tag:theconversation.com,2011:/africa/topics/land-value-tax-22320/articlesland value tax – The Conversation2024-01-23T13:57:58Ztag:theconversation.com,2011:article/2213462024-01-23T13:57:58Z2024-01-23T13:57:58ZCould taxing land more than income fix the UK housing crisis?<figure><img src="https://images.theconversation.com/files/570054/original/file-20240118-28-g7dvv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://unsplash.com/photos/brown-grass-near-body-of-water-during-daytime-sHwG19w7ysY">Giulia Hetherington|Unsplash</a></span></figcaption></figure><p>Fifty years ago, a group of activists <a href="https://www.theguardian.com/world/2024/jan/17/centre-point-occupation-housing-homelessness-1974-anniversary">occupied</a> London’s Centre Point Tower in a fabled episode of direct action on housing. At the time, in January 1974, England was beset by rising homelessness and too many empty homes. One of the protesters, Ron Bailey, recently <a href="https://www.theguardian.com/society/2024/jan/17/fifty-years-on-could-we-see-another-centre-point-style-housing-protest">pointed out</a> that this situation “was pretty much like now”.</p>
<p>In fact, the housing crisis is worse now than it was then. In 1974, councils were still building public housing. And house prices and rents were not running as far ahead of earnings as they are today. In the 20 years to 2022, <a href="https://www.ons.gov.uk/peoplepopulationandcommunity/housing/datasets/ratioofhousepricetoresidencebasedearningslowerquartileandmedian">median prices have risen</a> from five to eight times earnings across England, and from seven to 13 times in London.</p>
<p>Quite what is driving this housing cost crisis is a matter of debate. Scholars and politicians agree that supply needs to increase, across the private and, particularly, the public sectors. However, the shortfalls in private newbuild housing – which are often local or sub-regional – do not explain why housing costs so far exceed people’s ability to cover them. </p>
<p>Along with my colleagues <a href="https://profiles.ucl.ac.uk/47330-phoebe-stirling">Phoebe Stirling</a> and <a href="https://www.ucl.ac.uk/bartlett/planning/andrew-purves-">Andrew Purves</a>, I <a href="https://journals.sagepub.com/doi/full/10.1177/09697764221082621">have shown</a> that this disconnect is due to the economic shift, in the latter part of the 20th century, that saw housing transformed from a home into an asset. </p>
<p>Economists, often inspired by the work of <a href="https://www.economist.com/free-exchange/2015/04/01/why-henry-george-had-a-point">Henry George</a>, have long proposed a solution to this problem: a regular tax on land values. Balanced by lower taxes on work, such a levy could play a significant role in easing the housing cost crisis confronting UK families. </p>
<figure class="align-center ">
<img alt="Terrace houses on a London street." src="https://images.theconversation.com/files/570070/original/file-20240118-24-old0n0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/570070/original/file-20240118-24-old0n0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/570070/original/file-20240118-24-old0n0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/570070/original/file-20240118-24-old0n0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/570070/original/file-20240118-24-old0n0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/570070/original/file-20240118-24-old0n0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/570070/original/file-20240118-24-old0n0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">CAPTION.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/a-row-of-brick-houses-with-white-windows-DRsaC2d822E">Collins Independant|Unsplash</a></span>
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<h2>How housing became a financial asset</h2>
<p>At the root of the housing cost crisis is the transformation of housing into a private asset in the 20th century. Successive UK governments worked with financial lenders to activate demand for private housing and shrink the role of the state as direct provider of council homes.</p>
<p>Reduced credit controls in the 1970s, and further banking deregulations, made it easier for families to secure bigger mortgage loans on easier terms and with smaller incomes. Banks and building societies were encouraged to offer a wider range of products, culminating in buy-to-let mortgages <a href="https://www.campionssolicitors.co.uk/history-of-buy-to-let-mortgages">in 1996</a>.</p>
<p>House price growth outpaced underlying inflation and UK housing became a magnet for domestic and international investment. It was now an asset: better than a pension, and the focus of families’ financial aspirations across generations.</p>
<p>UK governments came to see house prices as a barometer for the health of the economy and a political goal. The underlying value of land on which housing sits is now the foundation for the UK economy.</p>
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<img alt="A row of buildings reflected in a body of water." src="https://images.theconversation.com/files/570071/original/file-20240118-23-mp95i5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/570071/original/file-20240118-23-mp95i5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/570071/original/file-20240118-23-mp95i5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/570071/original/file-20240118-23-mp95i5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/570071/original/file-20240118-23-mp95i5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/570071/original/file-20240118-23-mp95i5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/570071/original/file-20240118-23-mp95i5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">CAPTION.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/brown-concrete-building-near-body-of-water-during-daytime-UD4RP6eqr7Y">Jonny Gios|Unsplash</a></span>
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<h2>Why we should refocus tax on land values</h2>
<p>Homeowners have a “beneficial interest” – an economic stake – in land values, which may rise without any investment or improvement by the owner. The removal of regular tax on that beneficial interest, via the <a href="https://www.legislation.gov.uk/ukpga/1963/25/part/II/chapter/II/crossheading/abolition-of-schedule-a-tax-and-taxation-of-rents-etc/enacted">1963 Finance Act</a>, was one of the ways that government activated demand for private housing.</p>
<p>Reducing tax on earnings and, instead, returning to some form of a regular land value tax would help to solve the housing crisis. This land value tax would be fixed to ownership of any housing and distinct from council tax, as is the case in much of Europe and across the US.</p>
<p>This would increase net workplace earnings. It would also suppress house prices. The relationship between the two, and the extent and speed of any price adjustment, would depend on the balance of tax liability (between earnings and land value) and how quickly the shift happened: too fast and the market would go into shock. </p>
