torsdag 6 september 2007

How to measure the rental value of land

Over the past few years the idea seems to have grown up amongst supporters of land value taxation that it is impossible to determine the rental value of land. It has apparently come from the USA. They claim that it is irrelevant how the valuation list is done, but that it is too difficult or politically problematic to measure rental values.

To assess the rent of land from capital values by the residual method on a developed site, in principle this is the process.

1. deduct the value of the structures on the site.
2. deduct hope value.
3 decapitalise this value using an agreed figure of probably around 5%.
4 add in all property taxes actually being paid at the time of valuation.

To assess from rental values of a developed site the process is.

1 deduct the decapitalised value of the structures.
2 add in all property taxes actually being paid at the time of valuation.

Site values as determined by a variety of methods are then "smoothed". The first valuation is obviously the most difficult. After that the process is iterative. But with rental values as the basis of the tax, as existing taxes come off, yields will rise even at a fixed rate of LVT. Essentially, the whole exercise is a tax shift. Vic Blundell, an expert on the subject in the immediate post-war period, compared it to rearranging the load on a pack horse. If the load is tied to its feet the beast cannot move. If it is put on its back then it can carry the load all day long.

Owing to the way LVT has been promoted and applied, it seems as if too many of its advocates are proposing capital valuation and assuming that this deviation from the original concept is just a detail and that people who make an issue of it are niggling. They are not. It is critical for the long term success of LVT.

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