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The property tax and local finance
Book reviews
country houses at an ever-accelerating rate since the interwar years. The decay of the houses themselves was not infrequently preceded by the dissolution of the surrounding estates and of the communities they supported. These were essentially a mixture of rich and poor, of upper and lower classes (the middle classes were concentrated in the cities and towns). While social historians look askance at forelock pulling and enforced chuch going, many of those who knew the life of the landed estate were conscious of its particular qualities. A number of estates remain in a state of some completeness. The estate at Arley in Cheshire, encapsulates in living form something of this vanished world within a few miles of Jodrell Bank and other symbols of the late twentieth century. The work of the National Trust and of many other dedicated owners is well known, whilst numerous houses have been converted to schools. hospitals or offices, but many are empty and in varying stages of dereliction. It is with these, currently estimated to number between 70 and 140, that Marcus Binney and Kit Martin are concerned. Theirs is a refreshingly practical approach. doubly welcome at a time when a lack of realism on the part of some, threatens the credibility of the conservation movement as a whole. The authors accept that the future of the majority of larger country houses must lie in their adaptation to institutional or shared domestic use and it is with the latter, largely neglected, option that they principally concern themselves. They confirm the proviso of the magazine Country Life that ‘where a house has very grand or elaborate principal rooms, institutional use is more appropriate’. Few domestic users could meet the costs of heating, furnishing and maintaining such rooms, whilst any form of subdivision invariably causes loss of decorative detail and effect and destroys proportions. As Binney and Martin show, less elaborate houses can often be subdivided into smaller, self-contained dwellings of varying size. This is neither a cheap nor a simple solution; the authors do not understate the difficulties posed by such factors as
80
initial costs, the maintenance of grounds, landlord-tenant relations and the establishment of harmonious communities. They offer solutions based on their own extensive knowledge and on their research into the experiences of others. The case studies in the latter part of the book describe, with clear plans and pictures, a number of successful schemes where division and alteration have been successfully carried out. Many houses in which decay has advanced apparently beyond the point of no return may be saved through a careful choice of techniques and an imaginative approach to blending new methods with old. This should prove a fund of valuable ideas for architects, planners and owners concerned with the preservation of notable houses. These schemes are set in their social context in the seminar report Rural Housing - Problems and Solutions from the Peak Park National Study Centre. This considers the nature of demand for housing in the country and shows up factors that influence the lives of many rural communities. These include high levels of demand, which are increased by the growing numbers of people who are either retiring early or seeking to establish their own businesses away from the towns. The resultant shortage exerts an upward pressure on prices, which in turn tends to make the letting of dwellings uneconomic. As the report shows, only 7% of rural dwellings were rented in the early 1980s. against 75% in 194.5. These factors. coupled with the high costs of other aspects of rural living, make it impossible for many on lower incomes to live in the country; Housing Associations. on which the Losehill Report contains several papers, can
make only a limited contribution. Rural society has therefore lost much of the balance between socioeconomic classes that was its feature when the landed estate was the dominant rural force. At a purely practical level, this has meant the departure to towns of many people possessing the skills and offering the services on which rural communities depend. Although the proposals of Binney and Martin are admirable as a means of preserving buildings, they would tend to exacerbate this social imbalance unless some of the resultant accommodation could be made available to the less well to do. Fair Rent and Local Authority Rent Allowance schemes offer scope for making this possible. The Losehill papers are concerned with an informed analysis of these and other underlying problems, and with how public and private sector initiatives can alleviate them. Although Binney and Martin point out that the approaches they suggest avoid the ‘need for these houses to be perpetual pensioners of the state, enjoying considerable bouts of subsidy’, the real alternative is considerably more disturbing. No realistic appraisal of Britain’s national income and expenditure suggests that anything like adequate funds will be available for subsidy purposes. It will be essential for many of the remaining country houses to earn their own keep if sufficient funds are to be available for the proper upkeep of the numerous special cases that cannot do so. The choice is not between subsidy and viability, but between viability and demolition. David Bridgeman-Sutton Lazonby Cumbria, UK
Taxing land and treating nations THE
PROPERTY
TAX AND LOCAL the USA property
FINANCE edited by C. Lowell Harriss Academy of Political Science, York, 1983,242 pp, $9.95
New
The nineteen essays in this volume highlight both the practical strengths of
tax, and the weakness of its status in its treatment by scholars. In the past five years the public’s attitude towards the property tax has shifted from outright hostility (witness California’s Proposition 13 in 1978) to the current view as disclosed in surveys, that the property tax enjoys a lower rate of dissatisfaction than the income tax. About half of the chapters
LAND USE POLICY January 1984
Book reviews
were written by authors who favour a shift in the tax burden away from capital improvements and onto the value of the land.