<p>Such a change has the potential to keep people, the over-50s in particular, in the job market. The financial reward from work would increase while the reward from just owning housing, and benefiting from rising land values, would decrease.</p>
<p>It would also make it nonsensical to leave homes empty. Owners would face a tax liability that could either be met by rental income from the building or avoided by selling up. </p>
<p>If taxes on land were to become a bigger part of a household’s liability, then keeping a second home, for amenity or investment, would effectively double that liability.</p>
<p>By increasing the price of luxury or speculative property ownership in this way, taxing land values would help to ensure that land, and the housing on it, is put to productive use, in the sense of being fully occupied. </p>
<p>Overall, it would reduce wealth inequalities centred on housing and restore the function of housing as home, as opposed to asset. </p>
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<img alt="A colourful row of terrace houses in England." src="https://images.theconversation.com/files/570073/original/file-20240118-29-he3dfd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/570073/original/file-20240118-29-he3dfd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=441&fit=crop&dpr=1 600w, https://images.theconversation.com/files/570073/original/file-20240118-29-he3dfd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=441&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/570073/original/file-20240118-29-he3dfd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=441&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/570073/original/file-20240118-29-he3dfd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=554&fit=crop&dpr=1 754w, https://images.theconversation.com/files/570073/original/file-20240118-29-he3dfd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=554&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/570073/original/file-20240118-29-he3dfd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=554&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">CAPTION.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/multicolored-concrete-houses-h95mT1m9Zzs">Bethany Opler|Unsplash</a></span>
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<h2>Why a land value tax is fair</h2>
<p>A regular tax on beneficial interest in land is not an attack on aspiration. It is a means of ensuring that families have affordable access to the housing they need, by re-centering the economy away from housing-based rentierism (making money solely by owning housing).</p>
<p>Land values are created by the agglomeration of human activity. House prices (of which land values are the major component in the highest value areas) increase as cities grow, economies strengthen, and infrastructure is upgraded. Taxing this unearned rent (land values) is therefore fairer than taxing work.</p>
<p>Lots of people would of course object. Private landlords would seek to recover land tax losses through higher building rents. This would be tempered, however, by the release of empty homes to the sale and rental markets. Families would find it easier to buy the homes they need without such a strong asset motive for ownership. </p>
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<img alt="Buildings on a junction in a small English town." src="https://images.theconversation.com/files/570072/original/file-20240118-23-xk277k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/570072/original/file-20240118-23-xk277k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/570072/original/file-20240118-23-xk277k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/570072/original/file-20240118-23-xk277k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/570072/original/file-20240118-23-xk277k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/570072/original/file-20240118-23-xk277k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/570072/original/file-20240118-23-xk277k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">CAPTION.</span>
<span class="attribution"><a class="source" href="https://unsplash.com/photos/brown-and-white-concrete-building-during-daytime-Z9ox5bWHfpg">Liv Cashman|Unsplash</a></span>
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<p>The wider rentier economy, built on untaxed land values, would be floored by a comprehensive taxing of ground rents. But replacing high-land values and low productivity with a focus on productive investment, employment growth, higher rewards from work and more broadly shared prosperity, would be a positive shift. </p>
<p>As the economy restructures away from rentierism, lower land values would make it easier for councils, once again, able to build homes, including in new towns. </p>
<p>Fifty years ago, housing campaigners risked prison to highlight how desperately people needed decent places to live. Without a significant shift away from the <a href="https://rgs-ibg.onlinelibrary.wiley.com/doi/abs/10.1111/j.1475-5661.2009.00366.x">extractive</a> economic model that spawned the housing crisis, the country will continue to be blighted by empty homes and spiralling housing costs.</p><img src="https://counter.theconversation.com/content/221346/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nick Gallent has, in the past, received funding from UKRI, various charitable funders, including RICS, RTPI and housing groups, and from government. He is a Trustee of the Town and Country Planning Association and a Fellow of both the Royal Town Planning Institute and the Royal Institution of Chartered Surveyors </span></em></p>Transferring the tax burden away from people’s earnings and back on to the value of any land that they own would reframe housing as a home, not an asset.Nick Gallent, Professor of Housing and Planning, The Bartlett School of Planning, Faculty of the Built Environment, UCLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1068412018-11-13T19:03:15Z2018-11-13T19:03:15ZStamp duty fever: the bad economics behind swapping stamp duty for land tax<figure><img src="https://images.theconversation.com/files/245245/original/file-20181113-194494-19rdn8k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Eliminating stamp duty would bring on more real estate transactions, but that might not be a good thing.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>To paraphrase former prime minister Paul Keating, walk into <a href="https://www.smh.com.au/politics/federal/plenty-of-bark-any-bite-20101028-175mv.html">any pet shop in the country</a> and you’ll find the resident galah saying we should swap stamp duty for a land value tax.</p>
