simply spurs new speculation, and new development outside the urban core is either met with fierce resistance or it doesn’t happen at all.
In New York, Manhattan’s Upper East Side now sees a huge proportion of apartments left vacant for most of the year. According to the New York Times, about one in every 25 Manhattan homes has an owner or renter who lives there less than two months of the year, and the number of absentee owners and renters grew more than 70 percent between 2000 and 2011. Ownership of this space in the urban core is being used as an investment by the wealthy all around the world, while local residents are pushed out of the city.
In the long run under an LVT, city centers become more accessible to all. The problem with LVT is not the end result but that without a slow transition, it too could temporarily push poor people toward the periphery.
Freeze Rent and Free Apartment Upgrades
To get around even the temporary downsides of LVT, a sensible and politically feasible solution would be to restrict the tax to the urban core, freeze the rent of all urban core residents, and guarantee them a new better and more centrally located home if their building is replaced. Heck, we’ll even pay their moving costs. This will stop the banishment without turning newcomers away.
For renters and newcomers alike in the SF Bay Area, this will mean an enormous new supply of housing in the city center. When housing is no longer in such short supply, landlords won’t be able to charge such exorbitant rents. Less disposable income will be lost to rent, and young tech industry employees can rest assured that they are not creating gentrification and displacement.
Here’s a table showing how key players will be affected by such an Urban Core Land Value Tax policy, coupled with a few other transitional measures:
Landowners Outside the Core
No new proposed subsidized housing in their communities
Urban Core Landlords & Developers
Lifts on zoning requirements
Land values increase faster than the tax
LVT will offset income and sales tax
Bigger workforce, less pressure on wages
Renters Outside the Core
Much greater supply of housing near their jobs
Lower rents as supply in the core increases to satisfy demand
Urban Core Renters
Possibility of upgrade
Keep their community
Among those worried about higher taxes on land are suburban and peri-urban NIMBY (not in my backyard) landowners, and they are the source of many uninformed and polemical attacks on Land Value Tax and those who would seek to get rid of Prop 13. They are a barrier to the system we need, but they have legitimate needs too. It has to be made clear that these people will pay the same taxes or less and that they won’t be forced, by this measure, to adopt new zoning laws.
In fact, all of the people they may currently want to keep out of their single-story neighborhoods will stay out, not merely via zoning laws and blocks on subsidized housing, but because living in the urban core will become possible again. Everyone will flock there. These outlying communities can be run however local residents see fit, and the increase in the supply of real housing in the city centers will reduce the push to build affordable housing in these neighborhoods. Pressure will be taken off the periphery.
Savings for Everyone, Everywhere
In addition, NIMBYs outside of the urban core could actually pay less tax than they currently do, even under Prop. 13! This is because land in the center of the city is exponentially more valuable the closer it is to the urban core. Outlying landowners will see a drop in what they pay in taxes, in most cities, under LVT. However, if it’s salient to these owners that an Urban Core Land Value Tax will be restricted to the core, outlying land owners will not be affected. In fact, their tax bills would probably go down. One reason for this is that the city would be enabled to eliminate sales and wage taxes with the revenue obtained from taxing the value of the land in the urban core. It might even be possible to offer a rebate on federal income taxes. Everyone will want to flock to the urban cores for these reasons, and this will increase land values and the revenue it generates, even more.
With a radically greater supply of housing and business space, renters will gain leverage and everyone’s taxes will be reduced. It’s a win-win, even for the property developers who want to build higher but are prevented from doing so. As long as the buildings are safe and conform to zoning, there is no reason why this should not be implemented. If it makes it more politically feasible, the urban core land value tax can be slowly raised as opposed to being done all at once.
SF’s Historical Barriers to Housing
Kim-Mai Cutler, writing for TechCrunch in 2014, described how the “formidable permitting process” in San Francisco is a product of tenant action and environmental movements over the past 50 years.
“Even back in 1967, thousands of Latino residents in the Mission — the heart of the gentrification battle today — organized and convinced the city’s Board of Supervisors to vote down an urban renewal program in the neighborhood. They saw what happened to the Fillmore — once the “Harlem of the West” —when the city’s re-development agency razed it, displacing tens of thousands of black residents and the businesses they had created after World War II.
To this day, there’s distrust and fear that the same thing will happen again, especially if it’s carried out by private developers. Advocacy group Causa Justa has been documenting this displacement through Census data, noting that the Mission has lost 1,400 Latino households while adding 2,900 white households between 1990 and 2011. In the same time period, Oakland lost 40 percent of its black residents.”
What about the eyesore of tall buildings? A more consistent use of the land — say a limit of six stories like Paris versus the height limit of two stories (see image below) — would allow SF to accommodate a lot more people at more affordable rents. This will undoubtedly be the solution in certain areas of the city where buildings are more vulnerable to earthquakes and other considerations.
Luxury Apartments for All!
Though this article is focused on SF, the same key insights apply to other cities as well. In essence, the idea is that if you’re a renter somewhere in an urban core, you are either going to keep living there at the same rent, or (if your building is demolished) be moved into a much nicer building. Your rent won’t go up, and you’ll either live on the same lot or move on up closer to the center. This would not be a scheme to force all the low-income people into the same shoddy inner-city housing, and they wouldn’t be singled out or ridiculed for receiving one of these apartments.
It would be a bona fide upgrade and sustainable means of protection from erratic forms of displacement and gentrification. Note, that this is a slightly different conception of the idealized end-stage Georgist model of housing where the market is flooded with centrally located supply and the lowest income residents live only slightly outside the core. It’s also not the YIMBY(yes in my backyard) ideal of “Build Baby Build” –anywhere and everywhere. This would only affect urban cores and would leave other communities alone. There would a boom in housing for all, not just the rich, and not just existing privileged residents. Everyone could put down their pitchforks and get along.
We all have a right to space. We all have an equal right to the social value that we collectively create in city centers, with all of their passion and innovative dynamism. Here’s a realistic and economically sensible way to achieve that.
Ageism is a two-way street, but is usually thought of only in terms of discrimination against the old. In federal employment law, protections are afforded to over-40s, but favoring an older worker over a younger one is not a problem.
In terms of power in society, almost every area is completely dominated by old people, from billionaires and boards of directors to major shareholders and company executives. In academia, tenured professors hold all the power and associate professors are disposable and work for scraps. The average age of the 113th Congress was 57.6 years, and our last presidential election was between two 70-year-olds.
The only voting blocs that politicians really cater to are “homeowners”, which is a codeword for landed upper middle-class people who are older and financially secure. They vote the most and donate the most because they want their land titles propped up in value through government policy. They want their healthcare and pensions. They want all taxes shifted away from accumulated wealth, which inevitably means that they want taxation redirected to the young. Meanwhile, political participation for the young is intrinsically a more altruistic endeavor, because they really don’t draw on government privilege for their existence.
Unfortunately, this also results in low turnout for young adults. More than half of eligible voters aged 18 to 24 stayed home for the 1998 midterms. Those young people who are politically inclined tend to care about a more diverse spectrum of issues, which creates divisions within liberal politics and keeps deciding power in the hands of older, more cohesive voters. This imbalance is likely to get worse, as declining fertility rates among younger generations will see seniors account for much higher proportions of overall population growth in the future than they did in the past. While the population aged 65 and older accounted for 18 percent of overall population growth from 1950 to 2010, they will account for 51 percent of population growth between 2010 and 2050.
Despite the imbalance of power, most conversations about age discrimination involve the young victimizing the old. Why is it that the reverse is rarely considered? Historically, the perception is that old people are responsible, with traditional moral values, and are inherently worthy of respect and capitulation. But at this point in time, statistically speaking, young people have far fewer vices.
