Land Value Taxation: Panacea or Placebo
[Reprinted from GroundSwell, March-April
2010. Originally published in The Land, Winter 2009-2010]
Concentration of land ownership in the hands of a privileged class is
blatantly unjust, and arguably is the mother of all other injustices.
Century after century has witnessed bitter struggles over access to
land between the haves and the have-nots. Revolutions have toppled
land-owning elites, often only to set others up in their places. Land
reform concessions have sometimes had a mitigating effect, without
ever addressing the core of the problem; even in a wealthy country
like Britain, the widening gap between rich and poor is the gap which
separates those who own property from those who don't.
Over the past 150 years a growing body of opinion has maintained that
the solution to land concentration and monopoly is not to fight it,
but to tax it. Land Value Taxation (LVT) was first articulated in
depth in Henry George's Progress and Poverty, and it now has
many exponents and supporters around the world, ranging from municipal
authorities in the US, to the UK Green Party.
Some advocates of LVT seem to believe that it is the answer to all
social problems; to the uninitiated, on the other hand, LVT is an
arcane economic mechanism which is hard to fully understand. The Land
has therefore invited Alanna Hartzok of the Earth Rights Institute, in
Pennsylvania, to address some of the most frequent queries and
criticisms, after this brief introduction to the theory of LVT.
What is Land Value Taxation?
Unlike manufactured goods and services, land (which according to the
original definition in classical economics is taken to include the
sea, mineral deposits and all other gifts of nature) does not cost
anything to produce; it is provided by Nature for free.
If there were limitless supplies of land then nobody would need to
pay anything, or anybody for its use. However there are not limitless
supplies - as Mark Twain said "they are not making any more of
it." The supply of land is fixed, while the demand for it is
growing. Owners of land, collectively, have a monopoly over a scarce
resource, which everybody needs, but which costs them nothing to
produce. They are charging the rest of us for the use of this
resource. The object of LVT is to ensure that any payment for this
resource goes to society as a whole, rather than into the bank
accounts of landowners and mortgage lenders.
What gives land its value?
There is probably still some land in the world - miles away from
anywhere and capable of producing very little - which can be had for
nothing; and there is still some very isolated moorland in Britain
which can be had very cheap, perhaps for £50 per acre. So what
makes the rest of the land more expensive than this? There are two
factors which increase the value of land above this rock bottom
(1) The land may be better endowed by nature: it may be very fertile,
or on a south facing slope, or have just the right amount of rainfall,
or be next to a river or natural harbour. This value is created by
nature, independently of humans, and it is often (but not always)
(2) The value of land may be enhanced by all the human activities
carried on around it. Land that can produce three tonnes of wheat to
the acre is not worth much if there is no nearby community to eat the
wheat, and no road to export it. A waterfall capable of generating
1,000 kilowatts is worthless for that purpose if there is no village
nearby to use it. Land tends to increase in value the nearer it is to
roads, railways, villages, towns, shops, good schools and "good
neighbourhoods". This is the value that estate agents refer to
when they cry "Location! Location! Location!" This value is
created by society as a whole, rather than by the individual owner;
and it tends to increase with population and human activity. The total
value of the land as a result of its natural endowment and its social
location is known as its "economic rent".
Economic rent is not the same as the rent that you might pay for a
flat in London or a farm in Devon. When you pay rent for a flat or a
farm you are not only paying for the land, but for the buildings and
other improvements made to the land. If land is drained, or fenced or
a barn is built on it, then that is an improvement made or paid for by
the owner of the land, which will increase the value of the property.
If a house is built, or twenty houses, or offices or a multiplex
cinema, then that is likely to increase the value even more. These
improvements, usually known as "development", are normally
made or paid for by the owner of the land, and they are distinct from
the "economic rent" relating to the natural endowment and
social location of the land.
If someone puts up fencing, or builds a house it is reasonable that
they should be rewarded for their work or expense. But it is not
reasonable that they should be rewarded for owning land which was
created by nature; nor that they should be rewarded for owning land
that is valuable because society has built a high street, a secondary
school, and a tube station, nearby.
The object of land value taxation is to ensure that the rent
attributable to the natural value of the land, and to the value
created by its fortunate location, is paid to society as a whole, and
not to individual landowners who have not earnt it.
