Review
You claim in two places that empty land is being held for speculative purposes. This doesn't make any sense to me (why would I refuse to rent my properties to push up the value of someone else's properties?), so I followed your links to investigate. The first link seems to just be a general purpose NIMBY article arguing against redevelopement, and I didn't see anything about keeping houses vacant. The second link is to a Scottish political campaign that doesn't claim to know why the houses are empty (at least on this page) and doesn't contain the 700,000 number in the link text (the linked political campaign claims 46,000 in Scotland and doesn't seem to say anything about the UK).
The second link is to a Scottish political campaign that doesn't claim to know way the houses are empty (at least on this page) and doesn't contain the 700,000 number in the link text (the linked political campaign claims 46,000 in Scotland and doesn't seem to say anything about the UK).
The phrase '700,000 empty homes throughout' the UK has different links for each word: one for England, Northern Ireland, Scotland, and Wales. If you follow the link on 700,000, you will be taken to this page which gives a figure of 676,304 empty homes in England. Add this to the Scotland, Northern Ireland and Wales figures and you get a total over 700,000. As explained in the link for English data (which makes up most of the total), the figure comes from Council tax data (council taxes are paid by the owners of a property and charges different rates depending on whether the home is occupied or unoccupied).
Hope this helps!
Ah I missed that. Thanks!
I still think it's a problem that this argument rests on the idea that investors are irrationally not renting land they own, but you don't provide any evidence for that.
As I try to look into this more, I'm also finding that the vacancy rate seems really low in England. 676,304 vacant homes / 24.9 million total homes gives a vacancy rate of 2.7%, which is lower than every city in the United States except for Gilbert, AZ according to this article, although it's possible vacancy is being defined differently?
As I try to look into this more, I'm also finding that the vacancy rate seems really low in England. 676,304 vacant homes / 24.9 million total homes gives a vacancy rate of 2.7%
Why is the ratio (vacant homes/total homes) the right thing to look at, if a single metric is to be considered for argument?
The vacancy rate takes into account the size of the total market. If you told me 1 million people are unemployed in a country, the situation is likely to be very different if the total population of the country is 10 million vs. 100 million. Similarly, 700k vacant homes is a big deal if that's 10% of the market, maybe not as big of a deal if it's the amount of structural vacancy you'd expect to see in a healthy market, i.e. the amount of homes that are temporarily vacant because they are in the process of being sold.
There are likely other metrics worth looking at, though, as one metric can never tell the whole story as it will always hide relevant details and mash together very different situations that nevertheless produce the same measured value on a particular metric.
Ok, I agree that you have to normalize the number of vacant homes. The total number of homes is the largest denominator that makes sense. My doubt was if the denominator could be something smaller than the number of total homes.
In different words, my knowledge of the housing market is not sufficient to say if 2.7% counts as small or large. Why does it "seem really low"?
Analogous example that comes to my mind: if I am a male searching for a female mate, I prefer cities with higher female/male ratio. Say town A has 49-51, and town B has 51-49. Is a 2% difference large or small? I argue it could be large, for what matters for finding a mate: if most couples in a town are already locked, i.e., people in long term relationships, then the "free market" of dating is much more gender-skewed than a 2% difference.
To be concrete: say 90 people are paired, and 10 are single. Then removing the paired 45:45, the gender ratio within singles remains 4:6 in town A, and 6:4 in town B, i.e., in town A there are 2 single females for each 3 single males.
Thus the set that makes the ratio more intuitively "large" or "small" is the set of singles rather than the set of all people.
Getting back to housing: maybe there is a smaller set contaning all vacant homes, or even a more restrictive set to consider that contains only some vacant homes, that is more appropriate. I don't know though.
I still think it's a problem that this argument rests on the idea that investors are irrationally not renting land they own, but you don't provide any evidence for that.
I disagree. Firstly, even if, they were renting out their land, this would still be bad, for reasons described in the article (landlords extract land rent without doing anything productive etc.)
The section of the post which argues about empty homes rests on the fact that there are empty homes and a land tax would reduce them. I then provide evidence that there are, indeed, a significant number of empty homes in the UK. I do not speculate about the rationality/irrationality of the people holding them because it is irrelevant to the argument. Do you disagree on the 700,000 figure?
Is your view something like 'I find it hard to believe that people would leave houses empty because they are leaving money on the table. Therefore I disbelieve the 700,000 empty homes figure.'? If so, I guess I'm not super interested in disputing the government figures.
