Labour and the land
By D. J. Webb.
Note: the Libertarian Alliance does not endorse candidates or parties in the general election. This article is offered for discussion and should not be construed to constitute advice as to how to vote.
A brief note.
While immigration and multi-culturalism are my main issues at election time, the London attacks have just underlined that Theresa May has no intention of devising a proper response to terror. She wants more refugees to come in, refuses to deport the 23,000 known jihadis, and favours continued mass immigration.
I’ve decided not to give her my support. I’m toying with voting Labour for the first time in my life owing to their support for the libertarian land value tax.
UKIP might have got my vote, but Paul Nuttall has genuflected once too often before the multi-cultural altar. True, so has Labour, but the only reason to vote UKIP is as a protest, and if they don’t embody support for an English England, where is the protest?
A land value tax, or LVT, is not based on snooping round conservatories, but on the raw site location value. A empty plot next to a plot with a house on have the same LVT. It’s not about the building; it’s the site location. In London, a house can cost over £1m, but the rebuild value can be £150,000. To simply subtract the rebuild cost from the property value to get the land value is not exactly right, but I use this as an approximation and derive a land value of £850,000. Most of the value is simply because the land value in London is so high. I would impose a 1% tax on the site location value. In this example: 1% of £850,000 would be £8,500.
If Crossrail is built near the house (with public funds raised by taxes on income) and the property value rises to £2m then the LVT would be 1% of £1,850,000, i.e. £18,500 a year. The point is to capture the socially created rise in land values (a monopoly windfall created by public spending) for social use. J S Mill supported the LVT as the chief means of taxation. Taxes on land are much fairer than taxes on labour or capital: libertarians oppose taxes on labour and capital.
The LVT would crash property prices — that is its advantage — but would also restrain price increases. E.g. if Crossrail is built near the house causing the LVT to rise sharply, then maybe it would deter purchases, and the property value would rise only to £1,500,000, raising the LVT to £13,500. Or more likely, a proper LVT would halve property values all over the UK, so that the £1m house went down to £500,000 with an LVT of £3,500 a year, with the Crossrail project increasing the property value to £750,000, raising the LVT to £6,000.
Let no one pretend this is unfair. Freeholders benefit from the wealth effect of land appreciation that they have not contributed towards. They capitalise public spending in their property values. This has all sorts of ramifications: you can’t expect a senior civil servant to work for £100,000 because he would be unable to buy a house in London. NHS trust executives demand £700,000 a year for the same reason. Reduce property costs and the state will be able to reduce high-end civil service salaries commensurately.
Most of the cost of care homes for the elderly is also in the land value, in the form of rents paid by the care homes. We need to bring these rents down if we are to afford elderly residential care. Social policy has become too much of a one-way ticket to wealth for freeholders. England is crying out for an LVT.
As I said before, subtracting the rebuild price from the property value ignores many factors. In the north there are many older terraced houses that would certainly cost more to rebuild than the current property value. This partly reflects the fact that the houses are 100+ years old. You can find houses for £30,000 or less in the north, but they are decrepit old houses, and I doubt you could rebuild them for £30,000. This suggests their LVT would be zero. But a more exact way of working it out would be a cadastral land value approach. Ignore the building entirely and work out what a bare plot that size would cost in that area. Council surveyors would not need to visit each plot: every house down the street would be assumed to have the same land value per square foot of empty land and all they would need to know is the size of the plot. To make things even simpler, you could assume the same land value in each borough as an average.
E.g. Southwark in London could work out average land values per square foot of undeveloped bare land and apply that to all properties in the borough without trying to work out differential values per street. Huddersfield could work out its own average land value per square foot. So could Reading, etc. It would make it very simple to calculate the LVT — no appeals would be accepted. In every borough the average land value per square foot of empty plot (with planning permission) would be worked out every year, and the LVT adjusted accordingly.
In the town I live in a 500,000 sq ft plot of land with outline planning permission for 130 homes has gone up for sale, with a guide price of £2m. This equates to £15,385 per home. Of course there are homes of varying sizes planned there, but my LVT proposal would give them an annual LVT (to replace council tax, inheritance tax and stamp duty) averaging £154 a year (probably well under £100 for terraced homes and around £300 a year for detached homes). If the £1m plot for sale in North Hinksey village outside Oxford with planning permission for three large detached houses fetches the asking price the land value would be £333,333 per home, with an LVT of £3,333 a year.
Note that I stated the LVT replaces the council tax. Council tax is chargeable – gasp! – to tenants, who don’t benefit one iota from the socially created uplift in land values. It is the landlords who would be responsible for the LVT. The LVT replaces inheritance tax – no one should pay inheritance tax on income or investments (labour and capital). Buying a house is not an investment. Just holding an empty plot empty is not an investment. The LVT replaces stamp duty – stamp duty deters transactions, but the LVT encourages transactions by deterring wasteful use of prime land. Those living in London on £2m plots who can’t afford £18,500 LVT a year can’t afford to live there, full stop. We should stop subsidising the land scroungers. I would call the LVT the Alfa payment: the anti-land fraud assessment payment.
Labour’s own proposals are not well thought-out. They propose a tax of 3% of the value of the land, and propose to work that out by assuming that the value of the land accounts for 55% of a home’s value. Clearly this ignores the fact that buildings of varying value exist, and you can’t assume that 55% of a home’s value is in the land. In northern towns like mine, where I showed above a terraced house would have a land value of under £10,000, this means of calculating the LVT would see terraced houses of £40,000-50,000 charged an LVT on a fake figure well above the real land value. In London the land value would account for much more than 55% of the property value. Maybe Corbyn doesn’t want to be faced with a large bill for any London properties he owns. Labour’s proposal equates to a tax of 1.65% of property value regardless of the land value. I would urge them to forget snooping round conservatories and concentrate on the land only: the building value is the result of personal investment, the land value isn’t. Nevertheless, to the extent that they would crash the housing market, Labour’s proposals have to be welcomed.