Site value taxation
This is a tax on land values, based on the value of the land alone – not on buildings or other improvements. Under this system development is encouraged because it has absolutely no effect on the amount of tax payable.
It is stressed that the amount on which tax is assessed relates only to the unimproved value of the land: buildings and other structures on the land are simply ignored. There is thus a huge incentive to improve properties in order to realise their full rental potential, and refurbishing or adding structures has no effect on the amount of tax payable each year. And being based on land, it cannot be hidden, dodged or shifted!
To highlight the importance of these features just consider, by way of contrast, what is happening closer to home, where hundreds of thousands of homes across the UK are unoccupied despite widespread concern over the housing shortage. Why on earth would someone own a property and leave it vacant?
Islington Council complains that a high percentage of its housing units have no registered voters living in them. The authority blames a phenomenon known as “buy-to-leave” whereby investors, often from abroad, buy property and leave it empty, thus exacerbating the capital’s housing shortage. This is undoubtedly a significant factor behind the travesty of having over 200,000 homes in England empty for more than six months. Their owners don’t have to do anything – they just watch and wait. The shortage they have helped to create guarantees higher property values, providing them with a source of wealth they have done nothing to earn but which they can access if and whenever they choose.
London’s Jubilee Line cost £3.5 billion to construct, yet added £13 billion to land values along its route. The £10 billion bonus went into private hands that contributed nothing to the cost. Even a modest land value tax would cure this aberration at a stroke. The tax would be met out of the surplus value, created by the community, and that surplus is what classical economists referred to as the “economic rent”.