Renaissance Professor Steven Cord records how Pittsburgh’s graded tax - where the 1and:building tax ratio is 5: 1-has led to a renaissance in the construction industry. Landowners are deciding that the cost of holding land vacant is becoming an insupportable drain on their reserves, and so they are putting their sites to use. The investment ~plications, in terms of fresh capital formation and new jobs, are discussed by Philip Klutznick, himself a developer, and Professor James Heilbrun. The latter usefully restates one of the key virtues of a tax on land values; it cannot be shifted forward (ie it does not raise prices) and it does not distort either incentives or the pattern of investment. The justification for the property tax as a revenue raiser is well argued by Walter Rybeck, who stresses that the value of land in its unimproved state is no more than an expression of the collective needs and accumulated capital investments of the community. The property tax amounts to what he calls ‘a Super User Charge’. From this, it follows that the failure to charge for the full value of the benefits of sociallyprovided amenities (such as roads, parks, mass transit systems) can be measured in a precise way; the untaxed benefits are capitalized into the price which the landowner charges to those who wish to make use of his property. Rybeck makes it clear that the property tax is not just like any other tax. The lesson for many cities in the IJSA ought to be noted: ‘Their failure adequately to tap the great land-value reservoirs generated by their own investments Seems anomalous, to put it mildly. By failing to look at the whole bundle of benefits they provide and at the land-value fund that owes itself to these benefits, close-to-bankrupt cities suffer needlessly.’ In contrast to what one might call these affirmative assessments, however, the book presents a number of sceptical views on the future of the
LANDUSE POLICYJanuary 1984
property tax, which I did not find convincing. Dick Netzer, in the closing chapter, argues that the property tax will suffer a decline in its importance as a revenue raiser in the next 20 years. Yet in 1982, according to the latest US Census Bureau figures, the share of all state and local government revenues drawn from the property tax increased from 30% to 31.7%, thereby reversing the previously downward trend.
Anachronistic Calculations about the future of this tax ultimately turn on one’s view of land values. According to the conventional economic view, land is not important; it does not figure at all in textbooks on macroeconomics. Thus, Donald Hicks, in his chapter ‘The property tax in a new industrial era’, takes the view that property is becoming an increasingly anachronistic base for taxation. He says that ‘people will likely prefer smaller houses that require less land’ after the current recession. Could it be that the asking price for land is dispro~~onately high in relation to current incomes? If so, to what extent could a reformed property tax be used to alter the cost to land users? And what would be the ensuing economic effects?
Ascendancy
result hardly supports the view that ’ land is of reducing significance in a high tech economy. Unfo~unately, even scholars who have devoted many years to the study of land related issues can be superficial in their treatments. For example, Professor Archibald Woodruff reviews inflation and land values in the past century. To what extent, he asks, could a tax on land values smooth out the business cycle? Professor Woodruff concludes that there would be no such effect. He fails to offer evidence in support of this judgement .
Increasinfj interest Nevertheless, this book is a valuable contribution to what one anticipates will be an increasing interest in the way in which the property tax can help to solve the current economic recession. That entrepreneurs ought to be interested in land use and property taxation was recently affirmed by Fortune: ‘. . higher land taxes, especially when accompanied by reduced taxes on structures, look like an idea businessmen ought to embrace and promote. The benefits in the form of more jobs and increasingly compact development are not only lasting, but flow to the whole community’.’ Furthermore, supply siders ought to be interested in alternative sources of govemment ‘revenue if the huge budget deficits are to be reduced and tax rates on earned income reduced. Arlo Woolery, in his perceptive analysis, points out that the property tax base is too narrowly defined for assessment purposes; the base should include water and mineral rights which are at present excluded, and value accruing from new forms of property rights (microwave and satellite transmission of information, for example). The property tax, far from being obsolete, appears to have a bright future if only scholars will pay more objective attention to it.
But Hicks is not too concerned with such issues because reflecting the general view, he maintains that such factors as the ascendancy of high technology manufa~~ng ‘appear to be further reducing the significance of land in the economy.’ Yet just two years ago, many of the high profit micro chip companies were being forced out of California’s Silicon Valley because their expansion was being inhibited by high rents and land values (a fact which caused the state authorities to call a conference of land owners and users in an attempt to resolve the Fmdtiamison conflict). The forced relocation of the London, UK USA’s scientifically most advanced industries into less favoured locations must inevitably affect both pr~u~ivi~ and the progress of research and devel- ‘G. BreckenfeM, ‘High taxes that PrOmOte opment; the power to engineer such a development’, F&rune, August 1983, p 71.
