It is clear to most people that there is a housing crisis in the UK. But would a land value tax, as proposed by the Joseph Rowntree Foundation, help to remedy this?
One of the most significant problems contributing to the crisis is the volatility of the market. Just a few years ago house prices were shooting up as the supply of mortgage funds seemed limitless. Then the brakes were slammed on, as the banks crashed and prices plummeted. This is just the latest in a series of boom and bust cycles in the property market since the end of the Second World War.
The Joseph Rowntree Foundation, a charity whose aim is to identify the root causes of poverty and injustice, has recently published a report into the current housing market, Tackling housing market volatility in the UK: a progress report. This looks into the causes of such volatility and makes a number of suggestions for reform.
Among these is a call on politicians to revalue Council Tax bands to reflect real house prices and act as a brake on house price inflation. But in the long term the Foundation advocates a national property or land value tax “which could play a key role in stabilising the market and ending boom and bust cycles. ”
Fundamental overhaul of property taxation is desperately needed
Mark Stephens, co-author of the report, added:
“Overall, the steps taken by the Government fall far short of the fundamental overhaul we desperately need to create a stable housing market. Tackling issues such as property taxation require political bravery and there is an important longer-term prize at stake: a more stable system that has a greater social benefit than the four boom and bust cycles we have experienced since the 1970s. But in some ways this progress report shows we are moving further away from a stable housing market. ”
While the ides of a single land value tax would probably be very attractive to many people, it is unlikely that any government will move towards such a tax in the near future.
The present taxes are comparatively simple to collect. Stamp duty land tax has to be paid by a homebuyer or the land registry won’t register a property transfer, and Conveyancing Solicitors act as unpaid (and unpopular) tax collectors. But SDLT is only paid when a property changes hands, so if a home does not change ownership for many years the government does not see any revenue from it.
Council tax is unfair in its operation
Council tax is also comparatively simple but unfair in its operation. As the JRT report states:
“Under the current system, people in cheaper houses pay a higher proportion of Council Tax than people living in expensive ones. A family living in a £320, 000 house has to pay only twice as much Council Tax as a family living in a house that costs £68, 000 - despite their home being more than four times as valuable. ”
Moving to any form of land value tax will require a major valuation exercise across the country – something that the government would be unlikely to accept in the current economic climate.
At present the government’s main efforts seem to be addressed at encouraging property developers to build new homes for first-time buyers, and to enable first-time buyers to purchase the resultant properties. While this will benefit those who qualify for the NewBuy scheme (not to mention property developers) it is difficult to see how this scheme benefits the housing market as a whole.
So any proposals which could bring stability to the market, and ensure a reasonable supply of homes at affordable prices, should be seriously considered.