Land Value Based Fiscal Reform and the New Urban Agenda

by Lindy Davies

David Triggs’s career was as a water systems management engineer, and his long avocation was teaching political economy. It seems that he assumed the presidency of the IU with an eagerness to learn.

David Triggs

David Triggs

Seeking to explore options for the IU’s internationalist mission, he attended a UN conference in Prague, and made a presentation on the application of LVT. However, it was immediately apparent to him that the problems and difficulties thereof are strong enough that more research and dialogue is clearly needed; hence, this conference, which took place for two days this September at London’s School of Economic Science.

This conference was participatory and interactive, featuring many open-mike sessions and conversational breaks. Many thoughtful presentations were made. We lack space to do them full justice here, but videos of each are available and are well worth watching. Speaker after speaker made cogent remarks on themes that are familiar to GJ readers, with an aim toward shaping them to take their rightful place in Habitat 3’s all-important New Urban Agenda.

The event sought to provide helpful input on a list of key questions:

It may be, incidentally, that this newly-coined acronym was the least-successful thing about this conference. Apparently, our search goes on for a soundbite-ready catchall term. Speakers continually stumbled over the letters or their pronunciation, occasionally falling back on “LVT” or, even, resorting to calling it “it.” (Perhaps it would help to pronounce the acronym phonetically: “Elvie Biffer”?)

It may be, incidentally, that this newly-coined acronym was the least-successful thing about this conference. Apparently, our search goes on for a soundbite-ready catchall term. Speakers continually stumbled over the letters or their pronunciation, occasionally falling back on “LVT” or, even, resorting to calling it “it.” (Perhaps it would help to pronounce the acronym phonetically: “Elvie Biffer”?)

1. What is the optimum form of Land Value Based Fiscal Reform (LVBFR) and what administrative mechanisms are needed for implementation?
2. How would Land Value Based Fiscal Reform be integrated with the regulation/planning of land use?
3. How would LVBFR contribute toward good, secure, affordable housing?
4. How may LVBFR be made politically acceptable?
5. How may legal, political and economic obstacles to LVBFR be overcome and what are the lessons we need to learn from history?
6. How, for the provision of public infrastructure and affordable housing, may private sector finance be accessed and properly rewarded whilst retaining all associated rent as public revenue?
7. How and should Monetary Reform and Tax Free Production and Trade feature in plans for Land Value Based Fiscal Reform?

A rather spontaneous “keynote address” was provided by the first speaker, Le-Yin Zhang, Senior Lecturer, Bartlett Development Planning Unit, University College, London. She serves as Co-leader for the Habitat 3 group on urban economic development strategies, which is, she said, a distinct honor. Habitat conferences are convened every 20 years, and “provide guidelines for policymakers and other stakeholders… in managing urbanization and human settlement over the next 20 years.” The Habitat process is a giant mobilization of public officials and many other groups, including NGOs and businesses. The preparatory process, in which bits and pieces of the agenda document are debated and shaped, is huge. The result of all this collaboration will be a document, the New Urban Agenda, to be adopted at the Quito Habitat 3 conference this October, and used as a guide for urbanization policies over the next 20 years.

Le-Yin Zhang good-naturedly remarked, “This is my first visit to this address, and I now realize I have walked into a gentlemen’s club.”

Le-Yin Zhang good-naturedly remarked, “This is my first visit to this address, and I now realize I have walked into a gentlemen’s club.”

Le-Yin Zhang briefly explained why a “new” urban agenda is needed The 1990s saw the simultaneous trends of deindustrialization and urban blight in developed countries, and rapid urbanization in developing countries. Governments and other groups were forced to pay more attention to urban issues. What’s new now, though, is a focus on the positive potential of urbanization to yield economic, cultural and environmental benefits. The goal is for cities to be understood as drivers of sustainable development.