The Advantages of LVT
What happens if society taxes the economic rent of land? Consider a
piece of land valued at £100,000, and which has a rental value on
the market of £5,000 per year. If the government or local
authority imposed a land value tax of 40 per cent, the owner would
have to pay £2000 tax per year, and would only receive £3000
in rent. The market value of the site would therefore go down, and if
the owner sold it he would only get £60,000 for it instead of £100,000.
Similarly if the land value tax were 60 per cent, the owner would pay
£3,000 per year in tax, receive just £2,000 in rent, and the
capital or resale value of the land would be only £40,000. In
other words, when a land value tax is introduced, the capital value of
land, and hence the cost of buying it, tends to decline in proportion
to the rate of tax, while the total rent paid (either to the owner or
as tax ) remains the same.
There are three main advantages to introducing a land value tax
1. Money that was formerly paid to landowners would
instead be paid to the local authority or national government. This
would mean that the government could reduce other taxes, such as
income tax and VAT, correspondingly. Someone who was formerly paying
rent and income tax and VAT, would still be paying the same amount
of rent, but less or even nothing in income tax and purchase tax
(Henry George advocated abolishing all taxation save that on land
values). Everybody would be better off, except land speculators and
those who had been living off the rent of land.
2. Reducing income tax and purchase tax would encourage industry
and manufacturing. In Henry George's words: "Tax manufactures,
and the effect is to check manufacturing; tax improvements and the
effect is to lessen improvement; tax commerce, and the effect is to
prevent exchange; tax capital and the effect is to drive it away.
But the whole value of land may be taken in taxation, and the only
effect will be to stimulate industry, to open new opportunities to
capital, and to increase the production of wealth."
3. Land tax would do away with land speculation. Landowners would
get no advantage from sitting on land and waiting for its value to
increase before selling it, because all the time the land was doing
nothing, they would have to pay LVT. They would be under financial
pressure to do something with the land or sell it to someone else
who wanted to do something with it. This would put an end to land
speculation, empty city office blocks etc.
A further advantage is that LVT is relatively easy to collect. You
can't hide land the way you can hide income. "Non-doms" can
stash dollars in the Cayman Islands, but they can't take acres there.
In summary, a land value tax would encourage the production of wealth,
while at the same time ensuring that wealth was better distributed.
Questions and Answers about LVT
Alanna Hartzog and colleagues respond to questions from Simon
Fairlie of The Land.
SF: The system of Land Taxation, as expounded by Henry George in
Progress and Poverty seems to be designed to address poverty in two
ways: (a) by taxing landowners so as to distribute wealth more fairly
and (b) by removing tax from industry so as to create more wealth. I
don't think many readers of The Land would have much quarrel with
objective (a) (though they might have queries as to how it would
work); but there are several concerns about objective (b).
AH: Regarding objective (a): while the policy proposed by Henry
George is often called "land value taxation" the concept is
more precisely understood as the capture of "land rent"
which is a measure of socially generated surplus value. When retained
by the landowner, land rent is an unearned income, which can be
captured by the state for the benefit of all. In Australia, profits
from land rent have increased disproportionately as the economy has
How Land Rent has Eaten into the Australian Economy
In 1911, when land was plentiful in Australia,
85 percent of income went to labour and capital, and only tiny
amounts were taken as tax or went to landowners. By the 1950s,
the amount of tax taken had tripled, but land rents were still
low. However, over the last three decades land rent has grown to
occupy 32.5 percent of the economy, yet only 4 percent of this
is captured through taxes for the public.
Objective (b) has two parts as stated, so let us consider these
separately. First, "removing tax from industry" does not
mean removing taxes from big polluting factories. What George meant by
industry was labour, as in "this person is very industrious."
As for the second part of (b) "so as to create more wealth",
this phrase might conjure up the image of everyone insatiably
accumulating piles of material stuff. But George uses it in the sense
of common weal: "a condition of society in which no one need fear
poverty, no one would desire great wealth - at least, no one would
take the trouble to strive and to strain for it as men do now."
SF: When Henry George wrote Progress and Poverty in 1879 he was
living in the USA which was still a young country with an expanding
frontier, and seemingly limitless resources. He could write with
confidence: "All things that furnish man's subsistence have the
power to multiply manifold . . . How is it that this globe of ours,
after all the millions of years that man has been on the earth is so
thinly populated? . . . The increase of population will never exceed
But now the context is different: we may not have exceeded
subsistence but we are stretching the bounds of extravagance.
Resources such as land, energy, water and pollution sinks appear to be
limited, and many people wonder whether, in rich countries such as the
UK and the USA, we shouldn't be putting a brake on economic growth.
I can see that when absentee landlords are sitting on land that could
be cultivated, or when speculators leave buildings empty so that they
can make a profit, yes, it is a good idea to tax them. But wouldn't
the same tax mean that every landowner, however small, and even if
they weren't trying to speculate, would be under pressure to extract
as much profit from their land as it was capable of?
AH: For many environmentally aware people, alarm bells start to ring
when George says that under a system of Land Value Taxation (LVT) "no
one would care to hold land unless to use it, and land now withheld
from use would everywhere be thrown open to improvement."
It is important to read statements like this from the perspective of
Henry George and the problem he is trying to solve, namely, want
amidst wealth, poverty, hunger and material deprivation alongside
abundance. George never advocated economic growth for growth's sake.
When he talked of productivity increase it was always with the view
that those who were poor and hungry consumer were being locked out of
natural opportunities to apply their labour to land in order to secure
their basic needs. He saw that a few had appropriated the gifts of
nature and vast lands were enclosed for no other reason than for land
speculation and the over-accumulation of wealth by the few, while
great numbers were penniless and poor. A statement like "land now
withheld from use would everywhere be thrown open to improvement"
is the way George expressed his enthusiasm for a just society where
the rights of all to the gifts of nature was made manifest.
SF: Yes, I appreciate that. But nowadays, when we ransack the earth
for luxury goods, how does LVT avoid creating an incentive for
excessive, undesirable or unecological development? Under LVT, where
land is taxed according to its productive potential, wouldn't owners
of quarries, mines, peat bogs, forests, fisheries, irrigation rights
and so on be under pressure to extract the maximum return from their
land even if it wasn't ecologically wise?
AH: Rights to use each natural resource domain should be determined
by the community in what we might call democratic, participatory
zoning (or in England "land use planning"). Thus the
allocation of water usage rights might be determined by water table
level, annual rainfall, base level use needs, and so forth. Imagine
that with full democratic land use planning, the citizens of a uranium
rich area might decide that the best use was no use. Their community
could still thrive from other forms of publicly captured resource rent
and thus not have the pressure to mine uranium. If mining or quarrying
was permitted, this use would be conditional on payment of a security
deposit to guarantee that the land would be reclaimed and not simply
left in a degraded condition.
SF: So if I had a uranium mine, or more likely a gravel pit, with
permission to extract, but didn't implement the permission and just
kept sheep, would I have to pay LVT for the value of that permission,
or would I just pay for the value of agricultural land?
AH: I'll let two Georgist economists, Nic Tideman and Fred Foldvary,
respond to this one.
NT: If the site is more valuable as a gravel pit than as a sheep
farm, it is the value as a gravel pit that goes into the calculation.
But the question is concerned both about the possibility of excessive
development and about the possible unfairness to the person who has
been keeping sheep. Thus one should note:
1. There should be not just a question of permission,
but also charges for any adverse consequences of a chosen land use.
2. It is possible that running sheep adds scenic value or adds in
some other way to the community. The best system of land use rules
will reward those land uses that add value to their surroundings,
according to the value added.
3. There is a question of the fairness of telling someone who only
knows running sheep that she now needs to pay according to the value
of using her land for something that she has no interest in doing
and no capacity to do. When such "accidents" cannot
reasonably be foreseen, equity may require that landowners be
awarded one-time, lump-sum compensation for the loss associated with
adapting to the unforeseen new use for the land (e.g. moving the
FF: If the economic rent of the gravel extraction is greater than
sheep ranching, the sheep ranch would pay the LVT of the gravel pit.
That would indeed promote the development of the gravel pit. However,
the gravel pit has a secondary consideration. If the gravel pit is
ugly or noisy, then it would reduce the rent of the neighbourhood.
Also, folks might enjoy seeing the sheep.
So I would use "demand revaluation" to determine the
subjective values of the sheep versus the mining. If the gravel mining
produces £X more economic rent in total, aside from the
aesthetics, ask everyone the most they would be willing to pay to keep
the location in sheep. Any person whose stated value changes the
outcome would pay compensation for doing so, equal to the negative
effect on others. If the total willingness to pay is greater than £X,
the sheep would stay.
Atmosphere and Pollution
SF: How would LVT be applied to govern use of the atmosphere and to
combat global warming? Is LVT sufficient or do you see some other
mechanism being necessary?
AH: The cutting edge of Georgist economics is the blending of the new
field of ecological economics to fully cost the commons. The mechanism
to capture rent, set pollution fees or define environmentally sane
land use policy would vary depending upon the specific common heritage
domain - surface land, water, minerals, spectrum, etc. In some cases
the "highest and best" use might very well be "no use."
Overall, an "integrated green tax shift" would "tax
bads, not goods."
Regarding use of the atmosphere, most Georgists would advocate direct
pollution taxes rather than carbon-trading which would create a market
for pollution "rights" and administration of which would
assuredly be riddled with special privileges and corruption. Polluters
refusing to pay-up their pollution taxes would risk having their
companies shut down. But taxation has to be set at a sufficiently high
rate to incenivize pollution reduction.
SF: I also worry about pressure from LVT to improve property would
result in denser developments in urban and suburban areas. This might
be helpful for reducing suburban sprawl (which you have lots of in the
USA), but in high value areas isn't there a danger it would result in
"town cramming" (which is more of a problem in a small
country like England) involving excessive infill, the disappearance of
gardens and the replacement of human-scale housing by high rise flats?
What is to stop urban development becoming too dense?
AH: "Too dense" means that people would not want to live
there and so they would go elsewhere. They would have other pleasant
options for living space and they would have the purchasing capacity
to choose them. Thus, nowhere would be "too dense". The
problem of "too dense" is a manisfestation of the current
unjust land tenure and tax system. Here is Henry George's vision of
how it would work, (and note that detailed studies of this policy
where it has been even partially implemented show that the facts
correspond to his vision):
"The destruction of speculative land value would
tend to diffuse population where it is too dense and to concentrate
it where it is too sparse; to substitute for the tenement houses,
homes surrounded by gardens, and to fully settle agricultural
districts before people were driven far from neighbours to look for
land. The people of the cities would thus get more of the fresh air
and sunshine of the country, the people of the country more of the
economies and social life of the city."
SF: I don't understand how LVT would promote houses with gardens.
Surely owners of small plats of green land in cities would be under
pressure from the land tax to build on them. How do you find space for
low value uses like local urban food production?
AH: Even without zoning, land value tax harnesses positive
incentives. For example, if the city had no parks or green space for
recreation, people would likely move to more pleasant cities. The
parkless, greenless city, with lower land rent being generated for
public purposes would soon find a way to increase green space.
As for urban agriculture, a pure resource rent system, without zoning
or planning restrictions would probably not yield bushels of tomatoes
grown on lots in the centre of the city. But if a community wanted to
grow tomatoes in an area of high land value, they should be entitled
to make that choice. So we are back to democratic participatory zoning
and planning for this one.
Keep in mind that the land records, transparently available on
websites, would show that the lot zoned for tomato growing is only
yielding a tiny percentage of the potential land rent that the
community could otherwise collect LVT to pay for public education,
healthcare and other public needs. The community might at some point
change its mind, in which case urban agriculture could do one of two
things - move out a bit towards the edge of the urban area, maybe
converting some suburban house lots to micro-farms and/or move up to
This common sense approach would be possible because of the resource
rent for public revenue system would be transparent and easy to
understand with all the information posted on free access websites.
Backroom rent-seeking dealings of politicans and land speculators
would cease to exist, public officials would increasingly serve the
people because the people would have gained the power of economic
democracy; the power-mongering of the super rich, who have gained the
upper hand via massive privatized rent and other unearned income,
would decline as a consequence.