Killer Arguments Against LVT, Not (187)

There appears to be some confusion over the inter-action between Land Value Tax and planning permission, which I suppose boils down to a complete misunderstanding as to how the rental value of bare land arises in the first place, and people confusing rental values with capital values/selling prices.

To cut a long story, it is people who create land rental values. Where there are more people, there is more economic activity and vice versa, and it makes sense to have better transport links, schools, hospitals, public parks where there are most people. All these make an area more suitable for economic activity and thus more desirable to live, thus pushing up land values further and attracting yet more people/businesses, thus making it more likely that transport links in that area are improved further and so on in a self-reinforcing pattern. These are 'centrifugal forces' which is why, if you drew a contour map of land values, there are huge towering peaks in land values in city centres, which manifest themselves as sky scrapers and tower blocks.

There are of course also 'centripetal forces' because there are plenty of other people who like [the illusion of] living in the countryside, and having a view over, or at least being near, fields, beaches, woodland etc. So the whole thing reaches some kind of equilibrium. The population of Greater London increased from 1 to 6 million during the 19th century, i.e. relatively speaking, the population of Greater London was growing faster than the total UK population - but even though the total UK population has nearly doubled since 1901, the population of Greater London had already reached its peak by then and has hovered between 6 and 8 million ever since.

1. What the NIMBYs always say is that "If we had LVT, then farmers would be forced to sell their fields to developers and England would be concreted over"

This is clearly nonsense.
a) nobody said that if we had LVT that all planning restrictions would be abolished anyway.
b) the annual rental value of farm land is very low, maybe one penny per square yard as against £10 per square yard for lower value residential land. Even if we bothered to collect LVT from farmland, it would be less than farmers currently pay in income tax, NIC etc, so farmers would be able to make more money from farming than they do now and there would be less incentive to sell their land for development as there'd be no massive windfall planning gains.
c) the centrifugal forces mean that nearly all new development would be at the edges of existing towns and cities, even if these increased in size by a tenth (enough for five million extra homes) this would only use up one per cent of existing farmland.
d) LVT sets a cut off point and actually restricts development at the very margin, so marginal land would remain untouched.

2. The Faux Lib's go one better and say that if we had LVT, people would be forced to put their land to inefficient uses to try and raise enough money to pay the tax, which would lead to malinvestment etc. This is of course utter nonsense as well, in a rational world, people are already putting their land to its most profitable use anyway, and the LVT would always be based on any plot of land being put to its most profitable permitted use, so if we decide that a farmer is not allowed to develop some fields or woodland because they provide people with a nice view, then his LVT bill would only be £5 an acre for the woodlands and £50 an acre for the farmland (or similar low figures). As long as the increase in rental values of the houses with the nice views is greater than the reduction in the rental value of the woodland or farmland, this makes good sense.

3. If we assume we have LVT and that 'local people' will still be allowed to prevent any new development in their area as at present, then there is a pleasing symmetry to this. Those people who try to push up the selling price of their own house, i.e. the scarcity value of the planning permission, will end up paying a larger share of the total LVT bill. So at least they are compensating those people who are forced to live somewhere they don't really want to live or in a home that is smaller than the one they would be able to afford if there were more homes.

4. If we assume that we have LVT and we allow things to be built where people need or want them, then this is even better. We know that LVT discourages 'urban sprawl' so we don't need to worry about England being concreted over, and we also know that planning restrictions reduce the total potential rental value of land in the UK, therefore, in the absence of planning restrictions, the total rental value of land would go up, however slightly, thus giving us a higher tax base (and hence a lower tax rate to generate the same amount in revenue).

5. Regular commenter Sobers is pretty much world champion at confusing all these issues, see his various comments here, as he keeps bringing capital values/selling prices into it.

His view appears to be that housing is so expensive for young people because of restrictive planning permission, therefore if we abandoned planning restrictions, more houses would be built and they would be cheaper, and therefore that there is absolutely no need for LVT. At the margin, yes, house prices might fall, but the total rental value of all UK land would go up, by definition. It is just that all this extra rental value would fall into the laps of farmers who happen to own a bit of land at the edges of towns and cities (and Sobers just so happens to own a fair bit of farmland at the edge of a large UK town...) and the rental value of those houses who currently benefit from the 'unspoiled' view over his farmland would fall a bit.

In summary, LVT works perfectly well with or without planning restrictions, both conceptually and administratively. LVT would push down capital values anyway (by definition) and it would also be much easier for young people to 'get on the property ladder' because the Citizen's Income they receive will more or less cover the LVT due on an average house (especially if you include Child Benefit), they won't have to pay income tax etc any more and the mortgage they have to take out will be much smaller.