In response to Onus Probandy

Blogger is losing comments, so I shall reply 'by post'.

OP picked up on my statement from here "Of course, you can build a ten-storey building in place of a single-storey building. 'Location value' has been magicked out of thin air, but the rental value of the underlying plot of land goes up by a factor of (nearly) ten as well" and asked:

This is contrary to your usual stated position: that land value is independent of the bricks and mortar on it. And that is the land value that would be taxed for its potential use rather than its actual use. Is then the potential use of all land a 100 storey office block? Could you clarify for me? Have I simply misunderstood your earlier/this position?

My clarification:

"OP, under the present system with strict planning laws, the value of a plot of land is exactly what I have always said - it's location x planning permission.

I always tell my property developer clients that they make 80% of their profits (at negligible downside risk) by getting planning permission - once you've got that you might as well cash in. In that sense, the value of the plot is entirely independent of the b'n'm on it.

Do not confuse this with how LVT would work, which is to tax the land value only, i.e. the location x planning generosity*.

To the extent that we retain planning restrictions as a comfort blanket, it would of course be totally unfair to tax the owner of e.g. agricultural land as if he had planning; or to tax the owner of a plot with a single storey building who would not be allowed to build a ten-storey building as if he had a ten-storey building**.

Which is why the Land Value Taxers refer to a tax on 'optimum permitted use'.

If we liberalised or even abandoned planning restrictions, then it would be a whole new ball game - the only rational way to decided 'optimum' use would be to look at the biggest, fully-occupied building on surrounding plots and to assume that each plot could be built on to a similar density.

Don't forget that in some US towns or states there are no (quantitative) planning restrictions, and some don't even have 'zoning', but you still observe that this sorts itself out: there is a down town area with sky scrapers; there are industrial areas, there are residential areas and there are public parks. It's called 'agglomeration' (The Invisible Hand at work). People still buy and sell land in those areas, so it can't be too difficult to work out relative land values and that optimum use is something very similar to what the neighbours are doing.

* As opposed to Business Rates, which is not a million miles from LVT, but it taxes the rental value of finished buildings and not the rental value of the site itself. For most existing buildings, the LVT bill wouldn't be much different to the current Business Rates bill.

** An extreme example is the Centre Point building in Central London. Although most of C London is restricted to ten storeys or lower, that building is 50 storeys high on a tiny plot. So with current restrictions in place, it would be fair to tax that plot at five times the rate of surrounding plots; but totally unfair to tax owners of ten storey buildings as if they had 50 storey buildings for which they would not get planning (that well known rural landowner and all-round NIMBY Prince Charles would veto it)."

I trust that clears that up.