Written by Gergely Halász
As the world is engrossed in political and economic turmoil, many crises seem to loom as existential issues. The climate crisis, which is intimately familiar to anyone who has read the news in the past twenty years, needs no introduction. The issue I wish to tackle however, has affected millions in the Netherlands and the world over, including myself. I, of course, speak of the housing crisis. The rising costs of housing over the past twenty years have been unprecedented. For example, UK house prices increased by 100,000 pounds in the past 12 years alone. In the Netherlands despite a housing shortage, an estimated 400,000 houses remain unoccupied, half of them being unoccupied for more than 18 months. Despite efforts by governments to curb the rising price of housing, almost all has been in vain as the price of housing in major cities has grown to unaffordable levels. In the United States, 16 million homes stood empty in 2022 while 650,000 people are reported to be homeless. Can we truly afford to be this wasteful and inefficient? The speculative nature of the real estate market has drawn in the interest of oligarchs from a variety of countries such as Russia and China, who have bought up housing in cities such as London, Amsterdam and Prague and have left them vacant as a form of investment. Many have tried and failed to curb housing costs and many more have asked what can be done to stop the madness. The ramifications of this emergency have made the housing crisis into a sort of everything crisis, something, that if fixed, can remedy many other issues humanity faces.
There might be a simple, yet elegant answer to be found in the philosophy of one economist, Henry George from the 19th century. The primary proposal of Georgism, as detailed in his book Progress and Poverty, is to abolish all taxes and the institution of a land-value-tax (LVT), a tax upon the unimproved value of the land. This may seem to many a flippant, simplistic, and bureaucratically boring answer to an issue as omnipresent as the housing crisis. Still, sometimes the most complex problems are solved by the simplest of solutions. The argument is predicated on the idea that land is a common good that every human being uses and is not made by anyone and thus no one should be allowed to derive value from something they did not create i.e. the land. Since the value of land is determined by economic activity on and around said land, the value of land is highest in city centres such as London, Amsterdam, or New York and lowest in rural hamlets. Henry George argued that taxing the unimproved value of the land would create a fairer way of distributing government revenue to fund schools, hospitals, and so on. The unimproved value of land in this arrangement would be the pure worth of the land with the value of buildings or resources on the plot subtracted from the price. Stemming from this definition land in cities would be taxed more since the value of the land is higher, due to perception of it being in a desirable area, which would force those in cities to invest and build efficiently to be able to pay the high taxes. Leaving buildings vacant or run down would no longer be a viable investment but a drain on one’s bank account. Landlords would be incentivized to improve the property on the land to be able to rent it out faster.
That was a lot of technical tax talk, granted, but the key takeaway is that a land tax could potentially mitigate the housing crisis. It incentivizes denser and more efficient land use, which in the age of urban sprawl is needed more than ever, especially in light of the environmental movement. Once again, why would they do this? Since only the value of land is taxed, rather than the property value or income, landlords would try and fit more tenants on one plot of land, to make paying taxes easier. Even the quality of the housing available will improve since the tax burden will no longer be based on the property’s value but on the land. The inquisitive might be asking ‘Can’t the landlord simply dump the cost of the tax on the tenant as is the case with other taxes?’ It is quite common to see landlords move taxes on their property onto the tenant, such as with property tax. This is the reason why one’s rent rises when taxes are raised. However, let us consider for a moment what an increase in rent prices would mean to the government taxing the land. It would mean that the value of the land has increased and thus the tax on the land should increase. Land-value tax is the only form of taxation that cannot be transferred to the tenant. This is not even mentioning the plethora of other benefits that the greater density, alongside well-structured housing regulation, can bring, such as lower obesity rates, shorter commutes and thereby less stress, better business return, lower crime rates, and potentially even better mental health and less lonliness. One final benefit that is a consequence of LVT is that the rich cannot avoid paying it, whereas corporation tax can be avoided by registering in another country, income tax by not officially making any money or inheritance tax by creating ‘charity’ foundations, LVT cannot be avoided, since everyone needs to live on land.