Sociology professor Judith Bessant has explored how two early-twentieth-century writers encouraged the perception of the young as less capable: psychologist G. Stanley Hall introduced the concept of ‘the adolescent’ and sociologist Talcott Parsons began the discussion of so-called ‘youth culture’. Both these men focussed on the most troublesome among young people, popularizing the notion that they are unpredictable, emotionally turbulent, and rebellious across the board.
Surely the expectation of rebellion or failure is partly responsible for that same rebellion, or that failure. A lack of rights, responsibilities, and respect can become a self-fulfilling prophecy, and if young people are not afforded treatment as equals in society, they will continue to boycott full participation. Intergenerational animosity can manifest itself as a healthy and friendly competition, or it can mutate into genuine resentment. In many cases, we seem to be trending toward the latter.
The generalizations they made have persisted for decades. Meanwhile, young people are showing themselves to be more purpose-driven in their work than any previous generation. Research from Deloitte showed that while millennials in leadership positions believe profit is important, they prioritize purpose, innovation, and the wellbeing of themselves and the workforce. Despite their demonstrable ability and ambition, young people have been walled off from many avenues of power in society.
Having started out with huge student debt, many young people have trouble getting jobs at all, and old people are living longer than ever, closing leadership opportunities off even more. Further confounding this is that there are formal and informal metrics by which the old judge the performance of the young based on the values of the old. Often times these metrics are outmoded in certain fields.
This is particularly true of technology. Consider the ‘rapid iteration’ work style of software development, whereby timeliness and planning are discarded in favor of live progress-tracking and goals that can be discarded as quickly as they are set. How does this compare to the clunky, paper-pushing environment in which much of business and bureaucracy still operates?
Older people will thus downplay the importance of technological understanding as a metric for leadership abilities and play up the importance of skills with which older people have more experience, even if these skills are outmoded.
Older people, being in the position to create rules and regulations, have the ability to subtly introduce ways to increase their perceived value to an institution. This makes the legitimacy of authority in an institution circular in its reasoning. Why do we do what we do? Tradition! Why should this be done? Because I said so! If there are no definable goals, there are no checks and balances on power. No newcomers can challenge that power on a strategic or meritocratic basis because strategy and merit are nonexistent.
According to the U.S. Chamber of Commerce, the erosion of the union movement has made it more difficult for those with blue collar jobs to rise to the middle class. Males with high school diplomas in 2010 actually made less money than their 1980 counterparts: $30,000 versus $39,750 in annual salary adjusted for inflation. The younger worker is more likely to be laid off if a “Last In, First Out” policy is in place, simply because she has not been with the company for as long. The assumption persists that experience equates to merit, when in many cases the opposite may be true.
Despite the genuine difficulties young people face, it’s not uncommon to hear it suggested that the young are lazy, entitled, or incapable. It is socially acceptable to vent frustration about dealing with young people and children in public places, or in extreme cases to implement high-frequency sound technology only audible to young people as a deterrent to keep young people away from certain areas entirely. The fact that more millennials are still living with their parents is easy fodder for mockery. Yet, it is the economic policies of previous generations that have caused the current economic climate.
As a brief thought experiment, consider these common criticisms:
“Oppressed ethnic groups shouldn’t be treated like children!”
“Women shouldn’t be treated like children!”
“Disabled people shouldn’t be treated like children!”
Maybe there is something deeply wrong with the way that we treat children and young people. The ageism that flows towards the young is insidious, since it is the powerful attacking the powerless. Whereas the faintest hint of ageism towards the elderly is met with grave condemnation.
Experience is sometimes correlated with merit, but it is not merit itself. Furthermore, people “rise to the level of their incompetence.” Young people are less likely to have reached their capacities yet. Therefore, there is a lag that needs to be accounted for when comparing young and old. There should be more active competition on objective standards of merit instead of simply discounting a person on the basis of age. Certainly, people at their peak physical and intellectual capacities stand an increased chance of being the best choice for a position, if irrational biases against the young are properly accounted for.
WIthout young people, we simply wouldn’t have seen the kind of power that brought the civil rights movement to the United States. Many young people postponed their studies and early careers for the sake of fighting for change, against entrenched powers that were not necessarily malicious but which had no reason to upset the present structure of society. There are countless other instances of young people being the engine of critical improvements throughout history.
How do we create the best situation for everyone? Public office, corporate boards, taxes, and voting laws disproportionately favor the old. The old need young people’s new talents and energy. The young need to learn from the experiences of the old. Both groups can work for the benefit of the other. If people are given power in proportion to their merits, irrespective of age and other irrelevant factors, we would see a more balanced age distribution and much more sensible policy outcomes. No rational agent wants to give up power, but there are rare occasions where doing so is better for everyone, including the powerful.
Over the years, many reputable researchers and organizations have dedicated resources to examining the theory and the implementation of Land Value Taxation. This system of tax is not just a good idea, it is a demonstrably effective tool for reducing speculation, driving down land prices, and incentivizing the optimal use of centrally-located land.
EarthSharing has compiled a database of high-quality research on LVT, which you can access here. This is not a gathering of platitudes presented by people who are influenced by their pre-existing support for such a policy; this is serious academic work that scrutinizes LVT alongside other tax structures and has reached the same conclusions. Consider the following from a 2015 OECD publication:
Property taxes can underpin sustainable land use. A pure land tax can help contain urban sprawl and foster the conversion of developed land instead of greenfield development. The land-use effects of property taxes – which also tax investment – are more ambiguous. Specifically designed “green” property taxes (soil-sealing taxes, development charges, etc.) can further help internalise land-use externalities
This list is far from exhaustive, and we strive to create a resource for advocacy and education that is as comprehensive as possible. If you can contribute to furthering the goal of this resource with additional research, please contact us and we will add to it.
In 2012 the Australian Capital Territory (ACT) began a multi-decade task of major land tax reform to exchange taxes on transactions for taxes on the economic rents that accrue to landholders. The report evaluates the economic effects of these changes at the first interval, 2016, to tease out potential lessons from this policy experiment.
Increasing land tax rates appears to have deterred housing speculation
Future land tax obligations are already capitalised into lower land prices
Because of this, new home buyers save between $1000 and $2000 per year on mortgage costs
New housing construction has remained strong during the tax transition period
Residential rental growth is at historical lows, benefiting renting households
The distribution of land tax obligations between different types of land holders is the main political sensitivity
In sum, the clear aggregate economic efficiency gains from transitioning towards land value taxes are also associated with a substantial redistribution of wealth: away from the wealthiest and most politically-connected groups see a higher tax burden, towards average homebuyers and renters.
Australian Dept. of Infrastructure & Regional Development (2016)
Australian Government discussion paper. Its purpose is to outline a range of value capture approaches, and seek feedback on how the Australian Government could use its various policy and funding levers to stimulate the use of value capture in the development and delivery of transport infrastructure. It sets out evidence of the relationship between transport infrastructure and the benefits that flow from it, before turning to a consideration of different mechanisms to implement value capture, including those used in other countries. It highlights the challenges and opportunities value capture presents and seeks feedback on some potential responses to those challenges.
