Blog Post

To make the recovery fair we need to tax land

Landowners aren’t paying for the crisis. But they should be paying for the recovery.

Amid the carnage of lost jobs, bankrupt businesses and an overrun health service, one thing hasn’t changed: rent is still due.

That is not to say it shouldn’t be – as others have argued, there are wide ranging consequences from cancelling rent, that could have adverse effects for working people, and the labour movement as a whole.

But as with so many parts of our economy, landlords profit from others work. When someone takes a risk and starts a business, property values go up. When you renovate your house, property values go up. When the government invests in schools, transport, or a public park, property values go up.

And every time property values go up, so does rent.

When we pay rent, we’re not only paying landlords for the property we live in, we’re paying for our own taxes being invested in parks, services, and roads. We’re paying a windfall to landowners, regardless of the work they put into the property, or the quality of the service they provide.

Land isn’t like other parts of the economy. If people need more TVs, cars or computers, we can always make more TVs, cars or computers. But we can’t make more land. We have to do as much as we can with what we have. So as people need more housing, and more importantly, housing close to their work, friends and family, they become willing to pay more in rent – driving up prices to extortionate levels.

It’s why, even as jobs have been lost, businesses have closed and services strained, rent has stayed the same. As we begin to rewire our economy after the crisis, we need to recognise that landlords have earned

Rather than use a land tax, as some have proposed, to revamp local government funding, it should instead raise money for central government. It should be set at the same rate – say 1% of land value per year – across the country.

When property values go up – be it from government investment or new jobs and businesses in the area, landlords pay more tax, because their asset became more valuable.  Doing so would be vital to reorienting our economy in the wake of our current crisis.

First, it would make tax fairer – shifting from those who earn, to those who own. Our government is funded on the backs of those who earn a wage, rather than those who pay their wages, or the owners of assets. A land tax would begin to change that.

Since 1997, the average house price has risen 259%, while the average earnings have only risen 68%.[1] If a land tax is used to fund a tax cut for working people, it will assuage fears of an increased tax burden, and leave the landowning middle class no worse off than they were before.

Second, it would redistribute wealth to the regions. Land in poorer areas and outside the main cities is worth less, and so would be taxed less. The effect would be more investment in rural areas, as businesses and workers alike respond to the incentives, and purchase land away from the main centres of economic growth.

Third, it would help counter the housing crisis. A land value tax, which should apply only to unimproved land, rather than the property as a whole, is designed specifically to encourage landowners to build more houses. When you renovate your kitchen, the value of the land underneath your home stays the same, and so your tax bill doesn’t change.

The more people living on a plot of land, the lower the tax bill per person will be, which makes higher density apartments more affordable than singe family houses. Denser cities are better for the climate, easier to get around in, and most importantly, have more housing for those most in need.

Finally, it would lower rents for everyone. Rents, which are driven not by the quality of housing, but by the value of land, would already be helped by encouraged density and discouraged property speculation. But unlike other taxes, landlords can’t pass a land value tax onto tenants.

The market is already so skewed towards landlords, that rent is based on what tenants can pay, not the expenses of landlords. And a tax applied to all land is a tax that cannot be avoided – you can’t store land in the Cayman Islands, nor can you make less of it.

Directly, rent makes up as much as half of the cost of living for working families. Indirectly, it shows up in everything from groceries to electronics. In London, a third of the price of a cup of coffee is just paying the rent.

Skyrocketing rents have crushed the high street and the family chequebook, priced aspiring workers out of jobs, and a generation out of its first homes. As we rebuild our economy in the wake of a pandemic, it’s time landowners paid their fair share.

<span class="has-inline-color has-accent-color"><strong>Joe Pagani</strong></span>
Joe Pagani

Joe Pagani is a political strategist with a background as a New Zealand Labour Party activist and political commentator.
He is a member of Bethnal Green and Bow CLP.