The Case for Land Value Capture

Alanna Hartzok

[A statement submitted to the United Nationsl ECOSOC High Level Segment
conference scheduled for 2-9 July, 2012]

Land Value Capture is a creative public finance policy that utilizes incentive taxation mechanisms that promote productive capacity, employment and decent work while enabling inclusive, sustainable and equitable economic growth.

UN Habitat Action Agenda Section B. 56(h) states: "Consider the adoption of innovative instruments that capture gains in land value and recover public investments." The UN Habitat Global Land Tool Network advocates public recovery of land values as a fair and effective way to meet the Millennium Development Goal of significantly improving living conditions for at least 100 million slum dwellers by 2020.

The Vancouver Action Plan - founding document for UN Habitat - states:

Social justice, urban renewal and development, the provision of decent dwellings and healthy conditions for the people can only be achieved if land is used in the interests of society as a whole…. Taxation should not be seen only as a source of revenue for the community but also a powerful tool to encourage development of desirable locations, to exercise a controlling effect on the land market and to redistribute to the public at large the benefits of the unearned increase in land values… The unearned increment resulting from the rise in land values resulting from change in use of land, from public investment or decision or due to the general growth of the community must be subject to appropriate recapture by public bodies.

Land value capture - aka land value taxation - is an equitable, efficient way to obtain public revenue. The more governments rely on land value capture for revenue, the lighter need be the tax burden on labor and production.

Land rent (surplus value attaching to land) is a significant amount. Detailed studies by Land Values Research Group indicate that surface land rent is at least one third of GDP in many countries.

When robustly implemented, land value capture eliminates incentives for land speculation; stabilizes land prices; and maintains land affordability. Recovered land rent can 1) operate, maintain and extend services and infrastructure; 2) fund revolving loans for housing and micro enterprises; and 3) repay bonds issued to build public facilities.

Programs to house poor people often flounder because unaffordable housing prices are primarily the result of rising land values compared to purchasing capacity. Land value capture reduces and stabilizes the costs of land. Low-income families can thus more easily secure shelter at prices they can afford.

Land value capture promotes rational and balanced development. Growth radiates smoothly from more intensive use in the urban centers to rural areas without pockets of vacant or poorly utilized land in between. Urban sprawl is curtailed and rural land is more readily retained in its natural state, available for parks and nature preserves. Rational and balanced development decreases costs for transportation, utilities, fire and police protection. Land value capture is therefore an essential component of good urban planning.

This creative approach to financing public goods and sustainable development is a holistic and practical policy directive that can be implemented on local, regional, and/or national levels.