Increasing Land Tax simply increases rent to match. The effect is not immediate because property is a long term investment but Land Tax lowers the return on the property and deters property investors from purchasing the property.

Many houses in inner Sydney that were once rental are now owner occupied and paying no Land Tax. Rental prices in inner Sydney have increased rapidly the last few years because of stable demand and declining supply. Land Tax is partly to blame.

In an ideal world, the inner city houses would be demolished and replaced with high rise to utilize the high land value but in practice heritage and zoning rules make this almost impossible.

Hi Wattle,

Actually, as Adam Smith, points out increasing land tax does not mean an increase in rent to match. Why? Firstly, because the landlord is already charging the maximum market rate. A higher tax would mean no one would rent with the landlord in question and instead no one would be there *while still* having to pay the tax. He would either have to lower the rent or sell it to a capitalist. Secondly, on the supply side idle sites are brought into use (as noted, in just one suburb of Melbourne there are 1000 vacant sites). Imagine what that would do to prices. Thirdly, because the speculative element in hold sites - vacant or capital gains - is diminished, this reduces rents further. Hence, in Pittsburgh we saw a 30% decline in rents when LVT was introduced. Your views do not match the reality.

If I have misunderstood you, and you meant "higher rent" due to more infrastructure being built, this is true - but it is justified by *fundamentals* i.e. accesibility to the marketplace.

Secondly, you are right - LVT is partly to blame. Precisely because it is not high enough. First, we saw there are plenty of idle houses in the *inner* city. No one lives in them (see the above statistic). Second, 'the inner city houses would be demolished and replaced with high rise to utilize the high land value' is exactly what happened in Pittsburgh. This is called agglomeration (like services are in similiar areas - so industry are on the fringes, businesses in the centre and residential housing inthe middle: http://en.wikipedia.org/wiki/Agglomeration). Land tax encourages it. As I pointed out, construction, in Pittsburgh, increased by 68% in just one year and vacant buildings were demolished and put into productive use (hence: http://upload.wikimedia.org/wikipedia/commons/8/89/Pittsburgh_dawn_city_pano.jpg ). So "high rise" buildings were created (so the tax could be better paid for), vacant sites *in* the city provided houses for the homeless (idle sites were reinquished) and speculators stopped causing urban sprawl (in contrast, Calfornia, after capping its property tax saw urban sprawl explode fourfold within the decade).

Even if you are correct in saying that LVT increases rent (you've just rewritten economic history), it would imply that such increases, are justified by increases in demand due to market accessibility (eg transport services). In the long run, site rent cannot be passed onto the tennant because the landlord is already charging the market price ( hence why we *abolish* other taxes in the short run, to arm people in case there is an increase). Additionally, LVT cannot be passed on because there is now an increased supply of rental properties on the market. Tennants can now threaten to move if the landlord attempts to pass it on. When rent is collected on unimproved values, land will become much more readily and cheaply available. Many more people will have access to sites and be in a position to build their own houses and operate businesses. All you’d need to borrow, if at all, would be the current unimproved site value. Compare this to the gigantic burden of taxes&mortgages at inflated interest rates.

Like in Pittsburgh, many existing tenants would move and take up sites elsewhere. The law-of-supply-and-demand will reverse the current situation by forcing landlords to compete to attract tenants by; improving terms and conditions, carrying out building and internal improvements, undertaking promotional activities in commercial centres. In other words they would have to start renting buildings alone and forego the unearned income from the site itself.

Rents are run by a monopoly. Taxing a monopoly means that a monopoly must give up its power, accordingly. Landlords, especially smaller landlords, would ultimately benefit from Community Site Rent in any case, in that, although they would be foregoing the site rent as part of their income, they would be in the same position as other citizens in that the benefits from a move to Community Site Rent would offset and probably outweigh their initial loss.

In reality, Wattle, everything you listed is not empirically valid and everything you desire is actually achieved by a "betterment levy".

Cheers,
Steven Spadijer

“Why should the value of government windfalls and population growth be deposited to landlords…”

My question: why population growth to enrich landlords, builders and land speculators at huge cost to the rest of society and the Australian environment?

As a “cure for unemployment”, a cessation of population increase and gradual reduction to a sustainable level of 13 million ( Tim Flannery’s measurement before he got PC and started to blame ‘climate change’ for everything, while ignoring the claimed effect or population on climate and environment he wrote about) is the best and only cure.

The key to bringing the greedy to book, making rents and housing affordable in the driest country in the world – where most people have to cluster around the coast in eastern state cities – is to stop maniacal immigration to suit the greedy.

Sounds like and interesting concept to me Steven and I'm going to do some more reading on it.

I'm sure the doomsayers out there will jump on a 'tax' as just another cost without thinking through the long-term benefits. I'm also waiting for the 'but that's Pittsburgh and this is Australia, so it wouldn't work' argument to surface.

Too many people out there are fixed in their ideologies and unable to embrace different concepts - whatever the merits may be.

I am not sure how Land Tax works in Pittsburgh but in Sydney land valuation for tax purposes has increased steadily despite property being in the doldrums and consequently I am seeing my Land Tax bill increase about 10% a year. Over the same time the market rents have also increased.

Increasing Land tax simply favors the owner occupier over the landlord because the owner occupier is exempt. The next purchaser of my property will most likely live in it and pay no land tax. It is obviously a good policy to encourage individual home ownership but the rental market still has its place because not everyone is ready to commit to the purchase of a home.

In Pittsburgh they may demolish the old and build high rise but in Sydney we are more likely to demand the retention of the original streetscape and deny high rise. This policy results in low value properties (high heritage value) on high value land. The resulting property is uneconomic to let because of Land Tax so reverts to owner occupier. This is a great policy if you are looking to purchase a house but the renters have to go elsewhere.