<p>Just about every economic think tank in the land thinks it’s about the best value tax change there is, among them the <a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">Grattan Institute</a>, <a href="https://percapita.org.au/our_media/replacing-stamp-duty-with-broad-based-land-tax-could-increase-revenue-to-11-2-billion-by-2047-new-report-shows/">Per Capita</a>, the <a href="http://www.tai.org.au/sites/defualt/files/P149_Tax%20the%20need%20for%20change.pdf">Australia Institute</a>, and the <a href="https://www.cis.org.au/commentary/articles/dominic-perrottets-reforms-are-welcome-but-the-government-must-break-its-addiction-to-this-bad-tax/">Centre for Independent Studies</a> as well as <a href="https://www.thepolicyspace.com.au/2015/25/58-five-ways-to-reform-state-taxes">a swag of academics</a>, the Treasury in its work on the <a href="http://bettertax.gov.au/files/2015/03/08_GST-and-State-Taxes.pdf">draft white paper for tax reform</a> and the <a href="http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/Papers/Final_Report_Part_2/chapter_g2-2.htm">Henry Tax Review</a>.</p>
<p>Among the benefits of what I will call SD4LVT are said to be greater ease in upsizing and downsizing, a more mobile population (less reluctant to buy and sell houses) and a more reliable source of revenue for state governments.</p>
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Read more:
<a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">Abolish stamp duty. The ACT shows the rest of us how to tax property</a>
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<p>One state, the Australian Capital Territory, has already begun a <a href="https://www.revenue.act.gov.au/tax-reform">20-year</a> phase out of stamp duty and a 20-year build up of land tax.</p>
<p>But beneath the near universal enthusiasm for SD4LVT are layers of bad economics.</p>
<p>It is extremely frustrating to me that the leading minds in Australian policy have put their heads together and decided that the best reform they can think of is to replace a good tax on property with another good one that would be even less popular.</p>
<p>The more thoughtful among them don’t even bother to claim that SD4LVT will make housing more affordable, yet still put it forward as the “holy grail” of tax reform.</p>
<p>It is bad economics because of four key points its proponents miss or overlook.</p>
<h2>Price effects</h2>
<p>Stamp duty comes out of what the buyer is prepared to pay. This means that if you remove it, all other things equal, prices will rise by exactly the amount of the duty removed. </p>
<p>If the average home price is A$500,000, and buyers pay a 5% stamp duty, taking the total to A$525,000, then when stamp duty is removed the price will immediately increase to $525,000 being what the buyer was prepared to pay.</p>
<p>If you replace the stamp duty revenue with revenue from land value taxes, the effects on price are less clear. The change could push them up (enriching sellers) or it could push them down.</p>
<p>Imagine an example economy with:</p>
<ul>
<li>20 houses </li>
<li>Turnover of one house each year (a turnover rate of 5%) </li>
<li>An average home price of A$500,000 </li>
<li>Average land price component of A$250,000</li>
<li>Total stamp duty revenue of A$25,000 per year</li>
</ul>
<p>Replacing the A$25,000 stamp duty revenue with a land value tax requires taxing all 20 homes at A$1,250 per year each.</p>
<p>Whether the market price of homes rises or falls depends on whether buyers think the cost to them of A$1,250 per year is lower or higher than the A$25,000 upfront stamp duty they avoided. If they thought it was about the same, SD4LVT wouldn’t much affect prices. </p>
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<strong>
Read more:
<a href="https://theconversation.com/killing-off-stamp-duty-a-good-policy-that-no-politician-supports-38536">Killing off stamp duty: a good policy that no politician supports</a>
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<p>But what if turnover was half that, say 2.5%, which in this example would be where one house was sold every two years? In that case, the total stamp duty to be replaced would be A$12,500, which would be only A$625 per house in land tax.</p>
<p>The new buyer could pay A$512,500 for the house plus A$625 per year in land tax and be equally as well off as paying A$500,000 for the house plus A$25,000 in stamp duty. </p>
<p>The net effect would be a 5% land price increase from A$250,000 to A$262,500</p>
<p>If that happened nationally it would mean a transfer of almost A$200 billion to existing owners.</p>
<p>Whether or not that did happen would depend on the turnover and buyer’s views about the future value of money. In short, the price effects of a SD4LVT are ambiguous.</p>
<h2>Mobility</h2>
<p>While it is said that stamp duties deter Australians from changing addresses and switching jobs, there is little evidence that they are not changing enough.</p>
<p>Most people who relocate for work <a href="https://www.rba.gov.au/publications/bulletin/2017/mar/pdf/bu-0317-3-housing-market-turnover.pdf">don’t buy and sell homes in order to do it</a>.</p>
<p>They rent first, becoming both a renter and a landlord for a while, perhaps selling their first home later, but not quickly.</p>
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<strong>
Read more:
<a href="https://theconversation.com/why-older-australians-dont-downsize-and-the-limits-to-what-the-government-can-do-about-it-76931">Why older Australians don't downsize and the limits to what the government can do about it</a>
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<p>When they do sell, often for a healthy profit, stamp duty ensures they pocket less than would have, grabbing back some of what might otherwise be an untaxed capital gain. </p>
<p>Lower housing turnover from stamp duties mainly falls on the nearly half of sales involving investors who buy speculatively to capitalise on short bursts of capital growth before selling, in the process fuelling the boom and bust price cycle.</p>
<p>To me, anything that slows down real estate turnover and captures capital gains seems like a good idea.</p>
<h2>Revenue stability</h2>
<p>It is claimed that stamp duty revenues are much more volatile than other taxes. During a boom, they climb more than proportionally to prices since they also depend on turnover. During a bust, they fall more quickly than prices.</p>
<p>If I was to think in the abstract about what sort of taxes are good for the economy, I would say it is those that are pro-cyclical, meaning they automatically increase takings during a boom, and wind them back during a bust. </p>
<p>On this measure, stamp duty is a good tax for stabilising the economy, something important given how much our economic cycles are tied to housing markets.</p>
<p>The land value tax that SD4LVT proponents would replace stamp duty with would make the tax system as a whole less stabilising.</p>
<h2>Odd modelling</h2>
<p>You might have seen a chart like the Treasury graph below, with stamp duties presented as having enormous flow-on economy-wide costs compared to other taxes. In this example, land tax which is presented as having an economic benefit.</p>
