SIR – Allister Heath makes a powerful case for not taxing property (Comment, February 13). However he concedes that “long-standing homeowners have made vast, untaxed capital gains as prices have shot up.” He explains that the answer is to build more houses, not to tax unrealised gains via a mansion tax.
He makes no mention of Site Value Taxation (SVT), which is a vastly better alternative to a mansion tax because it is based on the value of the land alone – not on buildings or other improvements. Under this system development is encouraged because – unlike a mansion tax – developments have 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; refurbishing, or adding structures, has no effect on the amount of tax payable each year. Further, being based on land, it cannot be hidden, dodged or shifted!
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?
Councils complain that a high percentage of their housing units have no registered voters living in them, blaming 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 it 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 SVT tax would cure this aberration at a stroke. The tax would be met out of the surplus value (what classical economists referred to as the “economic rent”), created by the community. This is how Hong Kong paid for its incredible transport infrastructure.
With a new government and a new Chancellor, some new thinking is needed.
Emile Woolf FCA – 13 February 2020