One key challenge of the Habitat agenda is the tendency to slough off the funding needed for key sustainable-development projects to local levels of government, which are already strapped for revenue. “I had studied these issues in depth,” Le-Yin Zhang reported, “before learning about the importance of land rent as a revenue source.” In developing countries, local governments are very weak, fiscally. This is enormously important, as cities grow and more pressure is placed on traditional revenue sources. Land value offers the most ideal source of new revenue to meet these needs. “The issue of land value taxation is bound to have increasing influence.”

The New Urban Agenda document is much more accessible than earlier documents of this sort; it is only 20 pages long. Here is paragraph 116:  We will implement policy and legal frameworks to capture the increase in land and property value generated as a result of urban development processes and public investments. Measures will be put in place to prevent its solely private capture as well as land speculations, by introducing adequate taxation and site and city-wide redistribution of gains. We will ensure that efforts to generate land-based finance will not result in unsustainable or increased land use.

The New Urban Agenda document is much more accessible than earlier documents of this sort; it is only 20 pages long. Here is paragraph 116:
We will implement policy and legal frameworks to capture the increase in land and property value generated as a result of urban development processes and public investments. Measures will be put in place to prevent its solely private capture as well as land speculations, by introducing adequate taxation and site and city-wide redistribution of gains. We will ensure that efforts to generate land-based finance will not result in unsustainable or increased land use.

Le-Yin Zhang advised advocates to not be too attached to the term “land value taxation.” The term “land value capture” seems more acceptable, possibly because it encompasses more policies than a simple levy on land value. For example: China has put huge investment into infrastructure, more than any other country. The biggest reason for this is that local governments have been able to take advantage of land value capture. Most of this land was never on the market until very recently. In China, when rural land is taken for urban uses, it becomes state property, and local governments are able to collect its increases in value. But, these massive developments have had negative environmental impact. “While I’m very optimistic about what we can achieve through land value capture, I’m not sure that it will solve all the world’s problems.”

In the Q&A session, Dave Wetzel pointed out that China’s land nationalization model, effective as it is, captures the new value of urbanized land in a lump sum; the Chinese have not accepted or adopted the idea of collecting the annual site rental for public revenue. It may be that the connotation of LVT, as opposed to land value “capture,” offers a more accurate description of the economic effects we want. Le-Yin Zhang agreed with this point; yet, she noted that most local governments so far had only adopted the lump-sum model of land value capture. In China, there is huge political opposition to introducing a proper land value taxation system. Rapid urbanization has brought huge opportunities for government corruption.

Julian Pratt (who did an exemplary job throughout of emcee-ing, managing exercises and open-mike sessions) addressed the importance of speaking in terms of, and examining and researching the notion of the market in land rent. Not only does this address nagging concerns about LVT “eroding its base,” but more importantly, it allows us to create a bridge to a rent-as-revenue policy in societies that have not yet developed a land market. “Wherever markets in land are being introduced, let’s please make them markets in rent, not markets in the capital value of land.” An ensuing lively discussion reminded everyone that markets cannot be given free reign in every case: often the needs of the full community outweigh the market rents that a given site could generate.

It appeared, to the delight of this visitor, that our British colleagues tend to be less equivocal in their statements about the Georgist remedy (a.k.a. Elvie Biffer) than we are accustomed to hearing in the US. Presentations, for example, by leading English Georgists such as Heather Wetzel or Carol Wilcox tend to build confidently from the premise that land value is the natural source of public revenue. One reason for this may be the relative weakness of local government in Britain; if people are to consider tax reform at all, it pretty much has to be at the national level. This could also have to do with vestiges of LVT’s former political strength in Great Britain, or with the parliamentary system’s tendency to give greater weight to non-majority views. In any case, this reviewer approves, and would advise American colleagues to be more direct in their advocacy.

