Memorandum by the Henry George Foundation
FILL THE EMPTIES!
Empty homes represent wasted land, buildings
and lives. They are a symptom of market failure and of an economic
system skewed geographically and in favour of those who control
natural resources (such as land) at the expense of those who create
wealth through application of labour and capital to land. Most
existing policy measures are expensive and somewhat futile palliatives.
Recent reports commissioned by Government and
others have recognised that a necessary (if not sufficient) area
of policy that addresses problems of urban renewal, economic justice
and sustainability is tax reform. However the New Labour Government
has so far chosen to ignore recommendations in this area which
would greatly help in the field of housing.
This paper recommends specific short-term measures
that Government could take without delay, which would start a
process of far-reaching reforms leading to better housing, quality
of urban environment and economic justice. In this the Henry George
Foundation is supported by Friends of the Earth, the Town &
Country Planning Association, the Fabian Society, the Green Party
and the Liberal Democrats.
Unlike buildings, which consist of man-made
materials that need maintenance, lose value over time but can
be replaced, land is finite in quantity, unique in location and
cannot be made or replaced. A specific site acquires value not
through what its owner does, but through a combination of its
natural fertility, its location relative to economically significant
features (stations, schools) and the actions of other site owners.
Our system of land tenure, by treating ownership of land in the
same way as ownership of buildings, inequitably grants home owners/occupiers
(and all land owners) unearned financial rewards as well as proper
rights of possession: "quiet enjoyment" of home life
and opportunities for wealth creation and self-improvement (including
improvement to the fabric of their homes).
Currently the increase in house prices (ie land
value) in the south east adds to the wealth of the home owner
more in one day than an average worker could concurrently earn,
pre-tax. Yet the general quality of housing stock continues to
deteriorate, while there are huge shortages of housing in parts
of the country. In other parts, loss of employment has led to
migration and high levels of vacancy. House prices in some areas
barely reflect the cost of buildings, ie there is negligible land
value. Unaffordable homes in the south exist a few hours' drive
from unsaleable houses in the north.
We believe that the existing tax system, by
failing (on the whole) to distinguish between wealth earned and
wealth acquired unearned, helps create many urban problems: unemployment;
dereliction; destruction of communities; and unfair advantages
gained by homeowners in areas of high employment, at the expense
of first-time buyers and those moving from economically depressed
areas. Those who improve their properties can be taxed more highly
upon revaluation for rates or upon sale. Those who neglect their
properties gain from tax exemptions. The whole country suffers.
This is not just a housing problem but we believe
that focusing on empty homes will give the quickest results across
a wide geographic and policy area range. It is self-evident that
both aspects of the housing crisis described above link to urban
degeneration, social and racial tension and many other problems
of urban life, such as lack of funds for transport investment
(since the money is locked up in land values and exploited by
"free riders" using it as collateral elsewhere). The
Urban Task Force (UTF) expressed the issuesand the link
to land valuesas eloquently as any recent study.
Our solution is, in the longer term, an annual
tax on the "unimproved" value of land sites. This land
value taxation (LVT) is used by many countries, such as Denmark,
Australia, South Africa, Hong Kong and some cities in the USA.
It has many forms. Most importantly, we see LVT not as an additional
tax but as a replacement to other taxes that hit "goods"
like wealth creation and urban regeneration. Waste, on the other
hand, is "bad": empty homes and idle land are an affront
to society at large.
The Henry George Foundation (HGF) commented
(Vickers, 1999) at the time on aspects of the UTF report Towards
an Urban Renaissance, (Rogers, 1999) in particular on the
annex Fiscal incentives for urban housing: exploring the options
(KPMG, 1999) commissioned by the UTF and published separately.
The UTF considered and rejected both a greenfield
tax and other forms of one-off levies on owners and developers
whose land gains in value as a result of planning decisions. We
endorse their view, in the light of the three failed attempts
by previous Labour Governments to introduce such economic instruments.
These are "land taxes" but not land value taxation (LVT).
(Blundell, 1994). Much ill-informed criticism of LVT confuses
it with these failed policies, which have completely different
economic effects. Instead of taxing development (which, on the
whole, we want) we should tax the failure of owners to develop
or occupy land in accordance with democratically expressed Local
Plans and public policy objectives.