81
country houses at an ever-accelerating rate since the interwar years. The decay of the houses themselves was not infrequently preceded by the dissolution of the surrounding estates and of the communities they supported. These were essentially a mixture of rich and poor, of upper and lower classes (the middle classes were concentrated in the cities and towns). While social historians look askance at forelock pulling and enforced chuch going, many of those who knew the life of the landed estate were conscious of its particular qualities. A number of estates remain in a state of some completeness. The estate at Arley in Cheshire, encapsulates in living form something of this vanished world within a few miles of Jodrell Bank and other symbols of the late twentieth century. The work of the National Trust and of many other dedicated owners is well known, whilst numerous houses have been converted to schools. hospitals or offices, but many are empty and in varying stages of dereliction. It is with these, currently estimated to number between 70 and 140, that Marcus Binney and Kit Martin are concerned. Theirs is a refreshingly practical approach. doubly welcome at a time when a lack of realism on the part of some, threatens the credibility of the conservation movement as a whole. The authors accept that the future of the majority of larger country houses must lie in their adaptation to institutional or shared domestic use and it is with the latter, largely neglected, option that they principally concern themselves. They confirm the proviso of the magazine Country Life that ‘where a house has very grand or elaborate principal rooms, institutional use is more appropriate’. Few domestic users could meet the costs of heating, furnishing and maintaining such rooms, whilst any form of subdivision invariably causes loss of decorative detail and effect and destroys proportions. As Binney and Martin show, less elaborate houses can often be subdivided into smaller, self-contained dwellings of varying size. This is neither a cheap nor a simple solution; the authors do not understate the difficulties posed by such factors as
80
initial costs, the maintenance of grounds, landlord-tenant relations and the establishment of harmonious communities. They offer solutions based on their own extensive knowledge and on their research into the experiences of others. The case studies in the latter part of the book describe, with clear plans and pictures, a number of successful schemes where division and alteration have been successfully carried out. Many houses in which decay has advanced apparently beyond the point of no return may be saved through a careful choice of techniques and an imaginative approach to blending new methods with old. This should prove a fund of valuable ideas for architects, planners and owners concerned with the preservation of notable houses. These schemes are set in their social context in the seminar report Rural Housing - Problems and Solutions from the Peak Park National Study Centre. This considers the nature of demand for housing in the country and shows up factors that influence the lives of many rural communities. These include high levels of demand, which are increased by the growing numbers of people who are either retiring early or seeking to establish their own businesses away from the towns. The resultant shortage exerts an upward pressure on prices, which in turn tends to make the letting of dwellings uneconomic. As the report shows, only 7% of rural dwellings were rented in the early 1980s. against 75% in 194.5. These factors. coupled with the high costs of other aspects of rural living, make it impossible for many on lower incomes to live in the country; Housing Associations. on which the Losehill Report contains several papers, can
make only a limited contribution. Rural society has therefore lost much of the balance between socioeconomic classes that was its feature when the landed estate was the dominant rural force. At a purely practical level, this has meant the departure to towns of many people possessing the skills and offering the services on which rural communities depend. Although the proposals of Binney and Martin are admirable as a means of preserving buildings, they would tend to exacerbate this social imbalance unless some of the resultant accommodation could be made available to the less well to do. Fair Rent and Local Authority Rent Allowance schemes offer scope for making this possible. The Losehill papers are concerned with an informed analysis of these and other underlying problems, and with how public and private sector initiatives can alleviate them. Although Binney and Martin point out that the approaches they suggest avoid the ‘need for these houses to be perpetual pensioners of the state, enjoying considerable bouts of subsidy’, the real alternative is considerably more disturbing. No realistic appraisal of Britain’s national income and expenditure suggests that anything like adequate funds will be available for subsidy purposes. It will be essential for many of the remaining country houses to earn their own keep if sufficient funds are to be available for the proper upkeep of the numerous special cases that cannot do so. The choice is not between subsidy and viability, but between viability and demolition. David Bridgeman-Sutton Lazonby Cumbria, UK
Taxing land and treating nations THE
PROPERTY
TAX AND LOCAL the USA property
FINANCE edited by C. Lowell Harriss Academy of Political Science, York, 1983,242 pp, $9.95
New
The nineteen essays in this volume highlight both the practical strengths of
tax, and the weakness of its status in its treatment by scholars. In the past five years the public’s attitude towards the property tax has shifted from outright hostility (witness California’s Proposition 13 in 1978) to the current view as disclosed in surveys, that the property tax enjoys a lower rate of dissatisfaction than the income tax. About half of the chapters
LAND USE POLICY January 1984
Book reviews
were written by authors who favour a shift in the tax burden away from capital improvements and onto the value of the land.
