Former UK Prime Minister Tony Blair is supporting a new “land value tax” designed to help solve the housing crisis. Read on to find why he said LVT is a “fairer and more rational system of property taxation”…
Tony Blair Backs Labour’s ‘Land Value Tax’ to Tackle Housing Crisis
Michael Savage
The Guardian
Sat 2 Dec 2017 19.05
Excerpts:
The former prime minister said the new tax, which sees the value of underlying land taxed rather than property, should replace council tax and business rates to create a “fairer and more rational system of property taxation”.
The measure is one of a series of policies designed to tackle the housing crisis included in a new report by the Tony Blair Institute for Global Change. It also backs a new sovereign property fund, to help councils build, and supports the extension of minimum rental tenancies of three years, with a cap on rent rises.
The paper takes on several issues that have been dodged by repeated governments, including loosening protections for the green belt and the obsession with home ownership. It calls on renters to be given longer minimum tenancies, a limit on rent increases and stronger eviction protections.
Home Truths: A Progressive Vision of Housing Policy in the 21st Century
Report by David Adler, Research Fellow
TONY BLAIR INSTITUTE FOR GLOBAL CHANGE
Excerpts from the report:
Executive summary
A housing crisis is sweeping through cities from Sydney to London to San Francisco. Following a short slump in 2008, house prices across the OECD have soared, contributing to a decline in living standards and a rise in wealth inequality. This report sets out a bold new progressive agenda for housing reform.
Introduction
As of 2014, over 60 per cent of OECD countries were experiencing real house price inflation. Housing has become prohibitively expensive not only for low-income tenants — but for middle-income households, as well. Across Europe and North America, the cry for housing reform is growing louder.
But the solutions offered by policymakers have been timid. Most governments tinker at the edges of the housing market: They pledge some money for new housing construction, or they pledge new benefits for first-time buyers. But they shy away from substantive reform that might alienate a constituency of homeowning voters.
This report begins from a broad policy frame. Most standard approaches treat housing as a welfare issue, much like health and education. Housing policy therefore focuses on housing need. But housing is not like the other pillars of the welfare state.
Homeownership has long been an important avenue to establish and expand household wealth, but house price inflation has either blocked off this avenue or required first time buyers to take on large levels of debt to pass through it.
The overall economic effect of house price inflation has been a steep rise in inequality. First, there is growing inequality between housing tenures: while homeowners have gained from rising house prices, renters have been locked out of this wealth generation. In the US, for example, the average homeowner has 36 times more wealth than the average renter. Second, there is inequality between geographies: while some property markets boom, others remain mired in the mortgage debt of the financial crisis bust. Finally, house price inflation has had a dramatic impact on intergenerational inequality. Unlike their Baby Boomer parents, young people today are struggling to save toward a down payment, earning their informal title as ‘Generation Rent.’
Over the last decade, the housing market has put severe strain on communities throughout the West. Following the financial crisis, 9.3 million families lost their homes to foreclosure, displacing them from their communities, ‘silently reshaping neighbourhoods’ across the country as millions are forced from their homes. The rental sector, however, has been even less hospitable to these families and the formation of community around them. The rate of eviction in the private rental sector is reaching record highs in Anglo-Saxon countries, in particular. In England, landlords make use of an ‘accelerated’ or ‘no-fault’ eviction to remove tenants and raise the rent without citing any grievance against them. No-fault evictions are at an all-time high across the country. In the US, an estimated 2.7 million families were evicted from their homes in 2016 alone, and these estimates fail to account for the wide range of informal and illegal evictions that are not recorded. The increasing rate of displacement has bred anxiety among affected households.
POLICIES
The aim is to move away from the superficial solutions of the past to address the underlying ailments causing the housing crisis. Rental subsidies, for example, have provided necessary support to ailing tenants struggling to afford monthly rent. Yet they provide only temporary relief, permitting — if not encouraging — sustained house price inflation. In the process, they drain the public purse, while endangering macroeconomic stability more broadly. If the goal is to design a policy vision that is both sustainable and equitable, such short-termist policies will not suffice. Policies need to transform — rather than tinker with — the housing market.
Community Reinvestment Programme
The housing market is highly unequal. While rewarding the owners of high-value property, it punishes renters that lack the means to buy their own homes. The current system of property taxation only makes this problem worse. Levies like the UK Council Tax are regressive. Meanwhile, levies like the UK business rates discourage housing development, driving up prices in the process.
The Community Reinvestment Programme (CRP) overhauls the system of property taxation to direct the gains from house price inflation toward the many, not the few.
This programme begins with the Land Value Tax (LVT), a levy on the value of land, which is evaluated on an annual or biannual basis. Most property taxes are collected per the value of the property: large buildings with many units are charged at a higher rate than small buildings with few units. LVT focuses instead on the land underneath those buildings.
By doing so, the LVT improves both the efficiency and the equity of the housing market. One of the primary drivers of the housing crisis is a basic shortage of supply. If new construction does not keep up with new housing demand, then prices rise while competition over scarce housing intensifies. LVT sets up strong incentives for new housing development — collecting large amounts of tax revenue for reinvestment along the way.