Moreover, Henry George argued that if the government were to be funded by purely a land-value tax the left-over funds according to him would be redistributed equally among the citizens of the country, through a citizen’s dividend. The argument goes that the land has been made valuable by the country’s people and thus they deserve to reap the benefits. This may seem like a socialist agenda to some, but there is a catch, LVT is something almost every side of the political spectrum can agree on. To give an example, Milton Friedman was the principal advisor to Ronald Reagan in economic policy and embraced land-value tax as “the least bad tax”. The appeal goes in all directions, Libertarians and others calling for lower taxes will get them with only one tax, socialists can feel safe knowing the rich are paying their fair share, and liberals can be assured that land is used efficiently and that the economy is boosted. The American Economic Association has calculated that if the housing crisis had not happened the United States’ economy would be 74% larger than it is currently. Countless economists, philosophers, politicians, writers, and intellectuals throughout recent history have been described as Georgists. Alongside Milton Friedman, Adam Smith and Joseph Stiglitz have also pointed out the efficiency of LVT. Nine heads of state including Winston Churchill, Sun-Yat Sen, Rutherford Hayes, and dozens of other politicians have spoken in praise of Georgism. Authors such as Huxley, Tolstoy, and George Bernard Shaw were also keen on Georgism. Henry Ford, Martin Luther King, Albert Einstein, Alfred Wallace, and Bertrand Russell all agreed on one thing… tax land.
Ok, ok this all sounds great, but surely there are no examples of this working in the real world. Well, that isn’t exactly true, there have been examples of Georgist principles being applied in real life, two of which are in place today. The state of Alaska and the country of Singapore have used LVT and adjacent taxes to provide benefits and incentivize efficient land use. In Alaska since the discovery of oil, the Alaska Permanent Fund taxes 25% on land use for mining companies to protect the state from over-exploitation and degradation, while also giving back to the people of Alaska. The revenue from the tax has provided Alaskan citizens with a dividend between 1000 and 3000 dollars per year per capita. While there is no state-wide income or sales tax, thus Alaskans are the Americans with the lowest tax burden and the only ones with universal basic income. Singapore, with such little land to work with, has been pushed to develop efficient land use, which it has by controlling most of its land and leasing it to investors. When a new development is created the investors have to pay 70% of the value of land in tax once, this policy incentivizes more efficient land use in a country with very little space. The result has been that this tax revenue has been able to fund most of Singapore’s infrastructure development which has been for decades described as world-class. It has also contributed to Singapore having a consistent and large budget surplus. The poverty alleviation in Singapore since the 1960s was, at least in large part, due to the capture of land rents through LVT.
So, given all this, can LVT fix the housing crisis? Well, no, not fully. There are concerns that one single tax would not be enough to generate enough revenue for governments to function properly. Perhaps Georgism also overestimates the importance of land in creating poverty and inequality. After all, an economy is more complicated than just land, there is labour and capital to consider as well. Finally, some say that the argument holds but was more applicable in George’s time. Nonetheless, it can be an answer to a large portion of the issues from which the crisis stems. Land speculation would be removed, tax evasion would be limited giving governments more funds to work with, urban sprawl would decrease, and land use would be more efficient and human-friendly. The benefits are truly endless, and the cessation of the housing crisis could bring to an end a great many crisis with it. Global loneliness, climate change, inequality, homelessness, economic decline, population decline, the obesity crisis, and many others could be improved. There is an elegance to this solution that seems almost utopian, but it is not the perception I wish to create. Rather, if the goal of any society is to create a better and more prosperous world for future generations, then needless to say we aren’t on track to achieve that goal. Land-Value-Tax won’t fix our myriad of global issues by itself, but it can lay the groundwork for a change in how we treat housing and our communities.
Edited by Mats van den Boogert, Artwork by Lila Ozture