Sunday 4 December 2016

How a land value tax would help housing

Ronan Lyons

Published 08/05/2016 | 02:30

'Central Dublin is slightly larger than central Paris but houses less than one quarter of the population. Over the coming decades, the last thing the city and country need is for growing demand for homes to be met by sprawling the city even further out' (Stock image)
'Central Dublin is slightly larger than central Paris but houses less than one quarter of the population. Over the coming decades, the last thing the city and country need is for growing demand for homes to be met by sprawling the city even further out' (Stock image)

A couple of weeks ago I wrote about the need to tax the value of land, as one of the four main areas of policy reform needed to bring about a healthy housing market in this country.

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In my column of April 10, I gave the specific example of the Dublin Industrial Estate, roughly 170 acres of land within Dublin City Council limits. It was my contention that this is a classic case of the costs of not having a land tax - or indeed, more generally, a land-use policy - that reflects current needs.

Last week, the Sunday Independent published a response in its letter page by Jim Keogan, assistant chief executive Dublin City Council with responsibility for planning. Jim raises three points in response to my article and I think each is worth exploring.

The first is that he believes it is erroneous to suggest that the market value of the land underneath the Dublin Industrial Estate is "close to zero" (my own term). As evidence, Jim cites property market reports that the industrial market was more active in 2015 than at any point since 2006. I could quibble by pointing out that the prime industrial markets are the corridors off the M50, such as the N1/M1, N3 and, in particular, the N7 corridors.

But that is to miss the point. Suppose it were the case that, instead of being worth roughly €100m, the lands underneath the buildings in the Dublin Industrial Estate were worth €1.5bn if used as industrial.

Under a sensible land-use policy, if these same lands were worth €3bn if used as mixed use - offices, homes and public services - then this land should be rezoned for mixed use, including residential.

That is why I specifically chose the Dublin Industrial Estate, because it captures how land-use policy should work and where it is currently letting the city down. It is hard for anyone to argue that these lands are currently being used to their fullest and thus there is a massive opportunity cost for society.

Jim's second point is that "the realities of processing a compulsory purchase order" for the estate "would be extremely challenging and costly for any local authority" and that "existing businesses would have to be compensated".

Indeed, I wrote in April that this is precisely the council's position: "Dublin City Council policymakers say that such a plan would be unfeasible, because of what is known as 'site- assembly' issues." I then added: "This is to think in terms of how the council currently work, ie compulsory purchase orders."

To reiterate, a land-value tax switches this responsibility onto those who would develop the site and, more importantly, those who own the site now. Furthermore, it does the compensation automatically. If you are in the lucky position of owning a small fraction (say 1pc) of a site worth €3bn and which would yield Dublin City Council €150m a year if subject to a 5pc land-value tax, your annual land-value tax bill would be €1.5m.

The vast majority of those who own sites in the Dublin Industrial Estate would happily take the windfall of selling up and then find a much cheaper parcel of land on one of the corridors off the M50. As I wrote in April: "Land-value tax does much of the hard work of site assembly automatically."

Jim's final point is that employment is a worthwhile form of land use. He says: "It would be far more appropriate for these lands to be developed for modern intensive forms of economic employment uses rather than residential" - but also that specifically industrial lands "comprise only 6pc of all the zoned land in the city and as such are a resource that must be carefully managed."

What I understand Jim to be saying is that the council is open to the idea that lands such as the Dublin Industrial Estate could be redeveloped - but the council seems to have decided not to consider residential use.

It is important that the evidence used to make such important land-use decisions is made available to citizens.

I am sympathetic to the council, in that it cannot unilaterally replace existing taxes on real estate, such as development levies and commercial rates, with a land-value tax. This is the realm of national taxation policy.

However, that does not solve the challenges the city and the country face. Central Dublin is slightly larger than central Paris but houses less than one quarter of the population. Over the coming decades, the last thing the city and country need is for growing demand for homes to be met by sprawling the city even further out. There is plenty of land within the Dublin City Council area to house and employ at least two million people. Unfortunately, it is not being used well enough - which is why a land value tax should be central to reform.

Ronan Lyons is Assistant Professor of Economics at Trinity College Dublin and author of the Daft.ie reports.

Sunday Independent

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