Home Economics Spot The Argument In Favour Of Land Value Taxation

Spot The Argument In Favour Of Land Value Taxation

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The Land Value Taxation argument is that “You didn’t build that”. The value of a plot of land in a city is not the value that the landlord has added to it. Rather, it’s the value that has been added by other people building a city around that plot of land.

We do need to tax because while we might well benefit from a lot less government than we currently have at least a modicum of it does lead to a better life. We desire to tax in a manner that has the least disincentives to do useful things. If we tax capital investment then we get less capital invested which makes the future poorer. Tax incomes and fewer people go out to work to make incomes. Tax consumption and people consume less.

Tax land values and, well, the tax upon this piece of land here doesn’t change the activity of people building a city around that piece of land. So, we get our necessary tax without anyone suffering a disincentive to do stuff that enriches the rest of us. Or, in more jargony terms, land value tax is the one tax with the lowest deadweight costs – possibly even negative deadweights at times. We know that because St Milt told us so.

At which point an interesting little example:

Britain’s biggest association for property developers has warned of the damaging impact of government plans to allow high streets to be converted into housing without planning permission.

So why’s that then?

The BPF said that it would lead to developers prioritising residential conversions over lower-value retailers, restaurants, crèches or community hubs, which will be required to increase footfall in town centres when it is safe to do so.

Well, if residential is worth more than those lower value retail outlets then we’re all made richer by having the residential. Moving an asset from a lower to a higher valued use is the very definition of wealth creation.

Except that’s not true for the owners of those central retail properties. Having that penumbra of lower value retailers surrounding their properties increases footfall and thus the value of their central retail properties.

The actions of other people – those smaller shops – increases the land value at the centre. Thus they’re arguing that people should not be allowed to increase the value of their own property – convert to residential – because it will reduce the spillover values to these central landlords.

Which is just where we came in with our justification for land value taxation, isn’t it? That we should be taxing the spillover effects of the actions of others on land values….

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