Or is your view something like 'The argument in the post hinges on the fact that people are irrationally leaving homes empty and the author of the post needs to explain why they aren't behaving rationally in order to make the argument work.'? If so, hopefully I explained why the argument rests on the fact that empty homes exist, not the rationality/irrationality of the people holding them.
For what its worth, I find it pretty easy to believe that people are leaving homes empty. People often behave 'irrationally' when it comes to money: a lot of people gamble and most people have their savings in a low-interest account. I know at least two middle class families who own a flat in a city where they don't live. They visit it maybe once a year and occasionally let friends visit. They aren't super interested in squeezing it for every penny its worth and don't want to sell it for sentimental reasons and they know the price will go up so they keep it as is. They think that renting it out would cause them too much stress and they don't feel that they need any more money and they enjoy visiting it so they don't rent it out . Is this irrational? Maybe from the point of view of optimizing their income, but they are just optimizing other aspects of their life.
For the record, I'm not arguing against a land value tax in general. I actually think an LVT is reasonable idea if you can actually figure out how to determine land value. I just think this particular argument for an LVT has in incorrect premise, and the links used to support it don't actually support it.
I think the two cruxes of our disagreement are, first that I think you are saying that you know why homes are vacant. These two quotes claim that houses are being left vacant for speculation:
At the same time, vast brownfield sites which could be developed are left unused and many of the properties that are built are simply left empty, and held as a speculative investment.
And here:
Landlords may be unproductive, but at least they allow people to live and work on the land they own. Some land owners do not even rent out their land: they simply sit on it and wait for the price to increase. This behaviour is known as speculation and as a result, there are almost 700,000 empty homes throughout the UK, and over 150 million square feet of unused retail space.
Second, I think the reason matters. If the houses are being held vacant for a reason other than speculation, in undermines the argument for why an LVT would change that. An LVT would affect the vacancy rate if (1) it incentivizes people to rent out more houses and (2) it's possible to rent out more houses.
I think (1) is not a meaningful difference given that investors are already strongly incentivized to rent out properties they own (they get rent!), and I think (2) is mostly wrong and most of the empty houses are empty because remodeling, sales, and finding renters takes time (around 2/3rds of these houses are empty for less than 6 months) or because no one wants them (the houses are in the wrong place or not liveable).
This article summarizes the important data points here. Among other things, note that long-term vacancy rate in London is 0.4%, compared to 2.7% for England as a whole, and that the number of vacant properties has been doing down over time.
Regarding your comments, I don't think vacation property owners are relevant here since I'm disputing your claim around land held for speculation, and vacation properties are held for their owners' use. This effects the incentives since vacation property owners are already forgoing rent which is worth more than any plausible LVT (although an LVT might push some of them over the edge to rent/sell).
In short, I don't dispute the existence of empty homes; I dispute that they're empty for the reasons you claim, and as a result, I don't think an LVT will meaningfully convert those into useable houses.
I expect that your next response will be something like "yes, but a not-literally-zero amount of houses will convert from vacant to not-vacant with an LVT", and I agree that the number will probably not be literally-zero, but I think that number will not be meaningful, and that this isn't a free win with no downsides.
Among other reasons, it's important to realize that the real business a lot of house builders are in is land speculation (even better than waiting for someone else to develop your empty land is just doing it yourself), so it's unclear if destroying that business would help or hurt housing supply. There's also the political angle, that "housing shortages are caused by landlords" is used by NIMBYs to redirect away from real solutions (building more housing), so repeating their untrue claims in service of a minor win is counterproductive.
Thanks for this comment-it explains your view very clearly and I understand what you are getting at now.
I think its a fair criticism. I've added footnotes within the post, linking people to your comment.
This essay was written as an entry to the TxP Progress Prize. The prize is run in partnership with Civic Future and New Statesman Spotlight to encourage blog posts responding to the question 'Britain is stuck. How can we get it moving again?'.
The result is a bit more 'argumentative' than my usual style, so do skip if that's not your thing.
The British economy is stagnating. Tax levels are the highest they have been in 70 years, with 24% of tax revenue coming from income taxes. Many people are struggling to pay rents and the proportion of income spent on rent by private renters has increased from less than 10% in 1968 to over 25% in 2020. Pubs and music venues across the UK are closing due to high rents. Housebuilding, which would relieve these problems, has consistently fallen below the required levels. At the same time, vast brownfield sites which could be developed are left unused and many of the properties that are built are simply left empty, and held as a speculative investment [1]. It may be surprising to learn that there is a single policy which addresses all of these problems. It was first proposed over 100 years ago by Henry George and has been endorsed by figures as diverse as Albert Einstein, Milton Friedman, Leo Tolstoy and Joseph Stiglitz .