The core idea of ‘value capture’ is that a new piece of infrastructure such as a freeway or railway line creates economic value – for example, the value of land located near a new station will typically increase – and tapping into part of this value increase offers a source of funds to contribute towards the cost of the project. [p. 4]
Understanding the theory and evidence of value creation presents an opportunity for governments to better leverage value increase as a means of funding the capital cost of infrastructure, while sharing the costs with those that benefit the most. Value capture is an approach to project development that requires integrated land use planning and a sharper focus on end benefits and public objectives leading to better infrastructure and services. It achieves this by aligning value creation to project funding in a way that means that those who benefit most contribute to the infrastructure cost. [p. 4]
“The tax on immovable property recently started to regain its former significance, but the tax yield still remains low, with slightly more than 1% of GDP and wide variation across countries. Against this background this paper surveys property tax policy in OECD countries and analyses the efficiency, distributional and stabilisation properties of property tax.
The efficiency effects of the property tax depend on whether the tax base includes land, investment, such as buildings, or both. A pure land tax is considered most efficient since it hardly affects households’ and firms’ behaviour. The tax on investment may reduce capital spending, especially of businesses. Still, the property tax affects growth less than other taxes. [p. 5]
Property taxes can underpin sustainable land use. A pure land tax can help contain urban sprawl and foster the conversion of developed land instead of greenfield development. The land-use effects of property taxes – which also tax investment – are more ambiguous. Specifically designed “green” property taxes (soil-sealing taxes, development charges, etc.) can further help internalise land-use externalities [p. 5]
The paper critiques the notion that unfettered inequality is an inevitable consequence of contemporary capitalism, and provides an alternative, new framework for analyzing changes in income and wealth distribution. By thinking of these distributions as the result of changing centrifugal and centripetal economic and political forces, we can identify changes in our economic and social structure that may have played a central role in the creation of today’s high level of inequality, and we can analyze the potential impacts of alternative policies. Specifically, it is suggested that much of the increase in inequality is associated with the growth in rents — including land and exploitation rents (e.g., arising from monopoly power and political influence).
Much of the growth in inequality and the increase in the wealth-income ratio are related to an increase in rents and land values.In the middle of the last century, land was essentially dropped out of the models used by economists. After all, agriculture, the source of the major demand for land, had shrunk to a very small fraction of GDP. But as I noted earlier, housing services is an important component of GDP, and land values, especially in our urban areas, are an important part of housing services. Indeed, with urbanization, one would expect an increase in land values. [p. 439]
But there is more going on: land is a store of value. The value of land today is largely dependent on its expected value tomorrow, ad infinitum. This means that land prices are largely untethered. Rising expectations can, at least for a while, be self-fulfilling. Land bubbles have marked capitalism from its early days, and we have been going through just the latest instance.23 But even when there is a “correction,” there is no assurance that the economy is not off on another bubble-path. [p. 439]
The tax on immovable property has been characterized as probably the most unpopular among tax instruments, in part because it is salient and hard to avoid. But economists continue to emphasize the virtues of the property tax owing to its relatively low efficieny costs, benign impact on growth, and high score on fairness. It is, therefore, generally considered to be underutilized in most countries. This paper takes stock of the arguments for using real property taxation, and presents an updated data-set for high-and middle income countries to illustrate its use. It also reflects the renewed and widespread interest in property tax reform globally, and discusses the many policy and administrative issues that must be carefully considered as prerequisites for successful property tax reform.
Land (or site) value systems tax the market value of land alone, and is used in a variety of countries (Australia, New Zealand, Denmark, Estonia, Jamaica, and Kenya). Apart from raising revenue, it could be argued that the land value tax provides the strongest incentive for the most efficient use of land, although the nominal tax rate must be higher to yield a given amount of revenue due to the smaller base. It has been held that this tax also implies lower administrative costs than a capital value tax. The system suffers from the same type of administrative shortcomings as the capital value tax, in addition to the complexities of assessing land only in highly urbanized areas. [p. 24]
Tax by Design, the final report from the Mirrlees Review, presents a picture of coherent tax reform whose aim is to identify the characteristics of a good tax system for any open developed economy, to assess the extent to which the UK tax system conforms to these ideals, and to recommend how it might realistically be reformed in that direction. Drawing on the expert evidence in Dimensions of Tax Design (the first half of the Mirrlees Review), it provides an integrated view of tax reform.
The economic case for taxing land itself is very strong and there is a long history of arguments in favour of it. Taxing land ownership is equivalent to taxing an economic rent—to do so does not discourage any desirable activity. Land is not a produced input; its supply is fixed and cannot be affected by the introduction of a tax. With the same amount of land available, people would not be willing to pay any more for it than before, so (the present value of) a land value tax (LVT) would be reflected one-for-one in a lower price of land: the classic example of tax capitalization. Owners of land on the day such a tax is announced would suffer a windfall loss as the value of their asset was reduced. But this windfall loss is the only effect of the tax: the incentive to buy, develop, or use land would not change. Economic activity that was previously worthwhile remains worthwhile. Moreover, a tax on land value would also capture the benefits accruing to landowners from external developments rather than their own efforts. 
The economic case for a land value tax is simple, and almost undeniable. Why, then, do we not have one already? Why, indeed, is the possibility of such a tax barely part of the mainstream political debate, with proponents considered marginal and unconventional? One issue, no doubt, is the simple lack of political attractiveness. If a land tax is seen as a new and additional tax, then it is likely to be about as popular as any other new tax. So it should be seen as an alternative to other existing property taxes, not as a way to raise additional revenue. Moving from a property-based tax to a land-based tax would also create numerous gainers and losers. This is politically difficult. But then a major revaluation exercise just to bring current domestic property taxes up to date would also create winners and losers, which is perhaps why politicians have avoided doing it and why relative domestic property tax liabilities in England and Scotland bear increasingly little relation to relative property values. 
An update of Terry Dwyer’s “The Taxable Capacity of Australian Land and Resources”. Excellent graphs showing the change in the land rent share of GDP in Australia through the decades, and the implications of ATCOR.
As Gaffney (2009) puts it, “All Taxes Come Out of Rents” (ATCOR), and “Excess Burdens Come Out of Rents” (EBCOR). Under the EBCOR heading we might include the suppression of public investment in infrastructure, due to the failure of the tax system to capture uplifts in land values. The benefit of infrastructure, net of user charges (fees, fares, tolls), is shown in prices of access to locations where that benefit is available — in other words, land values. If the responsible government, through the tax system, receives a certain fraction of every uplift in land value, infrastructure projects whose cost/benefit ratios are less than that fraction are profitable for the government and will therefore proceed. They are profitable because they expand the revenue base without any increase in tax rates.
But if the government fails to capture uplifts in land values, some infrastructure projects do not proceed, so that the associated uplifts in land values do not occur, while other projects proceed at the cost of unnecessarily high tax rates and ensuing deadweight costs. By itself, the ATCOR principle would imply that if existing taxes were abolished, the resulting increase in the economic rent of land would be just enough to replace the forgone revenue, in which case, if the forgone revenue were indeed replaced by a charge on land, the remainder of the economic rent of land (hence its capitalized price) would be as before.
Together, the ATCOR and EBCOR principles would imply that if existing taxes were abolished, the resulting increase in the economic rent of land would be more than enough to replace the forgone revenue, in which case, if the forgone revenue were indeed replaced by a charge on land, the remainder of the economic rent of land (hence its capitalized price) would be more than before.
Study quantifying the total resource rents of Australia. The report finds hat the influence of monopoly is 10 times greater than mainstream economists acknowledge and that economic rents are a significant component of the Australian economy, comprising 23.6% of GDP.
Under a land tax system, the rural sector would enjoy a lower tax burden, encouraging decentralisation.