In a section on Land Assembly the UTF concluded
(p 225) that "a scheme for taxing vacant land" should
be prepared, noting that such a Vacant Land Tax (VLT) works well
in Japan and elsewhere. They also noted that LVT has the same
effect in other countries, which most commonly use it as a "split
rating package", with a tax on land values at a higher rate
than that on the rental value of the building premises. They recommended
that VLT, like LVT, would only work if the value were based on
"optimum use" within a particular locality. This would
make the tax in, say, Chelsea or Surrey much higher than the tax
on the same size of urban site in areas with low land value.
The UTF did not say whether the VLT/LVT would
be a local or national tax. However they implied that it would
be a source of local government finance:
"Thinking about the longer term, and in
view of the growing requirement and expectation to recognise the
value of land as a finite resource, there is the more fundamental
issue of whether our current system of commercial property taxationthe
Uniform Business Rateis the best system to help us manage
our scarce land and buildings resources over the first half of
the next century. We are not the first to consider this question.
The Layfield Committee Report on Local Government Finance considered
the merits of site value rating back in 1976 and concluded that
"the practical difficulties would be formidable". Nevertheless,
experience overseas suggests that it may be time for a re-consideration.
A mixed rating model could provide us with an alternative way
forward. This is, however, a question for others to consider in
In the KPMG annex, it was stated of LVT/VLT
that it was "potentially very powerful", "easy
to understand", and "flexible". It was graded as
the most effective fiscal option at Government's disposal, in
terms of the disincentive it would give to continued holding of
vacant land (and, by implication, buildings).
However on the down side KPMG suggested that
"there may be valuation issues which have to be addressed",
that it was "not suitable for all parts of the country",
that it "discriminates against areas where market is weak"
and against "genuine need to mothball". These points
can all be dealt with (Vickers, 2000).
Immediately the UTF reported, the Town &
Country Planning Association (TCPA) commissioned a series of expert
workshops to discuss openly those fiscal measures which KPMG had
looked at for the UTF under Treasury-in-confidence terms. HGF
was involved in some of these. The result was a report A Taxing
Question, one of whose authors was an adviser to the House
of Commons Environment Committee (Evans & Bate, 2000). One
of the five recommendations of this TCPA report was that Government
should undertake research into LVT, which the authors saw as potentially
the most effective policy to help achieve sustainable urban development.
In December 2000, the Fabian Society's Commission
on Taxation and Citizenship, under the chairmanship of Lord Plant,
published its report Paying for Progress (Jacobs, 2000).
This had a whole chapter on LVT, which it saw as a species of
environmental taxation. Whilst reserving judgement on whether
it should be introduced immediately, they endorsed LVT's advantages.
They said that there should be a series of pilots of the kind
of split-rate local property tax that has only spread to some
twenty run-down cities in Pennsylvania since the Layfield Committee
reported a quarter century ago. The Commission recommended these
pilots should be local authorities with differing economic conditions.
A month later, a report commissioned by the
American Lincoln Institute of Land Policy published research by
a British pair: planner Professor Nathaniel Lichfield and valuer
Owen Connellan. Land Value Taxation for the Benefit of the
Community: Proposals for Legislation and Practice contained
practical ideas for implementing LVT as a local tax (Lichfield
& Connellan, 2000). It is one of six reports commissioned
by the Lincoln Institute since 1995, which are being combined
into a book due out in early 2002.
In its Budget Briefing to the Chancellor in
March 2001, Friends of the Earth (FoE) also recommended LVT, calling
for Government to invite bids from local authorities to pilot
a split-rate property tax gradually replacing UBR. FoE sponsored
a seminar at the Greater London Assembly in April on Sustainable
Taxation. HGF commissioned a study of attitudes towards "The
Green Tax Shift Imperative" following this seminar. The findings
of this research will be published shortly, with the proceedings
of the FoE seminar.
The Institute of Revenues, Rating & Valuation
(IRRV) sponsored three of its members' participation in a study
tour of Pennsylvania's split-rate cities in March 2001, led by
the Chief Executive of HGF. Study Tour members also included a
town planner, land information specialist, valuation tribunal
member, economist, and Labour and Liberal Democrat LVT Campaign
members. The report of the Study Tour will be published before
the end of the year.
