Would the Adoption of Land Value Taxation Drive Down the Price of Land and Increase Housing Affordability?
Edward J. Dodson
An important theoretical assertion suggested by Henry George's writings on the subject is whether, as communities approach the full collection of location rental values, the selling price of land will fall toward zero. George predicted this outcome will result because location rental values are no longer privatized and therefore cannot be capitalized into selling price. He concluded that “by compelling those who hold land on speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land” (George 1879,416).
The cautious supporter of George's analysis can point to his actual wording and his inference of tendency. More generally, George developed his own version of what political economists identified as the laws of production and distribution of wealth, which he observed were not absolute in the same way as the laws of the physical universe, but instead or laws of tendency. He was well aware of the many variables, or externalities, at play in any society and in local regions.
Even more relevant for the future is the expected change in how people behave in response to the financial incentives resulting from liberation from taxation labor and investment in capital goods – and the simultaneous removal of the financial rewards of hoarding land for speculation. Once the process begins, the dominoes will begin to fall at an accelerated pace in the right direction. As Henry George explained: “[T]his simple device of placing all taxes on the value of land would be in effect putting up the land at auction to whosoever would pay the highest rent to the state. The demand for land fixes its value, and hence, if taxes were placed so as very nearly to consume that value, the man who wished to hold land without using it would have to pay very nearly what it would be worth to any one who wanted to use it" (1879, 437). What full land value taxation accomplishes is eliminating actual or imputed income derived from landownership, which is essentially a static activity. Landownership, by itself, contributes nothing to the community. Low effective rates of annual taxation on location rent allow landowners to hold land vacant, essentially denying these vacant locations to the community for development or the creation of employment and commerce, and driving up land prices by artificially reducing the supply of land.
