Killer Arguments Against LVT, Not (375)

Not sure if I've done this one yet.

From Inside Housing:

A City Hall investigation will examine whether a new land value tax in London would cut the number of unused sites under private ownership while boosting public investment in infrastructure.

Labour London Assembly Member Tom Copley will report on the pros and cons of a levy aimed at encouraging developers and landowners to generate income from their land. Currently, owners of empty sites do not pay council tax or business rates, meaning sites can be left empty with minimal financial impact...

However, the Home Builders Federation warned LVT could exacerbate the housing shortage by making house building more risky, uncertain and expensive. A spokesperson said: “Such a land tax might generate receipts but it has the potential to exacerbate a housing shortage that is already having consequences for the economic competitiveness of the capital.”

Nonsense.

From the article, it appears that this is not full-on permanent LVT and will only apply to undeveloped or underdeveloped sites, so clearly it will be in landowner's interests to get stuff built as quickly as possible to avoid the tax. If a landowner wants to offload his sites to a proper developer, then the tax is no longer the landowner's problem, it's the developer's.

But from the developer's point of view the "risk, uncertainty and expense" are reduced because the future tax liability comes off the price.

Let's say an untaxed undeveloped site would currently sell for £1 million and the future tax will be £100,000 a year until the finished homes are sold and our developer expects the project to last two years.

Instead of using £1 million cash at 6% interest to fund the purchase of untaxed land (costing £60,000 interest a year), he will use £800,000 cash and pay £48,000 a year interest. He gets his tax back up front and has lower interest costs in future. Paying the £100,000 a year is just part of his normal cost of sales, like bricks or labour.

Assuming the tax is lifted once the homes are sold, his final selling price will be exactly the same and he gets his money back, i.e. he has paid out £800,000 plus two lots of £100,000, and sells the housing for £1 million plus build costs plus profit margin.
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If this were full-on, permanent LVT, then the selling price/purchase price of land would be nominal amounts only, so our developer only needs to pay the £100,000 a year until the homes are sold.

This reduces risks and uncertainty down to the barest minimum - it's like hiring a crane for the duration of the job rather than having to buy one and gambling on the price of cranes going up or down rather than focussing on the construction.