…or why we would still need Land Value Tax even if everyone had a home.

One of the most common responses to the suggestion that Land Value Tax would be an equitable way of solving housing shortages is that “we don’t need more tax, just looser planning regulations” enabling landowners to release more (and predominantly rural) land for additional housing. You can see these arguments out in force in the comments to a recent posting on LVT by PragueTory.

It is also the core logic of Kate Barker’s report on the housing market which the government has decided will pretty well be the bible for housing policy – that housing problems are due mainly to a shortage of supply of building land. And this has fed through to well-meaning but misguided local policies such as that building thousands of homes at Grenoble Road in Oxford will somehow solve Oxford’s housing affordability problem (which even prominent members of the Lib Dem administration are now supporting despite what I thought was a manifesto commitment to look seriously at other options first).

I am also in fairly frequent correspondence with a brilliant guy called Kevin Cahill, who has done much research to produce tomes such as “Who Owns Britain” detailing the inequity of land distribution in the UK, and now in his latest, across the world as a whole in “Who Owns the World: The Hidden Facts Behind Landownership“. He too does not seem to understand, given that there is approximately one acre available for every man woman and child in the UK, why Land Value Tax would still be necessary if you made more of the 93% currently non-urban land in the country available for housing.

The mathematics is simple, say all these people, we don’t need to concrete over the countryside. Providing 0.1 acre for each unhoused household in the UK would only consume about 200,000 acres in total, or about a further 0.5% of the land surface (or a mere seven per cent increase in the seven per cent of land currently developed), to satisfy the total demand for the next ten years (2 million additional homes). And so we should not be scared of doing so on the trumped up pretext that we’re threatening to destroy this green and pleasant land.

But this argument is why the planning system, and especially the predict and provide school of planning, cannot actually solve the problem just by throwing more land at it. You cannot predict where people will actually want to live. And land values are determined not merely by the supply and demand for absolute amounts of land, but much moreso by the supply and demand for particular locations.

To go back to the Oxford proposal again for a second, what they are suggesting is tacking four thousand or more homes onto the edge of what when it was built was the largest council estate in Europe apparently, and what now is the most deprived “super output area” in the county. And in fact the newer bits of that estate, developed in the last twenty years or so, have led in this “rush to the bottom” – and in that short time have become more deprived on all measures than even the more mature part of the estate adjacent to it.

Would I want to live in one of these new homes? Probably not, at least if I were working still at Brookes. It’s almost the furthest point from Brookes one can get in East Oxford. Obviously the success of this new “community” (though how you actually create a “new community” out of thin air, or bare ground in this case, escapes me) would depend to a very great extent on how many of the facilities that make elsewhere in the city attractive – schools, shops, transport links, workplaces, entertainment places and so on – you choose to duplicate in that new area. And to do so properly will require vast expenditure that would, frankly, leave the current landowners (mostly Magdalen College and Thames Water) hoping to make a mint out of their holding, getting next to nothing for their land. Well, certainly nothing next to the prices prime residential land within the city attract at the moment – but in the volume they are talking, probably more than enough to keep the college cellars well stocked for the foreseeable future!

Now, a year or so ago there was a proposal from the Labour Land Campaign – the main advocates of Land Value Tax in the Labour movement in the UK – to “rebrand” Land Value Tax, and call it instead, in public campaigning at least, “Location Benefit Levy”. Most of the rest of us in the wider “Georgist” movement poo-pooed the idea, thinking it would confuse people who had heard of LVT. But you know, on reflection, who has? Enough to be worried about confusing? Most people I know who have heard of LVT actually understand it is about locational value first and foremost anyway. But for those who haven’t, it might remove one early hurdle to their gaining an understanding of it.

Anyway, why I mention that is that it is important to realise that while Land Value Tax is levied on the quantity of land and its value in the marketplace at its optimum permitted use, the thing that actually creates value, that makes one place less affordable than another, is its location. And 4,000 new homes in an unattractive location will but make little dent on affordability in Oxford as a whole. So we will have yet more of a “rush to the bottom” for those new homes and they will become what is known as the new “margin of production” in Oxford’s land values. It would have to be something very special to attract long term-looking buyers – something perhaps such as they did at Vauban in Frieburg – though even that has the singular advantage, not repeated with Grenoble Road or other urban fringe proposals in the UK, of being much closer to the old town centre (and therefore suitable for a wider mix of residents, including halls of residence for their university and so on better reflecting the makeup of the whole town).

But I digress (as usual). That location value – the benefit, perhaps, of having bought your council house next door to what is now my place of work when the university was but a dream of John Henry Brookes and didn’t really affect land values around it – is still something that the landowner, as a landowner, has done nothing to earn. And, being unearned, and furthermore being something that actively excludes those who now, arguably, justify living there more but can no longer afford to do so, it is, to paraphrase Adam Smith and Milton Friedman, still the best base to tax.

Until we invent a Star Trek style device to transport us instantaneously from A to B there will still be exceptional and unearned profit to be had from particular locations and whilst, by building more housing somewhere else one may make a small dent in that for a short time, the only way to even out the relative affordability of different locations is to have a “Location Benefit Levy”. Building more homes on the outskirts will not reduce the pressures on more popular locations significantly on its own. Indeed, it could well simply increase the premium to be reaped for the better locations and bring more “gentrification”.

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