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UBC Theses and Dissertations

Land value taxation : some effects on land speculation and the burden of municipal taxation Stewart, Douglas Allan

Abstract

Throughout economic history, since the time of the Physiocrats, the idea of taxing land has been discussed, receiving both enthusiastic approval and vehement condemnation. While it has been held up as everything from a cure for unemployment and inflation to "a guarantor of perpetual industrial and international peace," the property of the tax with which this thesis is concerned is its propensity to intensify the use of land. Recently, this property has resulted in the tax's reception of a considerable amount of attention from politicians, planners and citizens who feel that a substantial portion of the high cost of land (and thus housing) and the sprawl-type development in the Vancouver area is the result of the withholding of land from the market by land speculators. The effect of increasing the tax on land is to increase the costs, thus reducing the profitability of holding land in the expectation of selling at a profit in the future, so causing more land to be developed and ultimately, resulting in an increase in the supply and a reduction in the price of housing. It is the purpose of this thesis to examine the potential of a policy of increasing the tax on land to a level necessary to accomplish this goal in the Vancouver area. The development of a simple land valuation model from the roots of classical rent theory permitted a demonstration (in theory) of the holding cost and capitalization effects of the tax. However, the realization that the effects of taxing land in a theoretical world may differ considerably from the results of taxing land in "the real world", made necessary the model's extension to take into account the characteristics of and the forces acting upon the three main participants in the land conversion process; the consumer of housing, the residential developer and the pre-development landowner. By making explicit the difference in the landowner's and developer's valuation of land, it was possible to construct a framework, which when provided with values for two variables, the rate of land value appreciation and the capitalization interest rate of the speculator, is able to determine the rate at which land must be taxed to force it into production. An important factor to be kept in mind when changing the base of the property tax (land and improvements to land alone) or raising the rate of taxation on one part of the base is the shift in the burden of taxation among different properties or different types of properties that may occur as a result of the differences in the distribution of assessment between land and improvements among different properties. It was found that substantial shifts in the burden of taxation resulted from a shift to land value taxation and that the total burden increased drastically when land was taxed at a rate necessary to remove the profitability of land speculation. If the costs of this shift in burden are sufficient to block the implementation of this policy, it is necessary to look for alternative means of accomplishing the stated goals. The selection of alternative policies will depend on the assumed cause of the problems (shortage of housing and sprawl). If speculative activity is still seen to be the cause of housing shortages and urban sprawl, other policy devices with less costly side effects may be adapted to reduce the quantity of speculation. If land speculation is not the major obstacle to sufficient quantities of housing and orderly urban development, alternative public policies that influence other market factors or participants must be adapted.

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