One of the key reasons for producing this report was to assess whether LVT could help bring forward more land for development, and it is clear that there is huge potential for it to do so.
There are nearly 2,000 hectares of land in London not currently being used for housing which could be unlocked for residential development by a LVT. These sites might accommodate at least 276,000 new homes, and potentially many more. This would easily provide another seven years housing supply to support the efforts to meet London’s housing challenge.
We all know that London is living through unprecedented challenges in relation to building the new homes we need. Record growth requires unparalleled levels of finance to support it, and my report argues that London needs to think radically about growth, and particularly how we can fund it.
In London, where available developable land is in short supply, we have the perverse situation where sites that could be used for housing are left vacant and the owners face few, if any, financial penalties for leaving the land idle. In fact the current system, with discounted business rates for vacant or derelict land, can often incentivise buildings being left empty or even knocked down. Land owners can hold, hoard or hang-on to sites with no intention to make better use of them.
LVT may be one way of accelerating the new house building London so desperately needs. A tax on the value of land, paid by the landowner regardless of whether the land is developed or not, would incentivise the optimum use of land. Landowners would seek to gain income from land by developing it in order to gain rent.
The optimum use of each piece of land would be determined by a public authority and the tax would be levied on that basis as opposed to its actual or current use. Some land, such as agricultural land or woodland, may be zero rated, thus incurring no charge.
Introducing a LVT would require a dramatic shift in the approach to raising taxes in this country. It could, in the first instance, replace council tax and business rates. For LVT to work, land ownership must be established, sites valued and optimum land use identified. None of these tasks in themselves present unsurmountable challenges.
LVT has advocates in all mainstream parties. Winston Churchill made the case for it as far back as 1909. More recently, Labour’s current shadow chancellor John McDonnell is a proponent of it. It has economic credibility (it has been endorsed by at least two Nobel Prize winners for Economics – amongst many others). It has been used across the world, and there are examples of it delivering real benefits in terms of encouraging development and the capture of value for public services.
London is rising to the infrastructure challenge, with a number of innovative funding mechanisms enabling crucial new projects to go ahead. But we need to go further still and take a fundamental look at the incentives our property taxation system offers to accelerate the amount of land available for new homes. The conditions are right:
· We have the challenge of accommodating unprecedented levels of growth and of finding the funding to support this growth.
· We have the Greater London Authority that has demonstrated over the sixteen years of its existence that it has the strategic leadership needed to take bold steps to support a growing world city.
· We have the organisational know-how to deliver the strategic projects.
· We have the confidence of Government that London can be trusted with new and devolved powers.
London needs to maximise sites available for housing and infrastructure and any mechanism that encourages land to come forward for development is essential. Land Value Tax could deliver higher levels of development to fund London’s growth. The time has come to test it out.
You can read my recommendations on a clear course of action for the next Mayor to implement a Land Value Tax trial here.