Renaissance Professor Steven Cord records how Pittsburgh’s graded tax - where the 1and:building tax ratio is 5: 1-has led to a renaissance in the construction industry. Landowners are deciding that the cost of holding land vacant is becoming an insupportable drain on their reserves, and so they are putting their sites to use. The investment ~plications, in terms of fresh capital formation and new jobs, are discussed by Philip Klutznick, himself a developer, and Professor James Heilbrun. The latter usefully restates one of the key virtues of a tax on land values; it cannot be shifted forward (ie it does not raise prices) and it does not distort either incentives or the pattern of investment. The justification for the property tax as a revenue raiser is well argued by Walter Rybeck, who stresses that the value of land in its unimproved state is no more than an expression of the collective needs and accumulated capital investments of the community. The property tax amounts to what he calls ‘a Super User Charge’. From this, it follows that the failure to charge for the full value of the benefits of sociallyprovided amenities (such as roads, parks, mass transit systems) can be measured in a precise way; the untaxed benefits are capitalized into the price which the landowner charges to those who wish to make use of his property. Rybeck makes it clear that the property tax is not just like any other tax. The lesson for many cities in the IJSA ought to be noted: ‘Their failure adequately to tap the great land-value reservoirs generated by their own investments Seems anomalous, to put it mildly. By failing to look at the whole bundle of benefits they provide and at the land-value fund that owes itself to these benefits, close-to-bankrupt cities suffer needlessly.’ In contrast to what one might call these affirmative assessments, however, the book presents a number of sceptical views on the future of the
LANDUSE POLICYJanuary 1984
property tax, which I did not find convincing. Dick Netzer, in the closing chapter, argues that the property tax will suffer a decline in its importance as a revenue raiser in the next 20 years. Yet in 1982, according to the latest US Census Bureau figures, the share of all state and local government revenues drawn from the property tax increased from 30% to 31.7%, thereby reversing the previously downward trend.
Anachronistic Calculations about the future of this tax ultimately turn on one’s view of land values. According to the conventional economic view, land is not important; it does not figure at all in textbooks on macroeconomics. Thus, Donald Hicks, in his chapter ‘The property tax in a new industrial era’, takes the view that property is becoming an increasingly anachronistic base for taxation. He says that ‘people will likely prefer smaller houses that require less land’ after the current recession. Could it be that the asking price for land is dispro~~onately high in relation to current incomes? If so, to what extent could a reformed property tax be used to alter the cost to land users? And what would be the ensuing economic effects?
Ascendancy
result hardly supports the view that ’ land is of reducing significance in a high tech economy. Unfo~unately, even scholars who have devoted many years to the study of land related issues can be superficial in their treatments. For example, Professor Archibald Woodruff reviews inflation and land values in the past century. To what extent, he asks, could a tax on land values smooth out the business cycle? Professor Woodruff concludes that there would be no such effect. He fails to offer evidence in support of this judgement .
Increasinfj interest Nevertheless, this book is a valuable contribution to what one anticipates will be an increasing interest in the way in which the property tax can help to solve the current economic recession. That entrepreneurs ought to be interested in land use and property taxation was recently affirmed by Fortune: ‘. . higher land taxes, especially when accompanied by reduced taxes on structures, look like an idea businessmen ought to embrace and promote. The benefits in the form of more jobs and increasingly compact development are not only lasting, but flow to the whole community’.’ Furthermore, supply siders ought to be interested in alternative sources of govemment ‘revenue if the huge budget deficits are to be reduced and tax rates on earned income reduced. Arlo Woolery, in his perceptive analysis, points out that the property tax base is too narrowly defined for assessment purposes; the base should include water and mineral rights which are at present excluded, and value accruing from new forms of property rights (microwave and satellite transmission of information, for example). The property tax, far from being obsolete, appears to have a bright future if only scholars will pay more objective attention to it.
But Hicks is not too concerned with such issues because reflecting the general view, he maintains that such factors as the ascendancy of high technology manufa~~ng ‘appear to be further reducing the significance of land in the economy.’ Yet just two years ago, many of the high profit micro chip companies were being forced out of California’s Silicon Valley because their expansion was being inhibited by high rents and land values (a fact which caused the state authorities to call a conference of land owners and users in an attempt to resolve the Fmdtiamison conflict). The forced relocation of the London, UK USA’s scientifically most advanced industries into less favoured locations must inevitably affect both pr~u~ivi~ and the progress of research and devel- ‘G. BreckenfeM, ‘High taxes that PrOmOte opment; the power to engineer such a development’, F&rune, August 1983, p 71.
81