The Australian Housing and Urban Research Institute (AHURI) states: Economic theory predicts that a broad based land tax is shifted to landowners who receive lower after-tax rents that are in turn capitalised into lower land values. We find that the average plot with a land value of $335,000 (at 2006 prices) will decline by $24,000, or approximately 5 per cent. [p. 18]
As a revenue-raising mechanism, a resource rent system (of which land tax is the most prominent tool) does not distort market prices. The taxes charged cannot be passed on in prices. Rather, a resource rent harnesses what would have been easy profits – unearned income that had little to do with productive skill or entrepreneurial activity [p.18]
A well-designed land tax will deter the pursuit of capital gains over rental income, pushing the majority of the 90,730 vacant properties onto the market. Competition will see rents fall. Renters will look for cheaper accommodation. The added competition would demonstrate that the land tax cannot be passed on (when set at a rate of significance). Vacant land will be subdivided according to its highest and best use, further adding to supply side pressures. Any landlord who tries to pass on the land tax will see his tenant vacate the premises for cheaper options. [p.20]
Those who own the earth have a natural advantage over those running a business or earning a wage. A yearly land rent (or land tax) based on the locational value was the mechanism Classical economists hoped to rebalance the advantage land owners have over workers and employers. The current system of land tenure gives an owner permanent property rights for that location via a fee simple contract. It is a ‘one-off’ deal which locks out future generations from competing (who, by definition cannot attend the sale or auction). The philosophy behind land tax is the titleholder owns the house but leases the land in recognition that the earth is a gift to all. The methodology sees property owners maintain title over the land for as long as they are willing to pay the market-based land rent (a fee annual contract). Property valuers determine land valuations, just as they do for our municipal rates. This infers the sharing of land rent in place of most other taxes. [p.21]
The paper examines and evaluates efforts to implement land value capture and finds available tools wanting. It is then argued for an alternative approach using a restructured annual land tax.
Land value is socially created, and often with little effort on the part of the landowner. The whole basis for LVC is the argument that the community should be able to share in that socially created value. Thus, the argument for taxing improvements is that they create the majority of demand for public services. The tax rate should therefore reflect the cost of those services. The argument for taxing land is precisely so that the community can share in socially created land values. The tax rate on land should reflect the policy choice regarding the proportion of land value to be captured for public purposes. [p. 11-12]
In putting forward this new approach to land value capture, it is not expected that cities will recalculate the overall land tax rate every year, though such recalculation is possible if deemed desirable. Rather, the expectation is that the overall rate will be based on policy choices about the base rate and the desired value capture rate, and a longer term average rate of increase in land prices. While land prices should be monitored every year, it is likely that the overall rate will be adjusted only every three to five years based on longer term market trends. [p. 15]
In this publication we learn that land is at the core of the urban wealth creation. We learn that land and property taxation is an effective means for the positive transformation of a city in the quest to build wealth, create jobs and tackle development problems.
Land value taxation tends to ensure the use of valuable land. This is not hard to see in that it is a holding charge on land. One has to pay to keep vacant or neglected land idle. What are called “land banks” become harder to maintain. This increased supply of land must in itself tend to make land cheaper. This easier access to land encourages useful economic activity. In a context where government takes land values rather than individual profit-takers, land value taxation discourages those who simply buy property to capture its increasing value. That in itself reduces the demand for land and is another reason why it reduces land price. In other words, land value taxation can act as a brake on increasing land prices. [p. 55]
As indicated above, land value taxation tends to put a brake on increasing land prices. What happens to land prices without that brake is illustrated during the period of 1990 and 2008. Recovery after 1990 brought a greater demand for land and enhanced benefits to land. In other words, land prices quite naturally increased as a measure of demand and these increasing benefits. However, availability of land did not expand. As it is often observed, unlike other things, the greater demand for land does not often increase its supply. This is because increasing price tends to increase expectations about its price going even higher. This relative scarcity adds a general scarcity price to land. Then, the speculative phase tends to send prices still higher (Anderson, 2008). [p. 56]
It can be argued that the initiating cause of recessions is rapidly rising land prices that eventually produce some significant reduction in housing and other construction. In response, land value taxation, by putting a brake on this rising price of land, can help to ward off recessions. [p. 58]
“Development of a model to predict property price effects of transport network extensions. The model is calibrated to the Greater London Area and is used to predict property price effects of the 1999 Jubilee Line and DLR extension. A considerable degree of heterogeneity is predicted both in terms of the magnitude as well as the spatial extent of price effects around new stations.”
Increasingly, compensations from property owners who receive an external benefit from publicly funded transport projects have been discussed as a potential source of revenue. Furthermore, increases in property values naturally induce property tax revenues. Thus there is a substantial public interest in property price effects of transport improvements, which could be considered in viability studies. [p.2]
An examination of the experience of those who have implemented the land value tax in the United States and in more than 30 countries around the world.
The land value tax is a variant of the property tax that imposes a higher tax rate on land than on improvements, or taxes only the land value. Many other types of changes in property tax policy, such as assessment freezes or limitations, have undesirable side effects, including unequal treatment of similarly situated taxpayers and distortion of economic incentives. Land value taxation would enhance both the fairness and the efficiency of the property tax. Raising the tax rate on land has few undesirable effects, while lowering the rate on improvements has many benefits. Land is effectively in fixed supply, so an increase in the tax rate on land value will raise revenue without distorting the incentives for owners to invest in and make use of their land. By contrast, the part of the property tax that falls on structures or other improvements discourages investment. The burden of the tax on land falls entirely on landowners, who have no opportunity to shift the tax to others (such as renters). The land value tax is neutral with respect to the choice of when to develop a parcel and the density of its development, whereas the taxation of improvements is likely to increase lowdensity sprawl. [p. 2]
There is strong theoretical support for land value taxation, in particular for reducing the tax on real estate improvements, and realworld experience offers evidence that has been used to test the economic theory supporting the land value tax. A number of studies have attempted to draw statistical comparisons between jurisdictions with and without land value taxation, or before and after the adoption of a land tax, although the results are generally inconclusive. [p. 3]
Kingston University School of Planning & Surveying (2009)
PhD thesis. An investigation into the technical and policy issues relating to implementation of land value mapping for Britain. The research looked at the links between property tax adminstration and land value data usage in five other countries and contrasted their policy environment with that of Britain.
Location matters in the siting of almost any human activity. Competition for land sites arises when there are conflicting uses for them, or competing users for the same use and insufficient time slots to allow suitable sites to accommodate many or various occupants without conflict. This creates a potential market in land rights, which gives rise to the need for mediation and to the concept of ‘land value’. One of the earliest and most important functions of governments in all societies is to mediate between those claiming right of land use, leading to codes of land rights and eventually land and property laws and markets (Powelson, 1988). Because access to land and its natural abundance is essential for human survival, in every society before long “dominion over land was the basis for power over the lives of people” (Powelson, 1988:26) and out of such power arose many – if not all – forms of government, nationhood and statehood. [p. 8]
Exploring the evidence regarding the distributional impacts of land and property taxes including potential fiscal implications or about the taxes’ impacts on asset values and debt positions. The results provide a basis for considering alternative taxation options involving land or property taxes.
