RE: WorldTransport Forum
TRANSPORT CREATES LAND REVENUES
Dave Wetzel, Chair of the Professional Land Reform Group
The Institute of Economic Affairs is not a body whose economic judgements I would normally want to be associated with. However, in publishing Fred Harrison’s new book “Wheels of Fortune, Self-funding Infrastructure and the Free Market Case for a Land Tax” [£12.50] they have done us all a favour.
At a time when the UK Labour Movement is addressing the role of landowners and the UK Greens are advocating Annual Land Value Taxation it is reassuring that even the followers of Adam Smith are beginning to recognise the unique role that land plays in our economy and how in Harrison’s own words “The traditional landed class ……top the list of free riders”!
Fred Harrison uses many examples to show how large major infrastructure projects, usually funded by Government (i.e. tax payers) provide massive increases to land values. He demonstrates that major transport schemes give three times the value of the project as an unearned gain to landowners. The Jubilee Line Extension in London cost £3.4bn to build and it is estimated that land values just close to the eleven new stations have increased by a staggering £13bn. Of course, the taxpayers lose in two ways. As travellers they have to pay high fares towards the capital cost as well as bearing the opportunity cost of private activities forgone. Harrison estimates that for every £1 of tax raised by the government, an average of £2 of wealth is lost to the economy and even the yardstick employed by HM Treasury for the damage taxes cause is 30p in every £1 raised.
Harrison’s remedy is to suggest an annual levy on land values to pay for Government infrastructure and services. Taxes on wages could be reduced and many schemes that currently fail to be implemented would see the light of day. He shows how historically, as far back as Roman times their famous roads were paid for from local ground rents and not by some central bureaucracy in Rome, and yet armies could span their empire, post was delivered expeditiously and local farmers enjoyed bigger markets as they could transport their goods more easily and safely over greater distances.
Similarly, Hong Kong and Singapore use land rents to finance infrastructure and keep their taxes on incomes and trade very low and yet without any natural resources their populations enjoy higher per capita incomes than the UK.
In addition, taxes on wages and savings are regressive tools as they transfer money from people at the bottom end of the income scales, who tend not to own land, to people in the middle and higher brackets who do tend to own land.
As land is used as a means of investment, it often pays landowners to hold it out of use while events such as increased productivity, growing population, and neighbouring investments cause their land to increase in value with no effort on their part. Such idle land denies us all homes, jobs and leisure activities in the area. Many have to travel greater distances for their homes or work and the artificial shortage of land raises land prices to unaffordable levels. Whereas, following the Ricardo theory of rent, an annual tax on land values not only reduces land prices but encourages its owners to put it to good use to derive an income. This enables more affordable homes to be built where people most want to live, without ripping up pastures in the green belt and destroying our countryside with all the additional transport and other costs that urban sprawl creates.
Harrison has a good track record in his description of the land market. He was uniquely the only economic commentator who in his 1983 book “Power in the Land” predicted the last property crash in 1992. His current prediction in “Boom/Bust” (2005) is that the land market will peak in 2007/08 and crash in 2010. He demonstrates how such helter-skelter booms and depressions are not inevitable. They arise from the mismanagement by governments of their tax policies and an annual Land Value Tax, replacing many harmful taxes, would not only smooth land prices but allow for reductions in interest rates as the Bank of England no longer needed to apply unnecessarily high interest rates to dampen a housing boom.
For anyone interested in funding better transport and creating a fairer more efficient and just society – I urge you to read this book available free as a download from the IEA website at http://www.iea.org.uk/files/upld-publication307pdf?.pdf