Land value capture: A brief summary of international approaches

There are some indications that betterment taxation was practiced in England in the 15th century. Then, Henry VI sought to capture the value of land from investment in flood defences. Nonetheless, the notion that land value capture (LVC) is recognisable in the UK prior to the 19th century in anything near its contemporary form remains contested. 

The concept of LVC was, however, clearly evident by the mid-19th century and had gained sufficient political traction to be enacted in the Housing, Town Planning Act of 1909.

1947 was a watershed year for LVC in the UK, as the nationalisation of development rights meant that the state was responsible for any changes in land values. Since 1947, there have been a number of different attempts at capturing a proportion of this change in value. And, while accounts of LVC regularly focus on its UK iterations, attempts have been made in many countries to develop similar systems.

Israel

A system was developed under the UK administration in the 1930s and revised during the 1980s. It covers all land in Israel and operates through a 50% planning levy from the increase in land value on approval of a local or detailed development planning consent. A 25% property transaction is applied at the point of sale for non-betterment levy taxed sales. This represents a historic precedent but is largely contingent upon a strong market. As a result., there is significant variation in the amount of revenue received through this mechanism.  

Poland

After the collapse of communism in 1989, Poland instigated a betterment levy on value created from area planning. Although private property ownership is strong in Poland, the betterment levy proved unworkable. Much of Poland does not have an area plan, and planning permissions are decided on a case-by-case basis, which does not attract betterment tax. The variable tax rate was criticised for being spatially unjust: at the lower end, the levy did not cover the administrative costs of collection. The tax operates at the point of sale, expires after five years, but does not operate effectively.  

Singapore

Home ownership in Singapore is derived from long-term leaseholds, which enables the government to accurately appraise the rental value. The annual value tax is based upon the estimated rent – regardless of vacancy. Landlords have full responsibility for repair, although there are some exceptions and a rebate is available for lower house values. A surcharge is also applied in cases of foreign ownership.

Hong Kong

LVC has been used extensively to subsidise mass transportation. In this tightly developed city, where house prices have risen rapidly, all land is leased from the government. The Mass Transit Railway Corporation (MTRC) works with the city government, using LVC, to fund construction.

There are six stages in Hong Kong’s LVC: 

• Identifying new metro routes and possible development sites on the route; 
• MTRC purchases 50-year development rights from the government at the existing use (or ‘before rail’)  land premium;
• MTRC sells development rights to private developers;
• Private developers take the construction and sale risks;
• The development rights agreement includes a profit sharing mechanism (based on sale of residential properties and through MTRC retaining right for direct commercial lease);
• MTRC supervises construction standards and  undertakes civil works.

Rwanda

The high rate of urbanisation in parts of Africa means it is easier to capture increases in land value, from agricultural land to land used for residential/commercial use. In Rwanda, land value is taxed (0.1%) and is based upon a self-assessed capital valuation relating to a self-declared freehold property. There is a very low incidence of collection.       

Colombia

Betterment levies contribute up to 25% of local revenue. The levies are only applicable on specific infrastructure projects and relate to the benefits gained for each property impacted by the project (such as a reduction in travel times) and can only be a proportion of development costs. The public has the opportunity to vote on which projects to fund in this manner. This mechanism shows that there is a democratic mechanism to extract land value uplift arising from public infrastructure works.