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<p>The problem with the graph is that modelling used to prepare it (computational general equilibrium modelling) can’t directly account for transaction taxes because it doesn’t model transactions. </p>
<p>Instead of using a better tool for the job, the modellers assume that stamp duties increase cost of housing to all buyers and renters. It’s this assumption that drives a conclusion they describe as merely “<a href="http://www.policypartners.com.au/assets/treasury---economic-incidence-of-taxes-(2015).pdf">illustrative</a>”. </p>
<h2>To sum up</h2>
<p>Stamp duties don’t push up the cost of housing. The claim that they impede household mobility is overblown. They do reduce asset churn, and as a result they help maintain price stability. </p>
<p>Their “revenue instability” is actually a huge positive for the economy as a whole. And the modelling that has underpinned the talk of high economy-wide costs is as good as made up.</p>
<p>Yet SD4LVT remains the apparent holy grail of Australian tax policy. </p>
<p>Our best policy wonks continue to push our politicians to use up the precious capital to swap one very good property tax for another, for no obvious economic gain.</p><img src="https://counter.theconversation.com/content/106841/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cameron Murray is affiliated with the Sustainable Australia party. </span></em></p>The conventional case for swapping stamp duty for land tax will boost the economy has weak underpinnings.Cameron Murray, Lecturer in Economics, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/781902017-05-29T20:08:20Z2017-05-29T20:08:20ZWhy Gold Coast light rail was worth it (it’s about more than patronage)<figure><img src="https://images.theconversation.com/files/170715/original/file-20170524-5752-1x5m65f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Southport station, Nerang Street, soon after the light rail began running in 2014.</span> <span class="attribution"><span class="source">Matthew Burke</span>, <span class="license">Author provided</span></span></figcaption></figure><p>Gold Coast’s light rail scheme has attracted great interest since the streets of Surfers Paradise were torn up and stations and track were built. Was it worth spending <a href="http://www.abc.net.au/news/2016-05-13/gold-coast-light-rail-stage-three-state-and-federal-questions/7411588">A$1.5 billion on 13km</a> of light rail and more than $40 million a year in subsidies? </p>
<p>Are we right to be spending another <a href="http://www.goldcoastbulletin.com.au/news/gold-coast/the-first-sod-has-been-turned-on-420-million-light-rail-stage-2-as-tate-plans-stage-3/news-story/2520cd82de301a34498552b6a6e7dde5">$420 million on an extension</a> to Helensvale in time for the Commonwealth Games? Should we be taking it all the way down to Gold Coast Airport?</p>
<p>Another question is whether gains in property values served by the project could be “<a href="https://theconversation.com/explainer-what-is-value-capture-and-what-does-it-mean-for-cities-58776">captured</a>” to fund such infrastructure. </p>
<p>Previous studies of property values in areas serviced by the light rail showed only modest gains after it opened. <a href="http://sydney.edu.au/business/research/grants/funding_on_the_line">Our research</a> cast a wider net back to when we first started planning the system in 1996 through to the latest data we could get in 2016. </p>
<p>The results were intriguing. We found that prices in the catchment areas started to increase in the earliest planning phases. The effects of the light rail were to push up property values within 800 metres of the stations by more than 30% in total from 1996 to 2016. </p>
<p>This is well above most previous estimates of a light rail system’s effects. This is mainly because we looked earlier for the property value gains and used a carefully designed control to make the comparison. </p>
<h2>Impact after opening seemed modest</h2>
<p>These findings cast a different light on the apparently modest impact of the light rail after it opened. </p>
<p>When the first stage from Broadbeach to our university at Parkwood opened it was well received. But the behaviour change we all hoped for was rather modest at first. After opening in 2014, patronage did not surge compared to bus ridership on the route in earlier years.</p>
<p>New passengers got on board, but it was an uphill climb for the new system. <a href="http://www.brisbanetimes.com.au/queensland/translink-fare-hike-to-make-brisbane-australias-most-expensive-20140103-30910.html">Fare increases of almost 50%</a> from 2010 to 2014 pushed passengers off public transport across southeast Queensland, especially on rail. </p>
<p>Not all passengers enjoyed improved service for their particular journeys either. Those who used to travel through the corridor in a bus now had to break their journey at the light rail terminus and transfer, adding travel time and annoyance. </p>
<p>In the second year of operation, however, <a href="http://www.goldlinq.com.au/news-and-media/g-that-s-successful">patronage jumped 16%</a> and our contacts suggest third-year patronage is tracking well. Subsidies per passenger are falling. The decision to add the connection to Helensvale looks a sound one.</p>
<p>But, seemingly, other changes everyone expected weren’t there. The Bureau of Infrastructure, Transport and Regional Economics analysed property values in the corridor <a href="https://bitre.gov.au/publications/2015/files/is_069.pdf">from 2000 to 2013</a> using a coarse geography and didn’t find much evidence of any uplift. This gave many cause for concern. </p>
<p>Reassuringly, Cameron Murray <a href="https://theconversation.com/gold-coast-light-rail-study-helps-put-a-figure-on-value-captures-funding-potential-65084">used valuation data for a similar period</a> using a different geographical scale and found a 10% increase for properties within 400 metres of the new stations. But there was still uncertainty. </p>
<p>Our new research backs up and expands on Murray’s findings, suggesting there was substantial positive impact.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/170714/original/file-20170524-5757-j8ghzz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/170714/original/file-20170524-5757-j8ghzz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/170714/original/file-20170524-5757-j8ghzz.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/170714/original/file-20170524-5757-j8ghzz.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/170714/original/file-20170524-5757-j8ghzz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/170714/original/file-20170524-5757-j8ghzz.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/170714/original/file-20170524-5757-j8ghzz.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Gold Coast light rail under construction at Surfers Paradise in 2013.</span>