The proportionate drop in property price that results from a land tax will be relatively large for properties with relatively small value of improvements relative to land. In other words, land-extensive properties will fall in price by more than land-intensive properties. This result is consistent with the result cited in the previous section that, on balance, imposition of a land tax is likely to have a limiting effect on city sprawl. [p.12]
One reason for focusing on the potential addition of a land tax to the central government’s fiscal armoury is that such a tax has favourable efficiency properties relative to other taxation options. To a first order approximation, the economy’s supply of land is fixed and a tax therefore does not alter the aggregate allocation of this resource. Landowners must pay the tax wherever they are located and whatever the land is used for. By contrast, consumption and income taxes distort allocations by altering labour supply, investment and savings choices and even a poll tax can affect the allocation of resources via migration decisions. Unlike a land tax, a property tax distorts behaviour by changing the net return on improvements, so impacting on investment in structures and other improvements. A switch of some of the existing tax burden from distorting taxes to a land tax may be considered if improvements in allocative efficiency, and thence per capita incomes, are sought. [p.42-43]
A CASE STUDY OF THE SOCIAL AND ECONOMIC COSTS OF REAL ESTATE BUBBLES 1972 TO 2006. The report collates Australia’s real estate sales since 1972 to create ‘The Barometer of the Economy’. A delayed inverse relationship between property bubbles and the economy is demonstrated which indicates the extent of the deadweight costs of taxation.
Revenues sourced from other than the capture of annual land and natural resource values all offend against at least one of the four classical canons of taxation, namely, that revenues should (1) bear lightly upon production, (2) be cheap and easy to collect, (3) be certain, and not able to be passed on and, (4) bear equally, giving advantage to none (Progress and Poverty, chapter 33). Therefore, the almost complete lack of interest in establishing a community claim to the land values generated by public infrastructure and the existence of community as the primary source of public revenue is curious. It is perhaps best understood in terms of a media bias thought to favour its real estate advertisers, even though they too can be shown to benefit from land-based revenues. Amazingly, the forces of both left and right have fallen under the spell of this blinkered mind-set, and the idea of extending land value capture has rated little discussion. [p. 1]
Hence, as taxes in other areas of the economy act to increase prices, policymakers should consider greater land value capture as the most effective way to reduce land prices and improve ‘housing’ (read land) affordability, because there would remain less annual site value to be capitalised into land price. [p. 2]
Study into the practicalities of implementing Site Value Rating including valuation methodology, how practical LVT would be and how the resulting values would compare with the present system.
Dave Wetzel, chair of the Labour Land Campaign, argues (September 20 2004) that “a Land Value Tax on economic rent – the amount of money the land would generate if leased – is the only fair way to ensure that we all share nature’s bounty. All land would be valued and a tax rate applied (although parks freely open to all would pay no LVT), including empty urban sites on which landowners now pay no rates or taxes. Site values grow as the result of community activity – new roads, transport links, shops, offices, policing and other services. So why should the community not be repaid for the benefit it creates for the landowner? [p. 29]
“Why accept a one-off payment when LVT can provide annual revenues? Why lose out on increases in land values created by the activities of future generations? Development land, in any case, accounts for less than 5 per cent of all land. LVT has supporters across the political spectrum: socialists, liberals and conservatives. The Scottish Parliament is researching it; Liverpool City Council has asked to be a trial area for site value rating; Oxfordshire County Council is assessing land values in a trial area. It is an idea whose time has come. And the government should now assess the gains from applying LVT across the country. Then it should act on the results.” [p. 29]
“It is therefore not difficult to see why a means of taxing land is central to Green taxation policy. Without a fiscal instrument that values the use of land, and the minerals it yields, it is impossible to maximise the efficient use of resources and thus effectively manage the transition towards a more environmentally sustainable and equitable society.” [p. 30]
An examination of the practical operation of LVT in Britain, its moral background and ethical rationale. An historic account is provided as well as a view of future prospects.
The community can capture in land taxes some of the values it has created, including those resulting from streets, schools and other facilities. This, it is maintained, would be a more equitable way of financing local government. Another argument is that the revenue from a tax on land would permit reducing taxes on buildings, which tend to deter new construction. A third argument is that higher land taxes would make for a more efficient use of land. [p. 12]
George originally advocated replacing all existing taxes with a single tax upon land values. Supporters of George argued that since land is a fixed resource, the economic rent is a product of the growth of the economy and not of individual effort, and society would be justified in recovering it to support the costs of government. (They accepted Ricardo’s view that a tax on economic rent could not be shifted forward; as we have already noted, the main attraction of such a tax is that the whole of the tax would fall on the landowners.) George’s supporters also argued that a single tax on land would eliminate taxes on buildings, which would stimulate construction and economic growth, and that a single tax would be very simple to administer. [p. 17]
Previous work on measuring Australia’s land wealth is reviewed and a time series of Australian land values constructed for most of the twentieth century. Estimates are made of Australian land income and compared to Australian tax revenues. It is demonstrated that Australia could finance tax cuts and international tax competition for labour and capital tax bases through higher fiscal contributions from land revenues.
At the same time, owner-occupied residential land is outside the scope of income tax (but not necessarily of rates or land taxes). Hence, the existing tax base is excluding part of land income while the tax revenue from it is being used in part to push up land values. Given the importance of residential land in overall land value statistics, such phenomena may explain why land income has risen so strongly in line with tax revenues. [p.38]
The logical implication is that Australia could choose to make a fundamental shift in tax policy. Australia could increase Federal reliance on land revenues46 and use the proceeds to make substantial cuts to marginal personal and company income tax rates. Australia could become a tax haven and out-compete Hong Kong and Singapore in attracting regional or international headquarters or investment. There is nothing inevitable about Australia being a generally “high tax” country which discourages investment nor is it inevitable that Australia becomes a branch office economy. Australia may have different forms of land resources to Saudi Arabia or Brunei but, like Hong Kong and Singapore, Australia’s land is worth a fortune as a tax base. Australia is as well positioned to finance large cuts in personal, corporate and consumption tax rates (or even abolition of one or more of these) through taxing land incomes. [p. 41]
A technical study to answer the question: “can vacant residential land be modeled with improved residences, avoiding the need to determine separate valuation models?”
The results of the research project are encouraging, indicating that vacant land can be effectively modeled with improved properties with very little, if any loss, in accuracy for the latter. A combined approach lends stability to vacant land values and provides much needed market benchmarks where vacant land sales are lacking. However, modelers must exercise care as service levels may not be the same and vacant and improved lots may be concentrated in different areas (even within the same neighborhood). Thus, while vacant and improved land can be modeled together, modelers should compute separate sales ratios by neighborhood for each and stand ready to make indicated refinements. [p. 6]
At the beginning of April, 10 public libraries shut their doors all at once across Douglas County, Oregon. The mass closure of these critical civic institutions is the result of a democratic process in communities where every extra dollar on a tax bill is seen as an affront to personal liberty. The only hope for the future of these libraries rests on volunteers.
Oregon’s public purse has historically been filled by the spoils of logging the timber-rich regions of southern and western Oregon. Douglas County and its neighbors experienced a surge in demand for timber during and after World War II, and a flood of federal cash allowed small communities to provide all kinds of public infrastructure and services. For Douglas County, this included a public library system that would grow to encompass 11 branches.
Logging began to decline in the 1980s, and environmental protections on public land in 1990 sealed the fate of many communities reliant on timber. In Douglas County, federal timber revenues fell from $50 million a year to just several million. Once-free public services began to charge locals for use.
With library services firmly in the sights of further budget cuts, library supporters put together a proposal last fall that would have added about $6 per month to an average tax bill and saved the libraries from closure. This in a county where property taxes are subject to a cap set in 1990 that cannot be exceeded without a public vote, and specific county services like libraries must be funded out of special tax districts.
The taxpayers rejected the proposal, in the process generating a lot of negativity around the purpose of libraries in general and their perceived obsolescence. County authorities are seemingly ambivalent, caught between families and community groups on one hand and a complete lack of revenue on the other. Property taxes have always been one of the most effective and widely used mechanisms for public funding of vital services. This includes schools, roads, energy and waste infrastructure, and critical facilities like libraries and pools.
