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. 


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Is there a progressive majority for property tax reform?

The latest fault line in the Coalition seems to be developing around taxation.
Chancellor George Osborne is ‘reviewing’ the top 50% income tax rate, much to the annoyance of the LibDems, whose priority in income tax terms is to raise thresholds to take the lowest paid out of tax altogether.  The LibDems have the Coalition Agreement on
their side and Danny Alexander is on the record as saying: “The idea that we are going to shift our focus to the wealthiest in the country at a time when everyone is under pressure is just in cloud cuckoo land.”  But Osborne faces a lot of pressure from the Tory right, including Boris Johnson, who has called loudly for the 50% tax rate to go.
The LibDems’ Vince Cable has admitted that the top rate of tax should be removed, because the Coalition are united against high marginal rates of tax, but that it should be
replaced by a tax on wealth or on highly valued property, not a position that will endear him to the Tory right.  Cable was a strong advocate for the LibDems manifesto promise (which didn’t make it into the Coalition Agreement) to introduce a Mansion Tax.
Last weekend Eric Pickles joined the debate (or bitter in-fighting, whichever you prefer),
arguing that the 50% tax band was only a temporary measure to reduce the deficit and lambasting the Mansion Tax idea: “It would be a very big mistake to start imposing
taxation on the back of changes in property values, particularly with big regional variations”….”People will suddenly find themselves in a mansion and they hadn’t realised it was a mansion. If it is only going to be mansions, the kind of thing you and I would regard as a mansion, it ain’t going to raise very much.
”  But he also makes clear he is against any increase in taxes on ‘the middle class’.  As he is also against taxes for the rich, that doesn’t leave many options other than more cuts.
The LibDems’ original proposal for a 0.5% annual Mansion Tax on properties valued at £1 million or more was quickly revised when they realised how many people in LibDem target seats in London and the south east already owned homes that were over the threshold.  Their revised proposal – a 1% annual tax on homes over £2 million – hit far fewer people and attracted more support – including from David Miliband during the Labour leadership election.  The tax was estimated to raise £1.7 bn a year and Miliband claimed it would avoid the need to make savings in the housing benefit budget.
Taxing wealth, property and land has been a shibboleth for many in the Labour Party over
the years.  The Labour Land Campaign has argued long and hard for the introduction of a Land Value Tax saying, in principle, that land is a finite resource, that increases in value are created by the society as a whole not the individual landowner, and that the community as a whole should benefit.
An excellent pamphlet by Toby Lloyd published by Compass in 2009 called ‘Don’t bet the house on it’ looked at the ways major reform of property taxation could help tackle our dysfunctional housing market and the crisis in housing supply.  He detailed the advantages of introducing a LVT, making possible a total reform of the complex array of property-related taxation in this country.
Whether Labour’s housing policy review will venture into this territory will have to be seen.  It would not be good if the LibDems managed to push the Coalition into adopting a Mansion Tax or any other additional property tax as part of a deal over removing the 50% tax band but Labour had not even got round to considering the matter.  The argument about Mansion Tax could raise some fundamental issues about the housing and land markets that all parties have dodged for many years.  Even if the Tories don’t like it, there may even prove to be a progressive majority in favour of a big reform.