<span class="attribution"><span class="source">Author</span></span>
</figcaption>
</figure>
<h2>What did our research look at?</h2>
<p>Our research team in the <a href="http://sydney.edu.au/business/research/grants/funding_on_the_line">Funding on the Line</a> Australian Research Council Linkage Project took a different approach. </p>
<p>In a peer-reviewed paper, which will shortly be presented at the <a>World Symposium on Transport and Land Use Research</a>, led by Barbara Yen, we used sales data for residential properties along the corridor. Our study compared areas within 800 metres of the stations with a control area containing locations a little further away but still in the same vicinity. </p>
<p>We used a longitudinal methodology to see when the value uplift occurred from back in 1996, when planning of the system first started, through to the latest 2016 data. Property prices in the catchment areas started to increase very early in the planning phase. The property value uplift was highest in the locations between 100 and 400 metres from the stations. </p>
<p>Values went up 11.9% in these locations compared to our control areas between 1996 and the feasibility study’s announcement in 2002. They increased a further 26.3% from 2002 to 2006 over the control areas when the feasibility study was completed. Prices rose only 2.3% from 2006 to 2011 when the formal funding commitment was made and construction began, and then by another 5.4% after the line opened to the end of the study period in 2016. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/170712/original/file-20170524-5749-1f04vgx.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/170712/original/file-20170524-5749-1f04vgx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/170712/original/file-20170524-5749-1f04vgx.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=225&fit=crop&dpr=1 600w, https://images.theconversation.com/files/170712/original/file-20170524-5749-1f04vgx.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=225&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/170712/original/file-20170524-5749-1f04vgx.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=225&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/170712/original/file-20170524-5749-1f04vgx.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=283&fit=crop&dpr=1 754w, https://images.theconversation.com/files/170712/original/file-20170524-5749-1f04vgx.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=283&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/170712/original/file-20170524-5749-1f04vgx.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=283&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Timeline of the planning and development of Gold Coast Light Rail Stage 1.</span>
<span class="attribution"><span class="source">Authors</span></span>
</figcaption>
</figure>
<p>The areas less than 100 metres from the stations, and between 400 and 800 metres also recorded strong increases compared to the control areas, though not quite as much. </p>
<p>This is to be expected. Sites closest to the stations received some nuisance from the light rail and road corridor; sites further away obtain fewer advantages in travel time savings for passengers. </p>
<h2>What are the funding implications?</h2>
<p>The property value gains attributable to the project from 1996 to 2016 of more than 30% are very significant. Yet it’s pretty much only the landowners who benefit. </p>
<p>The City of Gold Coast recoups some of its <a href="http://www.goldcoast.qld.gov.au/rapid-transit-6004.html">$120 million investment</a> in the light rail through its rates and its <a>public transport levy on urban residents</a>. The Queensland government may end up getting a little slice via stamp duty as properties are sold. The few pieces of government-owned land likely rose in value. </p>
<p>But the state and federal governments generally have no other mechanisms to take a small sliver of the increased property value their investment generated to help pay for the light rail system or reinvest in public transport elsewhere. We’ve <a href="https://theconversation.com/what-brisbanes-ferries-can-teach-us-about-funding-public-transport-30874">written about this previously</a> in The Conversation and suggested ways we could change the system. </p>
<p>A recent <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/House/ITC/TransportConnectivity/Report_1">federal parliamentary inquiry</a> and moves to set up “<a href="http://www.luticonsulting.com.au/projects/value-sharing-mechanisms-review-nsw/">value sharing</a>” units in the <a href="http://www.dilgp.qld.gov.au/infrastructure/value-sharing-in-queensland.html">Queensland</a> and <a href="https://www.greater.sydney/digital-district-plan/679">New South Wales</a> governments suggest we are now getting serious about generating alternative funding for public transport. </p>
<p>Our study’s results only add more support to these initiatives. Get it right and we should be able to deliver more metros, busways and light rail to serve our growing population and its increasingly urban way of life.</p><img src="https://counter.theconversation.com/content/78190/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Burke receives funding from the Australian Research Council, the Queensland Government Department of Transport and Main Roads, the Motor Accident and Insurance Commission, Transport for NSW, Gold Coast City Council, Logan City Council, Queensland Airports Limited, Lend Lease, and Springfield Land Corporation. </span></em></p>The light rail project pushed up property values within 800 metres of the stations by over 30% from 1996 to 2016. Gains on this scale offer a potential source of finance for public transport.Matthew Burke, Associate Professor, Cities Research Institute, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/650842016-09-19T19:59:25Z2016-09-19T19:59:25ZGold Coast light rail study helps put a figure on value capture’s funding potential<p>Value capture actually can work when it comes to funding new transport infrastructure. My research on the Gold Coast light rail provides the figures to demonstrate the size of the gains to nearby land values, which were around 25% of the <a href="http://www.gclrstage2.com.au/about">A$1.2 billion capital cost</a> in <a href="http://www.goldlinq.com.au/gclr.html">stage one</a> of the project. </p>
<p>Value capture is the idea that new transport infrastructure can be financed, or at least partly, by increases in land value around the project. It’s something Prime Minister Malcolm Turnbull <a href="http://www.afr.com/real-estate/malcolm-turnbulls-value-capture-plan-for-infrastructure-splits-developers-20160429-goic5m">has promoted</a> and industry experts have <a href="https://www.google.com.au/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwjX5La5xIvPAhWDGj4KHXARCwAQFggdMAA&url=http%3A%2F%2Fwww.theaustralian.com.au%2Fnews%2Fnation%2Fvaluecapture-process-could-help-fund-building-of-very-fast-train%2Fnews-story%2Fadc815db4c51947ed8e401d014c33669&usg=AFQjCNGUjdRodpx9IQg_JkCKWL49WTiMTg">come out in support</a> of, but the proof has so far been elusive. </p>
