Have you ever asked why half of the most valuable property in the UK sits empty in Kensington and Chelsea? Or why do house prices in many parts of the world seem to be unaffordable for residents, seemingly conflicting with supply and demand? This is what the 19th-century economist Henry George attempted to solve. Perhaps it's time to finally implement his 150-year-old solution.
The solution: a land value tax or “LVT”. LVT is a tax on the value of any privately owned land in the country, not to be confused with a property tax, which taxes the value of a whole property. The difference is that property tax increases if the value of the property increases after an extension on a house or a loft conversion, while an LVT only increases if the land on which the property sits increases in value. The LVT on the same 500 square metre land is the same whether a bungalow sits on it or a 50-story building.
LVT is based on the theory that land should be no more of an investment than the air we breathe. As no one created it, no one should benefit from its mere ownership. Before the reader dismisses the article as a socialist piece, Milton Friedman - one of the most ardent supporters of the free market - was an advocate of LVT. Land ownership would not be abolished under Georgism, only profiting from the appreciation of an unproductive asset would.
Returning to the originally proposed question, the reason many houses sit empty, despite homelessness, is due to property being an investment; buying property with the hopes it will increase in value and not just for shelter. This was most demonstrated in the lead up to 2008, when people bought houses not despite their price increase but because of it, defying economists' crucifix of the supply and demand curves. The solution to this is taxing land to the amount of its increase in value each year, returning it to surviving the purpose of shelter, not investment.
LVT would also raise productivity. The tradeoff of most taxes is a lower output, as the resultant increase in price reduces the amount that is produced, hence some consumers miss out. The amount of land is set and not produced, therefore a tax would not lower its availability. Furthermore, by reducing the investment appeal, land prices would depreciate. At the same time, the land would be used more efficiently because, as mentioned above, the LVT on a bungalow and a multistory building on the same land would be equal.
The difference between capital investment and land investment (referred to as ‘property’ investment) is that capital, like a factory or shop, is productive, adding to the economy. Profiting from this is good and not discouraged by an LVT. However, profiting from the appreciation of land does not create any additional output for the economy. ‘Property’ can be separated into two parts, the house itself, which if built can be sold for more than the sum of its parts, analogous to a table which is worth more than the wood that it's made of. Profiting from such construction would not fall under an LVT. The land that the house sits on would be taxed by the LVT because population growth or a new road next to an existing property is not due to the property owner. Therefore constructing homes would be profitable and encouraged, but buying already existing properties in order for them to appreciate in value would not be. Similarly to how Nike profits from manufacturing shoes, however, your raggedy Air Forces do not constitute an investment, or if a billionaire oligarch purchases a pair of Jordans to leave unused and wasting space in central London, real Londoners will not be left walking around barefoot.
A caveat that needs to be added when talking about such reforms is that zoning regulations need to be appropriately adjusted to accommodate the change in construction that would result.
Another consideration needs to be made for the effect this reform would have on average homeowners, specifically pensioners with higher average property values and lower income. We do not want to force pensioners and average people to move because they cannot afford the yearly LVT on their property. A simple solution to this is setting a price for residential land below which the LVT on its appreciation is not paid yearly, but when the property is sold.
The long-forgotten idea of a land value tax would have the power to increase our efficiency and productivity, reconstruct the tax system to disincentivize space hoarding and reopen the possibility for ordinary young people to be confident about owning a home. It might be time to start considering Georgism.
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