Peter Bowman, head of the economics faculty at the School of Economic Science, headed up a panel addressing legal, political and technical obstacles. He began by asking each participant to choose a single country, and to envision the implementation of LVBFR in that nation. Referring to the book Why Nations Fail by Daron Acemoglu, he described how economies can be distinguished, not by their structure, but rather by their outcome, either as “Extractive” (in which wealth is extracted for a small elite at the expense of everyone else) or “Inclusive” (in which people can keep the products of their labor). These outcomes are brought about, and perpetuated, by political arrangements. If, as we believe, the Georgist remedy represents a transition from an “extractive” to an “inclusive” economic order, then we must realize that its success requires certain political institutions to be in place. Bowman listed the rule of law, property rights, a government willing to provide public services for all, open market access, free speech/press and a strong civil society. Gareth Whelan suggested that an accurate and transparent system of land registration is also essential. Subsequent discussions explored the role of international financial and trade institutions in perpetuating unjust, “extractive” political systems.

Mark Wadsworth, representing the Young People’s Party, described a provocative design for a study that can, using published rental data, show the feasibility of a national LVT system in Great Britain. Wadsworth suggested that calls for precise, granular data can trip us up. He described an inexpensive method of securing data showing that determining the revenue potential of the Georgist remedy is not unfeasibly complex and abstruse.

We were offered provocative descriptions of successful land value capture policies — in Singapore, by Peter Bowman, and Hong Kong, by Andrew Purves.

“The Interlace,” a housing complex in Singapore

“The Interlace,” a housing complex in Singapore

Singapore represents a notable modern success story. Laid waste by Japanese attacks in WWII, it was rebuilt under the highly effective leadership of Lee Kuan Yew, emphasized affordable housing and public education. Today, over 90% of households in Singapore own their own home.

Singapore’s government, mostly by way of compulsory purchase, has acquired nearly all of the land in the country. It has developed strong institutions to oversee land use. The government manages redevelopment of land, planning and executing larger buildings as smaller ones become obsolete. Because almost all the land is state-owned, developers compete, not to snag prime land, but to build efficiently; this creates a leanness in Singapore’s construction industry which makes it exportable to other countries.

As the economy grew, people in public apartments were encouraged to buy their homes. A private market grew, and private owners took advantage of increased location values. This helped everyone except first-time buyers, so they were given public subsidies that corresponded to the land appreciation. Richer Singaporeans who want to acquire a house and lot can do so, but they must lease the land from the state. Singapore’s housing situation offers a strong contrast to the unaffordable, speculation-run housing markets of London and New York.

Andrew Purves, author of a 2015 book No Debt, High Growth, Low Tax, focused on Hong Kong’s highly effective provision of public transportation. Unlike those in many other countries, Hong Kong’s public rail system is consistently profitable. The system was financed by capturing the value it created on land surrounding planned stations. The municipal railway authority undertakes the profitable development of these lands. This pattern has been continuously followed since 1975. Efficient, cost-effective public transportation has been a key engine of Hong Kong’s growth.

Summing up the proceedings, David Triggs expressed encouragement and satisfaction. He had issued a challenge, and the conference participants had delivered, thoughtfully and usefully. He reflected on the most important ideas he would take away from this event. “What I take to Quito,” he said, “is that there is a body of men and women who are really behind this, who are working like billy-o to make this happen.” He affirmed the key value of case studies of specific moves toward application of the rent-as-revenue principle. Many presentations at this conference highlighted the colossal damage that is being done by current economic arrangements. The principles we believe in must be applied, not generically, but in particular political and cultural contexts — a fact which bespeaks a great diversity of opportunities for moving toward our goals. The conference also offered tangible insights into the United Nations, its processes and procedures. Finally, we affirm that economic relations are governed by natural laws, and that our mission is essentially an ethical one. There is hope in that: the truth will out.

David Triggs and Quisia Gonzalez will travel to Quito this October, to spread the IU’s message as broadly and deeply as they possibly can.

 

Leave a Reply

Your email address will not be published.