<p>To shed some light on the potential scale of such property value gains, <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2834855">I studied the changes</a> in Gold Coast land values following the opening of the light rail project in July 2014.</p>
<h2>Why land values?</h2>
<p>The case for this type of “beneficiary pays” view is a moral one more than an economic one. The moral case is that publicly funded transport projects should not be undertaken for the benefit of a select group of landowners. </p>
<p>For example, we know that the planning system is <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2604391">susceptible to favouritism</a> because it gives windfall gains to landowners. The same holds for transport investments. Thus, there is a fairness argument for taxing these “unearned” gains to fund the transport investment that caused them.</p>
<p>A <a href="https://theconversation.com/explainer-what-is-value-capture-and-what-does-it-mean-for-cities-58776">number</a> of <a href="https://theconversation.com/paying-for-infrastructure-means-using-land-value-capture-but-does-it-also-mean-more-tax-58731">recent articles</a> at The Conversation have described some of the options for translating land value gains into a revenue source. </p>
<p>But while we know that transport investments typically increase land values in areas that become more accessible, does a new rail line increase land values by 5%, or 50%? Taken together, what proportion of the transport investment costs can be funded by these gains? Are they 10%, or even perhaps 100%? </p>
<h2>Who benefits, and by how much?</h2>
<p>To answer the question of how large land values gains are, I used the full suite of statutory land valuations data available in the Gold Coast to tease out the land value variation over time at different distances from the light rail stations. By doing this I could see the path of relative land values for properties within 100 metres of the stations, between 100 and 200m, and so forth, up to 2 kilometres. </p>
<p>I found that land within 400m of the stations increased in value by 7% more than land between 400m and 2km from the stations in the year after the light rail began operation. This is in keeping with the results of some previous international studies. </p>
<p>By applying the price deviation to the total value of land in those areas (a little over A$4.2 billion in 2015), I could then estimate that the absolute change in land value was A$300 million. This is the once-off gain to the owners of the 1,324 plots of land within 400m of the light rail stations as a result of this transport investment. </p>
<p>This estimated value gain is net of additional rates and charges that arise automatically from increasing land values. It is also net of the additional charge levied citywide to help fund transport investment in the city. </p>
<h2>How much funding can value capture deliver?</h2>
<p>At a 5% market interest rate, those capital gains are equivalent to an annual revenue stream of A$15 million. This is the total possible revenue from a funding system that perfectly captured all land value gains. </p>
<p>However, state governments already levy taxes on land values, though in Queensland there are many exemptions, including for land holdings under A$600,000 in value. After this, the marginal rate is between 1% and 1.75%. </p>
<p>It is possible to estimate the additional revenue available to the state government from land value gains due to this investment in the hypothetical situation where there are no exemptions. At a 1% land value tax rate, this would be an automatic increase of approximately A$2.5 million in annual land tax income from the value gains due to the light rail. At a 1.75% rate with no exceptions, the revenue would be A$3.9 million per year.</p>
<p>Overall, the land value gains from the Gold Coast light rail were around 25% of the capital cost. One of the simplest ways to capture these land value gains is to expand the existing state land tax system to remove exemptions. That would automatically capture 17-26% of the potential revenue from the value gains.</p><img src="https://counter.theconversation.com/content/65084/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cameron Murray does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Land value gains following the opening of stage one of the Gold Coast light rail project were worth around 25% of its cost.Cameron Murray, Economist, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/539912016-02-17T17:12:16Z2016-02-17T17:12:16ZFive maps that prove it’s time to reform council tax in England<figure><img src="https://images.theconversation.com/files/111831/original/image-20160217-20129-wn5e5m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/vicki_burton/8564626703/sizes/o/">vic_burton/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>As local authorities set out their budgets for the year, council tax is set to rise in many regions across England. Councils in <a href="http://www.bbc.co.uk/news/uk-england-lancashire-35556317">Lancashire</a>, <a href="http://www.coventrytelegraph.net/news/coventry-news/revealed-council-tax-bill-rise-10899620">Coventry</a>, <a href="http://www.bbc.co.uk/news/uk-england-cornwall-35588685">Cornwall</a> and <a href="http://www.bbc.co.uk/news/uk-england-surrey-35538873">Surrey</a>, among <a href="http://www.itv.com/news/west/2016-02-17/council-tax-increases-what-you-need-to-know/">others</a>, have agreed to hikes of up to 4%. But while council tax will be crucial to help local authorities absorb cuts from central government, there are <a href="https://theconversation.com/council-tax-reform-is-long-overdue-so-how-do-we-do-it-45534">serious doubts</a> as to whether the levy is fit for purpose. </p>
<p>First introduced in 1993, council tax is imposed on properties to help pay for local services, council wages and administration. In general, how much council tax people pay depends on which “band” their property falls into. These bands are allocated by property value, ranging from A (the lowest value) to H (the highest value). But here’s the catch: in England, council tax bands are still based on property values from 1991. </p>
<p>I decided to map out the differences between 1991 council tax valuations and today’s house prices, to see whether the tax is as <a href="http://www.ifs.org.uk/comms/comm123.pdf">regressive</a> and arbitrary as <a href="http://npi.org.uk/publications/council-tax/council-tax-reform-age-localism-why-councils-should-take-lea/">some suggest</a>. </p>
<h2>The big housing boom</h2>