“Buy land,” Mark Twain once wrote, “they’re not making it anymore.” Land is a fixed, immobile asset: you cannot make more of it, and you cannot move it overseas. Its taxation therefore cannot result in a decline in land supply, whereas taxes on property may lead to a decline in construction. Instead, the LVT encourages land owners to make most efficient use of their land. In the case of the UK, under-utilization of land is a significant barrier to housing production. Many of the largest house builders have amassed large ‘land banks,’ with upwards of 600,000 plots lying undeveloped. Under the existing tax regime, land banking is highly profitable: property owners are not taxed for vacant land, even as it grows in value. The LVT corrects for this. With the LVT, property owners would have a strong incentive to build on their land, as they would be taxed for it regardless. These efficiency gains are part of the reason that the land value tax has garnered near unanimous support from mainstream economists.
“Roads are made, streets are made, services are improved, electric light turns night day,” Winston Churchill wrote, “and all the while the landlord sits still.”. The current tax system allows a small number of landowners to reap large windfall gains from public infrastructure investment. LVT aims to provide a greater share of prosperity to the wider community. New transportation systems, for example, raise the value of the neighbouring land — but the owners of that land do not share the burden of costs for their development. The LVT can capture the surplus value by taxing the value of the land around it, reinvesting the gains back into the community.
By encouraging new housing development, the LVT eases pressure on local housing markets. New housing supply lowers prices, protecting families from rent-based displacement. And new housing supply diffuses competition between native and non-native residents. Meanwhile, LVT protects the economy against the formation of speculative housing ‘bubbles.’ By taxing the land irrespective of the structures on top of it, the LVT discourages short-term property speculation and boosts macroeconomic stability.
There have been several cases of Land Value Tax implementation. These range from Australia to Estonia, Hong Kong to the US. Pittsburgh, the largest American city to employ the tax, was able to boost government revenue with ‘no damaging side effects on the urban economy.’ Harrisburg, another city in Pennsylvania, had a similarly positive experience with the policy: from its introduction in 1982, taxable property increased by more than 500 per cent, while vacancy fell by 80. Other countries are in the process of shifting toward the LVT today. Australia is currently in the process of shifting toward a simplified LVT. Many states in Australia currently operate a land tax, with diverse regulations about its implementation — in some cases offering exemption to farmers, and in others offering exemption to primary residences. Denmark, meanwhile, has operated a land value tax since 1924, allowing local authorities to decide on local rates to determine local revenues.
Policymakers have a variety of strategies to mitigate the pain from [tax] shift. One strategy involves the design of the LVT. Policymakers choose the percentage at which they will tax the land, and policymakers choose the exemptions that they make from its application. A high rate of LVT can maximize tax revenue and reduce land speculation drastically. An LVT tax of five per cent LVT would raise £92 billion each year — three times the council tax revenue. The new revenues would not only be able to fund large-scale investment in housing construction—it could enable a major infrastructure programme to stimulate economic growth and job creation on a much larger scale. A lower rate of LVT, on the other hand, can keep the tax burden neutral, or allow homeowners to deduct land levies from their income tax.
Another strategy involves implementation. The LVT can be phased in over a five- or ten-year period, replacing property taxes piece by piece. Another possibility, targeted specifically at asset-rich and cash-poor households, allows homeowners to defer LVT payment until the point of death or sale, at which time the LVT would be phased in permanently.
Property tax reform is long overdue. In cities across the OECD, landowners have reaped massive windfall gains from housing shortages on one hand, and public investment in infrastructure on the other. The Land Value Tax attacks the housing crisis at its root, shifting the market away from speculation and toward provision.
The flexibility of the LVT — and the broader Community Reinvestment Programme — suggests its feasibility. [CRP Elements:]
Re-zoning – Up, Out, & In
If the LVT sets up the incentives for new housing development, an ambitious re-zoning programme unlocks the land on which to build it. This programme draws together three reforms in the designation of development rights and obligations. First, it reduces restrictions on density to increase efficiency of land use — ‘up-zoning’. Second, it extends development rights into undeveloped areas to expand housing production — ‘out-zoning’. And third, it mandates affordable housing provision in these unlocked areas — inclusionary, or ‘in-zoning’.
Sovereign Property Fund
A sovereign property fund (SPF) is a national endowment that supports property acquisition by local councils for the express purpose of housing construction and rehabilitation. Several cities across Europe and North America already engage in the practice of public land banking, reclaiming underused property and redirecting it toward community use.
Rapid Transit Network
The Rapid Transit Network (RTN) is an ambitious infrastructure programme that connects central urban districts to peripheral zones through a combination of rail, bus, and bicycle networks. The RTN connects these workers more effectively to the areas of concentrated employment, reducing commute times and improving the attractiveness of peripheral residential zones.
Renewing the Renters’ Social Contract
It is time to renew the social contract with rental sector tenants. Tenants suffer higher levels of exclusion in almost every domain of civic life: social, cultural, financial, and material. These disadvantages flow, in part, from their disenfranchisement in the rental arrangement, subject to price hikes, evictions, and dislocation from tenancy to tenancy. A new social contract, then, consists in three components. First, it extends the standard minimum tenancy to three years. Second, it limits rental inflation over the course of this contract to the consumer price index. Third, it lends stronger protections from unwarranted eviction.