Liverpool City Council on 14 June 2000 became
the first local authority for at least sixty years to ask for
permission to pilot LVT in place of the Uniform Business Rate
(UBR). Minister Beverley Hughes has expressed interest in the
work that Lincoln Institute is funding and, at the launch of the
Urban White Paper in London, did not rule out Government in due
course picking up on the UTF recommendation of VLT. However the
Department has continued to state that it does not believe VLT
or LVT would work and simply repeats the arguments that the UTF
used when calling for further studies.
There is no doubt that LVT works elsewhere and
surveys by HGF (Vickers 2000, de Wolf & Beardsley 2001) have
showed that taxpayers in Britain think it should also work here.
The most impressive and immediate effecteven before the
tax is leviedwould be a boost to construction within developed
urban areas, mainly in housing.
This is not just theory: a recent study showed
that between 1975 and 1999 those cities in Pennsylvania (PA) that
adopted split-rate LVT have experienced 16 per cent (on average
and after discounting other factors) sustained higher level of
construction activity for every 1 per cent that their tax on land
values is higher than the tax on buildings (Tideman & Plassman,
2000). We know of no studies that indicate opposite effects and
several that endorse this.
For example Harrisburg, state capital of PA,
was a "basket case" for empty homes, lost jobs and population
and one of the ten most distressed cities in the US in 1980 when
it opted for LVT. Yet on several occasions in the 1990s it was
voted one of the most liveable cities in the US. The number of
empty homes dropped from over 4,000 in 1978 to 450 in 1998.
In Pittsburgh, where the tax on land was ratcheted
up significantly between 1975 and 1990, by the latter date it
was reported in the Washington Post that shelters for the
homeless were being closed because "it was rare to see someone
sleeping in the streets".
Philadelphia, PA's largest city and the only
one with a council having comparable powers to a British city,
has the highest tax on wages in the US. Local income tax has seen
a flight of jobs and people from the city to suburbs. About a
quarter of the city's buildings and land are derelict or under-used.
The City Controller, seeing the benefits that other PA cities
have had from LVT, is publishing proposals this month for introduction
of split-rate property tax as soon as a reassessment of property
values is carried out. He intends to go beyond the split-rate
and to use LVT to replace wages tax. His proposals are endorsed
by the local Realtors (estate agents) Association because they
are confident that the tax reform will lead to revival of construction
and property sales (Rubin & Cooke).
Ten other US states are at various stages of
activating or introducing legislation on LVT. Sponsors of the
legislation include the equivalents of our Chambers of Commerce,
Federation of Builders, Local Government Association, Society
of Local Authority Chief Executives, Mortgage Lenders and legislators
of all parties. American experts in LVT have also regularly visited
Russia and other former Soviet republics to help moves to introduce
Without question or hesitation, Government should
end all tax exemptions that exist for owners of vacant property.
Certain types of industrial premises, second and empty homes and
commercial properties without occupiers at present benefit from
total or partial Council Tax or business rate exemption. It should
at least be in the power of local authorities to remove these
exemptions, where there is a need for housing and empty buildings
and derelict sites are a problem. Such a power need not prevent
reforms of the planning system and/or strengthening of Compulsory
Purchase Order powers: these are inadequate alternatives in the
context of this Inquiry but have merits for other reasons.
Government should also, within the next Parliamentary
1. Include provision for a new class of property
tax payer, the "beneficial owner", in the forthcoming
local government bill;
2. Instruct the Inland Revenue's Valuation
Office Agency (VOA) to prepare plans for separate valuation of
land and buildings for the next 2005 revaluation for business
3. Sponsor research into better ways of using
publicly funded and held geographic information (GI) to link planning,
valuation and property tax systems and consider releasing VOA
data, suitably anonymised to protect confidentiality, to the property
4. Invite councils to join Liverpool and
propose plans to pilot LVT in various forms, perhaps initially
on a very limited scale as part of Business Improvement Districts
If BIDs seem unrelated to empty homes, the link
is this: most of the perceived problems around LVT relate to property
law, valuation and billing techniques and processes. A small number
of time-limited trials by willing partnerships of local authorities
and business groups would enable these problems to be ironed out
and provide the evidence necessary for Government to decide whether
to proceed nation-wide with a reform of property taxes generally.
LVT does not have to be a substitute for only
business rates. It could also replace the Council Tax or other
national taxes. HGF believes that the best long term solution
to the empty homes problem is the replacement or alleviation of
other national taxes (income tax, corporation tax, even VAT to
the extent the European Union allows) which hit less wealthy areas
and sectors of the economy disproportionately. A national LVT
would level the tax playing field and to a large extent obviate
the need for use of central grants for equalising the revenue
potential of regions, companies and individuals.