Thousands of small communities around the world are struggling due to a lost industry, and the only two options seem to usually be hoping for that industry to return, or tightening the purse strings exponentially as the community evaporates. There is a need for creative thinking in places like Douglas County, where an untold number of people have now lost access to essential services.
The many factors playing into this shameful development are summed up by Shane Dixon Kavanaugh, writing for Vocativ:
Just three hours south of Portland, where residents enjoy the fruits afforded by a tech and real estate boom, this rural community of loggers and agricultural workers is preparing to do without a publicly-funded institution considered by many to be as fundamental to American life as schools, paved roads, and the local police.In some ways, the demise of the public library system in Douglas County, which is roughly the size of Connecticut, is the outcome of a perfect storm of factors confronting towns and cities across the U.S. — the slow death of an industry; an exodus of young people and influx of retirees; an explosion of anti-tax fervor; and shifting perceptions on what government and people are willing to pay for today.
On May 19, the Robert Schalkenbach Foundation co-sponsored an event in New York with the International Union for Land Value Taxation, a United Nations ECOSOC NGO, the Center for the Study of Economics and The American Journal of Economics and Sociology.
The event was intended to foster an ongoing public dialogue on Mason Gaffney’s Sacred Water, Profane Markets, which appears in the November 2016 edition of American Journal of Economics and Sociology and challenges the fundamental assumptions of even the most liberal economic dogmas of the past century. According to the journal’s editor, Gaffney has produced “principles of universal relevance” by recognizing the tendencies toward capital accumulation inherent in laissez-faire capitalism and enshrining the sanctity of nature at the forefront of any policy discussion. Gaffney writes:
“Treating nature as a sacred gift requires our full capacity to imagine ways to heal the split between humans and the earth. A comprehensive plan to protect nature while securing the human right to water means changing the rules that govern the current ‘operating system’ for planet Earth.”
Two of the event’s speakers, David Triggs and Mary Cleveland, address the economics and management of water. They describe how a just system of charging for nature’s services can not only protect nature from excessive use but also make the market for produced goods and services healthier by preventing the development of monopolies that impede economic efficiency and destroy social harmony.
Drawing upon many years of practical experience in both developed and developing countries and extensive academic research, they show how a healthy balance of demand management and market forces may be used to ensure both safe drinking water for all in water scarce cities and the optimum sharing of water between agricultural, industrial and commercial users of water.
David Michel has researched and written about transboundary water governance, maritime resources management, and water conflict and cooperation. He is co-author of Toward Global Water Security: US Strategy for a Twenty-First-Century Challenge. He shares his views about the water ethics and policy presented by the first two speakers and how these might make a valuable contribution to a global water grand strategy formulation. The intention of Michel’s current work on global water security is to maximize the potential for civil society and the private sector to speak with a cohesive voice on water ethics and policy.
Following the three main speakers several designated respondents draw on their own insights and experiences in water ethics and management in giving their input to the proposed reconciliation of Sacred Water and Profane Markets. The main speakers and the respondents will then participate in a plenary round table discussion on a number of key points and questions raised by forum attendees.
Properties near Central Park are vastly more valuable than those even a few blocks away. Parks are among many publicly funded amenities that can raise the value of land because people want to be near to them. Since a Land Value Tax is designed so that governments obtain most or all of their revenue from it, any increase in tax revenue must come from increases in land value. This is why LVT is often thought of as a “single tax” or “central tax”.
To increase annual revenue, governments must construct parks, public spaces, and infrastructure to raise land values. This spurs the ‘Up & In’ private development discussed in Part I, but it also creates an incentive for government to develop and maintain such spaces and amenities.
People have to actually like the spaces in order for government to be able to increase revenue. Therefore, the nature of government intervention in urban planning and infrastructure will likely better reflect people’s needs under LVT, since government revenue will depend directly on the quality of public spaces. This concept applies to roads, utilities, amenities, and many other public works.
Using land value as the central or sole source of revenue aligns the government’s interest with that of the general public in many ways. Though it would improve government incentives in many ways, Land Value Tax would not render zoning completely unnecessary. There are many legitimate and illegitimate zoning restrictions, and these do not disappear ipso facto a land value tax.
If government spends money efficiently, in line with people’s needs, tax revenue will also increase vis a vis land value. For more information on this, see the Henry George Theorem. The theorem, supported by Nobelists Joseph Stiglitz, Willam Vickery, and others describes how governments can sustainably fund all activities, solely using a land value tax, through the creation and maintenance of public works. For an example, watch the video above.
Skyscrapers Everywhere? No.
Some people become confused when thinking about a Land Value Tax, believing it would cause tall buildings to be constructed in the middle of the Amazon rain forest or the Sahara desert. This mischaracterization stems from thinking that the incentive to use land intensively applies to areas with low land values.
If the land value is high, a landowner must generate more income to cover their high tax bill. This is often accomplished by constructing taller buildings, offering more units on which to collect rent. However, if the land value is low, the incentive to build is low as well. This will be reflected in the height of the building, or the lack of a building altogether in areas further from city centers.
Incidentally, even if the Land Value Tax paid by a particular owner is low, there is still an incentive to not own enormous tracts of land for mere speculation. Speculative gain becomes less attractive when any increase in land value will be accompanied by a heftier tax bill. This means that it is easier for small-scale farmers to get started, whereas the current tax system favors large monoculture agribusiness.
Who Pays And Where?
A progressive income tax is said to be pro-poor because those with more income pay more than those with little. In theory, this is a proxy for taxing all wealth progressively, but it is not so in practice. Land value taxation is progressive in a spatial sense. Those who own the best locations pay much more than those who own less valuable locations, and renters do not pay taxes at all. The Land Value Tax curve is very steep as you can see in Figures 2 and 3. This means that wealthy landowners pay a vastly higher tax than owners of outlying parcels.
Of course, in practice land values do not make a perfectly smooth curve. Below is a land value map of Chicago, looking south toward the loop along Lake Michigan.
Tax The Rich
A square meter of land in New York City will buy an acre of land in upstate New York. An acre of land in some parts of the Saharan desert are the price of a hamburger. Yet, $120,000 will only buy you a square meter of land in Pollock’s Path, Hong Kong. Who owns the most valuable land in Chicago, in the City of London financial district, or in New York’s Times Square and on Wall Street? There are not your average Joes. By shifting to a land value tax, the vast majority of revenue would come from the super-rich, not from regular working people. However, unlike taxes on income and abstract financial instruments, land can not be hidden in Swiss bank accounts and the Cayman Islands.
Some worry that multinational corporations will leave high-value areas for this reason. However, if a few decide to leave, it will be those that take up lots of space and hire few employees. Land values and taxes will drop until an equilibrium is reached. What remains are the productive businesses who use space for employees rather than cars, companies who pay their fair share of taxes and contribute to the economic vitality of their communities.
Leave Ma & Pa Alone
Productive businesses will get a boost. With zero taxes on wages and sales, hiring people and selling things will be less expensive. Such businesses will also benefit from lower rent, especially for the average ma and pa shop.
How Is A Land Value Tax Levied?
The Land Value Tax is not the same as a property tax, which is levied on both land and buildings. The Land Value Tax is levied on land only, not buildings. All land is taxed at the same rate, but landowners near the city center naturally pay more than those further away. Let’s imagine for example that the Land Value Tax is set at 10 percent of the market value for all land.
The amount of tax paid by each owner varies as a function of the land value only. The tax rate does not vary from plot to plot, and the value of the building on a given plot will not change the amount of tax paid by the owner.
Hypothetically, land in the city center assessed at $1,000/sq ft will pay $100/sq ft in Land Value Tax per year. Land relatively further from the city center assessed at $100/sq ft will pay $10/sq ft in Land Value Tax per year. Breaking the tax into monthly payments is ideal.
In order to have the effects described in this article, value assessments need to be accurate and the Land Value Tax needs to be high enough to generate the right incentives. LVT is not an additional tax, but a replacement for most other taxes like those on wages and sales. Pollution taxes and a few other good taxes should remain, but the Land Value Tax would be the primary source of revenue.
No Taxes, Just Rent.
So, what does all this mean for the average person? People who do not own land do not pay any taxes under Land Value Taxation, including wage or sales taxes. Public transportation could be made free because such services increase land values and thus revenue.
Many landowners would actually pay far less than they currently do in property taxes, since they own land at the periphery and beyond. Add to that the savings from other types of tax being eliminated, and their total tax burden would be drastically lower as a group. Almost all revenue would come from ultra-wealthy central landowners. If a rural area did gentrify quickly, landowners could protect themselves by purchasing insurance in advance. Those wishing to become landowners pay a lower purchase price, since buyers and sellers know that the Land Value Tax must continuously be paid.
Apartment Rent Decreases
We know that if the supply of something rises, the price falls. If more space is available in and near urban centers, ceteris paribus, the rent decreases, facilitating more urbanization and reversing sprawl over time. Increasing the supply of residential and commercial units will likely become a much faster and cheaper process as advances continue to be made in modular construction and 3D printing. Buildings can be stacked upon one another like legos as demand for particular locations rise or even fall. With the removal of taxes on buildings, labor, demolition, and other construction inputs, developers will be able to streamline the process. The seven-storey apartment building below was built in 11 days, even in the absence of Land Value Tax incentives.
High Rises, Not Just For The Rich
Fancy high-rises currently cause displacement and are often built with speculative returns in mind. Land values are going up, but these values are not being taxed away, as they would under Land Value Taxation. Rather than build for the people who need housing now, property owners build for the rich elite that will occupy the units later, perhaps years after.
Thus, whole buildings sit vacant in the United States, while entire cities sit vacant in China! Under Land Value Taxation, an urban landowner would have to run at an exorbitant loss to accomplish this, and would instead opt to provide relatively less extravagant units in the short term.
Under Land Value Taxation, new luxury developments or an influx of rich people to an area would spur the creation of more housing units nearby. The first thing to be pushed higher is land values, then tax, followed by development incentives, and the area’s housing supply.
This greater supply of housing units, in turn, lowers apartment rent relative to its high just before additional construction.
The Land Value Tax in no way terminates or precludes existing safeguards protecting existing tenants from gentrification, safeguards like rent control. If rent control were still in place under Land Value Tax, developers would simply have to find ways to create more units at a fixed rent in order to generate the required income to pay the tax.
The land value tax would make rent control unnecessary, but that is a decision financially liberated renters can make for themselves after land value tax has been in place for a long while. Remove economic chains before crutches. Let people decide for themselves what protections they want to pare back after they have the luxury of thinking in terms of economic efficiency and utilitarianism rather than their day to day survival.
Tenants would benefit from land value tax for three reasons:
First, it would make cities more compact overall, so affordable housing units will tend to be closer to the city center than they are now;
Second, a city would have a stable and ample source of funding for public transportation, services, a citizen’s dividend, public renters insurance, etc.
Third, it would reduce the pervasiveness of land speculation, which causes the belief that housing markets don’t work and must be interfered with. The reason for this market failure is speculation, not new construction per se. Speculation, holds down supply, creating a sense of scarcity and desperation, like a few people hogging all the seats on the metro train -while pregnant women and the elderly are forced to stand, cramming together near the doors.
In truth, the Land Value Tax would be an enormously powerful tool for fostering inclusive communities that benefit everyone.
In this April 18, 2017 episode, we speak with Zoltan Istvan, who ran for President through the Transhumanist Party, and is now running for California Governor as a Libertarian. He proposes a Universal Basic Income, funded by the leasing of federal lands. How does this compare to the Georgist ideal of a citizen’s dividend funded by land rents?
Starting in 2017, EarthSharing.org has been collaborating with KZSU Stanford 90.1 FM to create a weekly hour-long radio show. The Henry George Program is a platform for interviews, roundtable discussions, and debates on economic justice and policy.
Tune in for challenging content on the housing crisis in the Bay Area and beyond, economic stagnation, widening wealth inequality, and environmental degradation ― can Henry George’s ideas offer a path forward that unfettered capitalism and incremental socialism lack?
An archive of the Henry George Program can be found here.
Why is it that, every year, the average American spends almost an entire work week stuck in traffic? We are wasting so much time, money, and resources making our daily rounds, but when exploring better ways of doing things, conversations tend to be dominated by improvements to public transportation and more fuel-efficient cars. But to focus solely on transport is to ignore the elephant in the room: the problem is not getting from A to B, but that we live in cities where the long commute is necessary in the first place.
How can we create walkable cities with affordable housing, a strong sense of community, more parks, the means to innovate, explore, create art, enjoy nature, and all of the other things that make communities thrive? What’s the secret?
Underused And Over Capacity
Spaces can feel like they’re at capacity when in reality they are just poorly organized. This can be said of a single room in a house where clothes are strewn across the floor or of an entire city where vacant lots and short buildings are scattered across the landscape. It is possible to make better use of space on a macro scale so that everybody can have affordable housing near job opportunities, public transportation, and nature. Right now, vacant and underused sites make this very difficult, dividing neighborhoods, forcing sprawl to outlying areas, increasing demand for oil, and causing a great deal of ecological damage in the process. Car culture ensues; walkability and the social nature of space decays.
Taxing land value, not buildings and improvements, encourages the development of city centers, allowing more people to be accommodated. This is because landowners require a higher return to cover the Land Value Tax and still make a profit. Centrally-located land in urban centers will attract the highest Land Value Tax, and this will create the strongest incentives to develop vacant and underused sites. Done properly, as the main or only tax, the Land Value Tax increases the housing supply and lowers rent in and near city centers. In the long term, urban sprawl can be reversed.
Up & In vs Down & Out
Our cities have taken a long time to get this bad, and it stands to reason that the remedy would be gradual as well. A high Land Value Tax, uniformly applied, can gradually reverse sprawl, putting vacant and underused land to its best use. There are many other positive social, environmental, and economic effects of Land Value Taxation, but many of these can only be understood by first understanding the spatial effects. Under such conditions, cities develop up and in toward the city center, instead of down and out, away from the city center (see Figure 2 below). Many will notice the fully intended pun here, as the shape of a city has a lot to do with human welfare. Under Land Value Tax, up and in produces good results, down and out produces bad results.
Land Value Tax And Sprawl
When there is no incentive for vacant lots to be developed into productive community spaces, there will obviously be fewer buildings. There will also be fewer parks since the surface area is wasted on vacant and underused sites. In a city with a Land Value Tax, not only is the vacant land filled, but buildings are consistently higher closer to the central business district. In the end, more people have the opportunity to live and work closer to the urban core. Starved of taxes on labor and other economic activity, a government must raise revenue by investing in beautiful and inspiring public spaces where people are willing to pay more for the privilege, thus bidding up the land value and in turn government revenue from the land value tax.
Under this system, much of the wild areas destroyed by current sprawl (Figure 2) are reoccupied by trees and other natural features. Farms can also be closer to cities, reducing transportation costs. The Land Value Taxation city also has a great deal of green on buildings, as the need to maximize the land value incentivizes ecological architecture in the form of vertical, rooftop, and green wall farming.
How Land Value Taxation Improves Good-Density
Use It Or Lose It
Vacant lots, ground level parking, and paved or barren areas left unused are commonplace in our cities. In many cases, this is extremely valuable land in central business districts. If a Land Value Tax is applied here, the total tax paid will be drastically higher relative to vacant land further from the city.
Imagine that you are the owner of that vacant lot. Will you continue to leave it unused if the tax bill is much higher? Without Land Value Taxation, you may have left the land vacant because you did not want to take a financial risk to build anything. You were simply waiting for the land value to rise. However, that rising value is taxed away under Land Value Taxation. Thus, you start to view owning the land as less of a passive investment and more as something that can only be beneficial when it is used well.
You must either start generating income from the land to pay the tax, or sell it to someone who will. Similarly, if you own a small building among centrally-located skyscrapers, you will be incentivized to build higher, to generate more income in order to pay the tax and keep what is left over. Use it or lose it, as the saying goes. While there would be no law that said the land must be used for a particular purpose, financial self-interest would drive landowners toward the most efficient use. They would inadvertently be doing what is in the best interest of everyone.
Cumulative Spatial Effect
Under Land Value Taxation, all landlords are faced with the same incentive: meet the market demand for space in the area or sell to someone who will. Cumulatively, more of the demand to use central locations is satisfied and there is less demand to use outlying areas.
The areas with the highest land values pay the highest Land Value Tax. Thus, these high-value areas also have the strongest incentive to build high, while those areas that are lower in value have increasingly less incentive to develop as the need for space was fulfilled in the city center. The incentive to build high exponentially decreases moving away from the city center.
Boost to Urban Farming
Farming can use very little land and still produce a lot of food. The video below shows a man who produced a million pounds of food in one year on only three acres. His permaculture farming techniques could be stacked in buildings closer to the urban core and/or near the city on community farms. Necessity is the mother of invention and such practices could become widespread with the proper economic incentives in place, i.e. a Land Value Tax. Such an operation requires a lot of labor but little land. Therefore, if taxes are shifted off wages and onto land, these activities become more practical and profitable.
More Idyllic Farming Communities Nearby
Environmentally destructive farming practices, such as widespread use of pesticides, only make financial sense when land is cheap relative to labor. The equation is reversed when taxes are moved off labor and onto land. Though cities would welcome more people, it would also make living and working in outlying areas much more affordable too. This is because the cost to buy or rent rural land would decrease and wages for rural workers would increase.
Ultimately, this would give people greater freedom with respect to where and how they lived. Today’s huge monoculture plantations would be broken up, and the resulting farms would employ more labor. An increased demand for such labor would further increase wages.
“No one would want more land than he could profitably use. Instead of scraggy, half-cultivated farms, separated by great tracts lying idle, homesteads would come close to each other. Emigrants would not toil through unused acres, nor grain be hauled for thousands of miles past half-tilled land.” – Henry George, Social Problems
My father’s side of the family were peanut farmers and Angus ranchers in west Texas and east New Mexico. I grew up riding horses, and was active in both 4-H and Future Farmers of America. I even took part in junior bull riding. I thought that Willie Nelson was just about the greatest guy ever. Ok, let’s admit it, Willie Nelson is an amazing person, both as a musician and in his desire to help people and animals alike. The kinds of people Willie really intends to help with his farmer benefit concerts are the type of people I would like to see helped.
Billions of taxpayer dollars go toward subsidizing crop production each year. So often, the supposedly vulnerable members of the agriculture community are held up as an example of why this is a necessary and compassionate policy. Not only is this perception false, but the very image of the struggling, cash-strapped family farmer is one that doesn’t really hold true in the 21st century. In the 1930s, about 20 percent of the U.S. population were actively working in agriculture. Today, it’s only one percent and the rate of new farmers entering the workforce is dropping dramatically.
When we imagine a family farm, we think of the painting American Gothic, Charlotte’s Webb, Babe, and the Hidden Valley Ranch Dressing label. It’s a reminder of how things supposedly ought to be, an idyllic country fantasy of modest people working and often struggling to provide the rest of us with food.
Everyone seems very concerned about the plight of family farmers these days. But, what does the term “family farmer” really mean? Pretty much everyone has a family. What I really want to know is: who are these farmers who don’t have families? They are the ones who really need help!
The USDA claims that 97 percent of farms are family farms. However, this classification relates to the ownership structure and the top-level management rather than who actually works the land. Just 59 percent of farm laborers and supervisors are U.S. citizens. Half of the hired labor on crop farms, according to the USDA, is people not even legally allowed to work in the United States. They are mostly Mexican migrants making abysmally low wages. Farming subsidies surely don’t go to these ‘family farmers’. Many probably miss their families desperately.
‘Small family farms’ as the USDA defines them, operate 48 percent of all farmland and own 47 percent of the value of farm real estate including land and buildings. In 2012, they held 40 percent of U.S. cattle, 89 percent of the horse inventory, and “grew 64 percent of all acres in forage production”. Yet, despite owning so much, they only produce 20 percent of agriculture sales and five percent of the country’s net farm income. Almost half of small farms are “off-farm occupation farms” which means that the operator’s primary occupation is not farming.
Farmers soak up about $20 billion in subsidies each year. Despite the rhetoric of “preserving the family farm,” the vast majority of farmers do not benefit from federal farm subsidy programs. According to Environmental Working Group president Ken Cook, most subsidies go to the largest and most financially secure farm operations.
The first thing to keep in mind is that two-thirds of the farmers counted by the census of agriculture do not get farm bill subsidies. So most farmers don’t get anything… And even within the third that does get money from farm bill subsidy programs, the very large ones dominate. And it’s getting more and more concentrated all the time.
Farming subsidies largely prop up wealthy landowners who are not what we would we would intuitively agree to be real family farmers at all. In general, the concept of the nice old landowning family farmers struggling to make ends meet simply doesn’t exist on a large scale anymore. The average farm household enjoys an income about 15 percent higher than that of the average U.S. family.
Cook goes on to describe to Mother Jones how historical subsidies can be enjoyed by subsequent generations who have no involvement in production:
Absentee owners exist everywhere. Let’s say you and I are brothers. You came to town to be a journalist, I came to work at an environmental group, but we both came from a farm family in Arkansas. If mom and dad give us 5,000 acres in their will, we don’t have to go back down to Arkansas and farm. We’ll get the direct payments automatically for that rice and cotton mom and dad kept growing, and on top of that we’ll get other payments.
What we should do is not only cut off these subsidies to landowners but tax the farmland in proportion to its value. This would enable us to fund government without taxing farm equipment and labor.
This would actually help small farmers, whose major startup cost is purchasing land. But wait, if you tax land, wouldn’t their costs go up? No. Unlike taxing consumer goods, which drives up prices, taxing land has the benefit of not reducing its supply. Somebody always owns it. Taxing it makes hobby ownership less attractive, thus actually lowering the purchasing price.
If you’re an economics wonk, here’s an explanation of taxes on inelastic supply:
If the taxes on labor and equipment were reduced while the cost to purchase land went down too, this would be a boon for families purchasing small plots of land to grow food. Their holding costs for land would be higher, but that would just incentivize them to use land more efficiently, like real family farmers used to do.
We could actually see a resurgence of what we would agree is real family farming. These families could hire a lot of workers and pay them more without the burden of paying wage and sales taxes. And if all of these families were using less land and employing more people at higher wages, family farms could thrive and new farmers could enter the market.