<p>Let’s begin with some numbers. If your house was worth £50,000 in 1991, it would now be worth about double that, if it had risen in line with inflation. If this had occurred uniformly across the country, it wouldn’t be a problem – but we all know that this didn’t happen. Instead, house prices rocketed, particularly in London and the south-east. For example, in 2014 the average price in Burnley was £85,000 (up 166% since 1995), while in Kensington and Chelsea it was £1.2m (up 558%). </p>
<p>The fact that some prices have risen more than others is a major issue, because it means the amount we pay in council tax is increasingly detached from the relative value of our properties. In other words, those whose properties have risen disproportionately in value are paying less than their fair share of council tax. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=500&fit=crop&dpr=1 600w, https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=500&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=500&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=628&fit=crop&dpr=1 754w, https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=628&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/110437/original/image-20160205-18308-hsokpz.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=628&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">House Price Growth, 1995 to 2014.</span>
<span class="attribution"><span class="source">ONS</span></span>
</figcaption>
</figure>
<p>Looking at average house price growth in the top and bottom 25 local authorities in England since 1995, we can see that prices have gone up across the board – but there is now a much bigger gap between the richest and poorest areas.</p>
<p>With a little help from colleagues at the <a href="https://data.cdrc.ac.uk/">Consumer Data Research Centre</a>, I mapped out the differences between house prices and <a href="https://www.gov.uk/government/statistics/council-tax-stock-of-properties-2015">council tax bands</a>. Below, I have shown the biggest council tax band for each area in the borough, alongside a small inset map showing average house prices. Both maps are coloured according to the 1991 council tax banding. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/110485/original/image-20160205-18308-e45xwh.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Council tax bands vs house prices, 2015 (Islington).</span>
<span class="attribution"><span class="source">Valuation Office Agency, HM Land Registry</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Starting with the London borough of Islington, we can immediately see that the variation in council tax bands sits in stark contrast to today’s average house prices. In 1995, the first year data are available for, the average house price in Islington was £105,000. By 2014 it had reached £533,000. Most properties in Islington belong in the top band of council tax – but, according to the data, there are no areas where more houses fall under band H than any other category. </p>
<p>Perhaps unsurprisingly, this is also the case across much of London. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/111833/original/image-20160217-19275-13lvu8o.gif?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">House prices by council tax band in London (1995-2015).</span>
<span class="attribution"><span class="source">HM Land Registry</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>In more rural locations, such as West Oxfordshire, the contrast between council tax bands and current house prices is not as stark. But the variation is now very much out of line with the original 1991 valuations: some areas have gained value more quickly than others. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/110457/original/image-20160205-18277-jc0ne9.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Council tax bands vs house prices, 2015 (West Oxfordshire)</span>
<span class="attribution"><span class="source">Valuation Office Agency, HM Land Registry</span></span>
</figcaption>
</figure>
<p>To take two contrasting examples from elsewhere in England, we can look at Cornwall and Liverpool. In the former, the purchase of second homes has driven up house prices, so much so that the council <a href="https://www.cornwall.gov.uk/council-and-democracy/council-tax/council-tax-discounts-and-premium/">removed the 10% discount</a> for these properties in 2013, following a change in government regulations. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/110470/original/image-20160205-18284-18z8lzu.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Council tax bands vs house prices, 2015 (Cornwall).</span>
<span class="attribution"><span class="source">Valuation Office Agency, HM Land Registry</span></span>
</figcaption>
</figure>
<p>Meanwhile in Liverpool, where around 60% of properties are in the lowest value band A, the current variation in house prices is also out of line with the 1991 bands. House prices have risen much faster in some areas than others, particularly in well-connected, inner-suburban areas such as Mossley Hill and Aigburth. The effect – as noted <a href="http://npi.org.uk/files/3714/4904/8704/CT_reform_-_a_discussion_paper-_update_Nov_15_TBB.pdf">by the New Policy Institute</a> – is that “as time goes by, council tax becomes ever more arbitrary”.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/110472/original/image-20160205-18274-5wc1ts.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Council tax bands vs house prices, 2015 (Liverpool).</span>
<span class="attribution"><span class="source">Valuation Office Agency, HM Land Registry</span></span>
</figcaption>
</figure>
<p>When you look at these maps, the absurdity of continuing to use bands set in 1991 is pretty obvious. Naturally, it raises the vexed question of what should be done. Well, we could re-value properties and introduce new bands, like <a href="http://gov.wales/topics/localgovernment/finandfunding/counciltax/banding/?lang=en">Wales did in 2005</a>. Or, <a href="http://localtaxcommission.scot/download-our-final-report/">as in Scotland</a>, we could pursue more radical change. There, <a href="https://theconversation.com/council-tax-reform-is-long-overdue-so-how-do-we-do-it-45534">ideas for reform include</a> property revaluation, a land value tax, and even a local income tax.</p>
<p>Personally, I would favour some form of land value tax, as proposed by leading economists such as <a href="http://budgetresponsibility.org.uk/about-the-obr/who-we-are/kate-barker/">Dame Kate Barker</a> and <a href="https://twitter.com/joesarling?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor">Joe Sarling</a>. But of course this brings its own set of challenges: for instance, unfairly taxing the Islington resident who had the good fortune to buy a house there in 1991, but who lives alone and never seeks to benefit from the value of the land or property. </p>