We visualise a time when, to use a phrase of
American Green campaigner Alanna Hartzok (speaking at a seminar
at the GLA earlier this yearsee below) all members of society
"keep what they earn and pay for what they take". A
huge proportion of national wealth is currently expended non-productively
on benefits, subsidies, tax compliance (by government and taxpayers)
and unsustainable development, largely as a result of disfunctional
taxes. Property taxes cost twenty times less to collect than other
taxes. LVT corrects market failure in land and housing, its benign
effects would reach very widely into many other areas.
HGF is an economic and social science research
and educational charity, with links to over twenty similar foundations
world-wide, some in countries that have LVT. It has published
the international journal Land & Liberty for over a
hundred years, chronicling world events linked to land and tax
policy and economic justice. It is a member of the International
Union for LVT and Free Trade, an NGO registered at the UN, whose
office in London HGF shares.
In April 2000, to help promote a wider debate
and research about the use of "resource rents" for public
revenue, HGF launched the Progressive Forum (PF). A year later
it instituted corporate membership of PF: FoE, TCPA and Kingston
University were the first to join. PF members benefit from access
to all its publications, past and present. A Political Economy
correspondence course, library index and selected journal articles
are among the PF facilities on the Internet at www.progressiveforum.cjb.net.
We plan to launch our own "PFI" (Progressive Forum International)
next April at the World Congress of Surveyors in Washington DC.
HGF's Chief Executive, Tony Vickers, was last
year invited to enrol as a postgraduate research fellow at Kingston
University's School of Surveying. He has been a David C Lincoln
Fellow in LVT at Lincoln Institute since 1999 and was a founder
member of the Association for Geographic Information (AGI) in
1989. His 2000 book Questions around The Smart Tax, setting
out how LVT might be introduced in Britain, is published electronically
at www.smarttaxbook.cjb.net. He convenes a diverse group of academics,
policy consultants and property professionals as PF's Advisory
Committee. He is collaborating with Transport for London and the
VOA in aspects of his research.
HGF aims to provide the focus and forum for
research in this area, in the UK and Europe. It is appointing
a research co-ordinator in 2002 to help link work in London and
Liverpool on the study of the land value phenomenon.
PF undertakes research and outreach to professional
and academic bodies and individuals who share an interest in its
subject area, through conferences and seminars. HGF itself undertakes
publishing and educational work, also engaging in the political
process, such as this response to a Parliamentary Inquiry. In
Scotland, we act through Land Reform Scotland, which we help to
Andelson, R V (ed 2000) Land Value Taxation
Around the World, third edition, Blackwells, Oxford
Beardsley, D & de Wolf, M (2001) LVT
Survey (unpublished report for HGF)
Blundell V H (1993) Essays in Land Economics
London: Economic & Social Science Research Association
Evans R & Bate R (2000) A Taxing Question
Hartzok, A (1997) Pennsylvania's Success
with Local Property Tax Reform: The Split Rate Tax American
Journal of Economics & Sociology 56(2):207-214; New York:
Robert Schalkenbach Foundation
Jacobs, M (2000) Paying for Progress
Report of the Commission on Taxation and Citizenship, London:
KPMG (1999) Fiscal incentives for urban housing:
exploring the options Report for the Urban Task Force, London:
Lichfield, N & Connellan, O (2000) Land
Value Taxation in Britain for the benefit of the community: Proposals
for legislation and practice Working Paper, Cambridge, MA
USA: Lincoln Institute
Plassmann, F & Tideman, N (1999) A Markov
Chain Monte Carlo Analysis of the Effect of two-rate Property
Taxes on Construction Journal of Urban Economics
Rogers, R (1999) Towards an Urban Renaissance
Report of the Urban Task Force, London: E&FN Spon
Rubin, A M & Cooke, G (2001) unpublished
letter to Jonathan Saidel, City Controller, Philadelphia from
Greater Philadelphia Association of Realtors
Vickers, A J M (1999) Paying for Urban Renewal
(unpublished paper in response to Urban Task Force) London: Henry
Vickers, A J M (2000) Preparing for Land
Value Taxation in Britain Working Paper, Cambridge MA USA: