The Case for Land Value Taxation

Perry Prentice

[Reprinted from a special 84-page booklet on land,
House & Home Magazine, August, 1960]

So said the consensus of the topflight economists, mortgage lenders, realtors, homebuilders, and manufacturers at the HOUSE & HOME Round Table on tight money and inflation ( H&H, Jan). And they went on to say:

"A substantial part of the local tax burden now carried by improvements (like houses) should be shifted to the land itself.

"Taxes are the only important costs a land speculator must pay, so taxes are the only brake on the price of land, which reflects the capitalized margin between the rent the land can be expected to earn and th; tax burden it can expect to carry. The bigger the land tax the smaller this margin will be and the less chance of big profits in land speculation. [In much of Australia and New Zealand improvements are not taxed at all; almost the whole cost of the local government is paid by taxes on land alone.]

"Taxing land more heavily would make the unearned increment in suburban land values pay the cost of schools and other community improvements needed to convert raw land into housing.

"Taxing land more heavily would let homebuilders offer better homes for less money.

"Taxing land more heavily would reduce the taxes on good homes by increasing the taxes on vacant and underused land.

"And incidentally taxing land more heavily would cut the cost of highway extension by cutting the land costs for the right of way.

"The steepest price inflation of all has been the price inflation in land, but . . . We have no land policy designed to bring the land needed for our population growth on the market when it is needed. On the contrary, we make it easy [by undertaxation] for land speculators to hold their land off the market in anticipation of still higher prices later."

Twenty-three years ago the report of the National Resources Committee pointed out that taxes on improvements discourage building by reducing the profits the building can earn, whereas taxes on land stimulate building by decreasing the price the builder has to pay for the land he builds on. Its report continued:

"State and local authorities should consider reducing the tax rate on buildings and increasing the rates on land, in order to lower the tax burden on homeowners and stimulate the rehabilitation of blighted areas and slums."