<p>At the very least, a widening of the bands at the top and bottom to reflect the growing gulf between the richest and poorest areas (and the residents’ ability to pay) would be a start. With detailed data on <a href="http://landregistry.data.gov.uk/app/ppd">house prices</a>, and the technology to crunch complex datasets, this should not be an insurmountable problem. The bigger issue is that, politically speaking, such reform is “<a href="https://next.ft.com/content/7da2852c-e3af-11e4-9a82-00144feab7de">dramatic and unpopular stuff</a>”.</p><img src="https://counter.theconversation.com/content/53991/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alasdair Rae does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Not only is council tax on the rise, it’s completely out of touch with reality.Alasdair Rae, Professor in Urban Studies and Planning, University of SheffieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/499972015-11-09T19:19:57Z2015-11-09T19:19:57ZA land value tax could fix Australasia’s housing crisis<p>The major cities of Australia and New Zealand are experiencing an extraordinary wave of speculation in their respective real estate markets. Over the past three years, <a href="http://www.oecd.org/eco/outlook/focusonhouseprices.htm">the median house price to median income ratio has increased by 21.2% in Australia and 18.1% in New Zealand</a>, a rate reminiscent of Ireland’s 20.5% before its housing crash at the time of the global financial crisis.</p>
<p>The rapid increase in property unaffordability on both sides of the Tasman has enriched a number of homeowners and speculators and made countless more eager to join the game. But it has had dramatic effects for businesses and landless families who find it exceedingly difficult to afford a place to live, work or operate. </p>
<p>Unsurprisingly, a lot of column space and political deliberation have been dedicated to finding a solution to the problem. Much of the analysis points to a lack of housing supply at a time of increasing demand as being the main driver of rising prices, resulting in a simple policy prescription: increase the supply of housing. </p>
<p>The main problem with this argument is it ignores the fact that it is land, not physical structures, that appreciates in value, making it an obvious area for speculation. Unlike houses or genuine capital, land does not depreciate or require maintenance. Instead, the value of land reflects its economic potential due to public expenditures on infrastructure (such as roads, schools or railway stations) in its vicinity and the effort and entrepreneurship of local workers and entrepreneurs. </p>
<p>When land prices soar, residential real estate becomes a more attractive investment opportunity than productive businesses. Land bubbles tend to produce two seemingly contradictory effects. Firstly, it produces urban sprawl as businesses and families are forced to seek cheaper land outside of the urban centres. Secondly, as owners are more interested in expected capital gains than any productive activities, much valuable land become idle. </p>
<p>Eventually, the burden of debt, lack of affordable land and investments based on wrong signals (e.g. luxurious condominiums promising high-profit margins) start affecting the real economy. As workers lose their jobs, they become unable to repay their debts and are forced to sell. Land prices finally stagnate and then fall, taking leveraged banks, speculators and people’s life savings with them. It is, therefore, clear that to escape this never-ending cycle, we need to focus on land. </p>
<p>Over a century ago, American economist <a href="http://www.economist.com/blogs/freeexchange/2015/04/land-value-tax">Henry George</a> suggested instead of taxing workers and entrepreneurs, governments should raise their revenue from land via a land value tax (LVT). </p>
<p>Indeed, both Australia (land taxes at the state level) and New Zealand (property rates at the council level) already have some taxation of land in place. But over the last century these taxes have <a href="http://www.earthsharing.org.au/2006/09/land-value-taxation-in-australia/">become significantly debased</a> due to the influence of various interest groups that secured exemptions or low rates. It is time to reconsider shifting the fiscal balance back onto land. </p>
<p>Unlike the land taxes already in place or the often suggested capital gains tax, LVT does not punish anyone for constructing houses or factories in the way that our current taxes do. As the supply of land is fixed, LVT becomes a cost of owning it. Consequently, it can bring in a decrease in prices as the owners of inefficiently used sites might feel compelled to sell or lease them to those willing to use them productively. Increasing the cost of owning land would drastically reduce the incentives for speculation. </p>
<p>Imagine central Auckland or Melbourne without vacant sites or dilapidated buildings. What is more, encouraging more efficient use of land is not only beneficial to economic growth and housing affordability, but also has a potential to substantially l<a href="http://www.liechtenstein-institut.li/Portals/0/contortionistUniverses/408/rsc/Publikation_downloadLink/LIAP_049.pdf">ower the costs of public infrastructure</a> and encourage more efficient use of space and natural resources.</p>
<p>LVT would be a transparent and efficient alternative to our current taxes which are not only burdensome on businesses and families but also difficult and expensive to administer and enforce. It is impossible to hide land in a tax haven or a trust (trusts are not exempt from the current land taxes). Taxing it can be done cheaply and on the basis of publicly available information. </p>
<p>While LVT might persuade some modest-income earners to sell their valuable properties, most workers and homeowners would get net benefits from a reduction in taxes falling on their income (income taxes) and consumption (GST). Furthermore, a <a href="http://www.huffingtonpost.com/mike-sandler/citizens-dividends-basic-_b_1936182.html">citizen’s dividend</a> could be introduced in which part of the revenue raised from LVT is directly paid out to all citizens on a per-capita basis.</p>
<p>Given the multiple problems stemming from the rapidly expanding housing bubbles in Australia and New Zealand, introducing a tax on unimproved land values makes sense. Not only would it undoubtedly address house price inflation, it could also result in a more efficient use of land, mitigate urban sprawl, lower the burden on the natural environment and reduce the risk of real estate bubbles; all this without undermining the foundations of economic growth.</p><img src="https://counter.theconversation.com/content/49997/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It’s not a new idea, but one that warrants a fresh look given the property bubbles in Australia and New Zealand.Nicholas Ross Smith, Professional Teaching Fellow, University of Auckland, Waipapa Taumata RauZbigniew Dumieński, Lecturer, University of Auckland, Waipapa Taumata RauLicensed as Creative Commons – attribution, no derivatives.