The solution is to tax the unimproved rental value of land, at a rate close to 100%. Then, to use the revenues from this to reduce taxes on economically productive activities by reducing income taxes. Under this proposal, each year, landowners would pay in tax the amount it would cost to rent the land (minus any improvements, such as buildings) for that year.
Landlords make their money by owning property, and charging people to live or work there. Some of their income comes from work they do maintaining the property or capital investment they put in to creating the property, which are both economically productive activities. But a large proportion of their income comes from something else. This can be seen by that fact that many landlords choose to hand their properties over to letting agents who perform all maintenance and investment in the property, while only taking a fraction of the rental income, leaving the rest to the landlord. If the letting agents are performing all of the capital investment and labour, where is the rest of the landlord's income coming from? The answer is land. A landlord can be successful simply by buying land in a desirable location and renting it out, leaving someone else to do the productive work of building something there. The landlord does not produce land: he just owns it. The value of the land itself (again: not any improvements, such as buildings which sit on the land), is created by the work of others. Land next to a good school is valuable because of the work of the teachers and the investments in the school made by taxpayers, land in a bustling cultural hub is valuable because of the work of the artists and musicians who contribute to it, and fertile agricultural land is valuable because of the work of farmers who preserve the surrounding environment and the ecosystem which supports the soil. None of the value of the land itself is contributed by the landlord. In short, landlords make themselves wealthy by virtue of the fact that they are already wealthy enough to own land.
Contrast this to an entrepreneur who puts her own capital and labour into making a successful business, a construction worker who builds new houses, a researcher who finds new medical drugs, or a cleaner who mops floors. These four people all earn money by actually doing something: creating, working, or investing. The landlord (primarily) makes money by owning, not by producing or doing.
Yet those who do the productive work which improves our world (like the entrepreneur, the construction worker, the researcher, or the cleaner) are punished for their work by being forced to pay taxes on their income. Indeed, they pay the same rates of income tax as the landlord, who primarily makes his money without producing anything. Income tax disincentivises the exact kind of productive work which our country needs. Taxing the unimproved value of land shifts the burden away from productive workers and investors and onto those who exploit their ownership of land whose value they did not create.
Landlords may be unproductive, but at least they allow people to live and work on the land they own. Some land owners do not even rent out their land: they simply sit on it and wait for the price to increase. This behaviour is known as speculation and as a result, there are almost 700,000 empty homes throughout the UK, and over 150 million square feet of unused retail space [1]. Furthermore, Britain has over 30,000 hectares of unsightly and undeveloped brownfield sites-enough to accommodate 1.2 million homes. Having buildings and brownfield sites sitting unused artificially reduces the housing supply, thus increasing house prices at the same time that many are struggling to afford either buying or renting a home. But the landowners are not incentivised to do anything productive with the land, or sell it to someone who wants to live or start a business there. This is because they are confident that the land value over time will increase, due to the increasing population all wanting a piece of our finite land and the contribution of the others to the surrounding area (which, again, the landowner does not contribute to). Taxing the unimproved value of land would mean that, every year, the landowner pays in tax the equivalent value of renting the land. This wipes out any profit obtained simply by sitting on the land and incentivises the landowner to do something productive with the land or else sell it to someone who will. Thu, the availability of housing and retail properties is increased, increasing supply and reducing rent for those who wish to use them.
It is well-established both theoretically and empirically that taxing land rent causes its selling price to decrease and that the taxes do not get passed on to renters in the form of increased rent. For reasons of space, I refer the reader to Lars Doucet’s excellent book and blogposts for a comprehensive argument to this effect as well as excellent explanations of all other facets of land value tax.
The total value of land in Britain is estimated at £6.3 Trillion. Using a very conservative capitalisation rate of 2% to estimate the rental value of the land, and taxing this value at 85% would raise approximately £107 Billion in tax revenue every year. Council taxes and business rates (with combined revenue of £67 Billion) are based on property prices, and in this regard already capture some land value as taxation. But even if 100% of these tax revenues came from land value, introducing a land value tax would still raise enough to completely abolish these taxes and reduce the income tax burden by £40 Billion, equivalent to a 16% income tax reduction. I emphasise again that this is a conservative estimate. On top of this, a land tax would reduce the high rents caused by speculation and encourage efficient and productive use of land.
A land value tax is not a new idea. But it is a radical idea and an idea that works. And it is an idea that Britain needs now.