Greg McGill: The effects of taxation on land use town planning. A presentation at the TheIU.org 2013 Conference 'Economics for Conscious Evolution', London, UK, July 2013.

1. July 2013 International Union for LVT 1
The effects of taxation on
land use & town planning
Greg McGill
Planning and Development consultant

2. July 2013 International Union for LVT 2
Key aims of town planning
1. Contribute to building the economy
2. Create affordable housing
3. Contain urban sprawl
4. Promote urban renewal
5. Protect the environment
(Source: National Planning Policy Framework (2012)

3. July 2013 International Union for LVT 3
How town planning operates
to achieve these aims
• Devt. requires planning permission from LPA
• LPA sets policy guidelines for development:
– Location, use, intensity, design, etc within and beyond
urban boundaries and compatibility with surroundings
• Decisions based on:
– Planning policy (Dev Plan [CS, LP, SPDs], NPPF)
– Other material considerations (eg consultation
responses)
• Charges/obligations often apply (eg s106, CIL)
– (to mitigate off-site effects/ensure works provided)

4. July 2013 International Union for LVT 4
1. Effects of taxation on
building the economy
• Taxes target labour and capital (not land)
• This increases interest in land/property
(2012 RICS study reveals average LV of 63%)
• Diverts investment away from production
• Has significant inflationary effect
• The results are:
– Continued speculation in property
– A diminishing productive economy

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1. How planning interacts
• Cannot overcome effects of taxation
• Less planning policy increases speculation
• More policy can restrict viability of devt.
• Allowing increased densities raises land values
• Development charges tend to discourage
development.

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2. Effects of taxation on
affordability of housing
• Rising LV’s increase development costs & price of
existing housing
• House prices not based on cost of production
• VAT (GST) @ 20% inhibits property improvements
• Globalisation is changing effective demand
• Increased rental demand raises rents and house
prices.

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2. How planning interacts
Positively:
• It creates small no. of
new dwellings with
reduced rents (eg
80% of market rent)
Negatively:
• Reduces developer’s
return=less housing
• Allows higher
densities=higher LV’s
• Higher LV’s restricts
development
• Rents/prices still rise.

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3. Effects of taxation on urban sprawl
• Increasing cost of land requires savings elsewhere
– In location, construction, design, labour
• Savings best achieved at greenfield sites:
– Cheaper to buy, less site preparation costs, economies of
layout and design, easier access, faster construction, less
loan charges
• Sprawl increases infrastructure requirements
• Sprawl reduces urban efficiency and social
interaction.

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Example of cost savings
(new building - floor area 400 sq m, wall height 7m)
Building 1
floor area: 20m x 20m = 400 sq m
wall area: 20m x 7m x 4 = 560 sq m
total wall area = 560 sq m
Building 2
floor area: 40m x 10m = 400 sq m
wall area: 40m x 7m x 2 = 560 sq m
10m x 7m x 2 = 140 sq m
total wall area = 700 sq m

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Hidden impact of urban sprawl
1960: radius 2.5 miles:
Area = 12.6 sq. miles
1990: radius increased by
805 metres (1/2 mile):
Area = 19.6 sq. miles
2020: radius doubled to 5
miles:
Area = 78.55 sq miles.
2020
1990
1960

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3. How planning interacts
• Allows urban extensions which add to sprawl
• Extensions significantly increase infrastructure,
municipal and private costs
• Uses green belts around towns which:
– restrict land supply (raising LV’s)
– cause leapfrogging of development beyond GB which
further increases commuting, transport and
environmental costs
• Continuing sprawl is unsustainable.

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4. Effects of taxation on urban renewal
• Encourages withholding of land from improvement
which reduces supply and raises LV’s
• Development costs higher than greenfield sites:
(demolition costs, hidden site conditions, constrained by
shape and surroundings, contamination, awkward
access, rights to light, easements; longer time frame,
increased loan charges)
• Savings required in labour, construction, design
• Increased returns required to offset higher costs
(eg higher densities which increase LV’s).

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4. How planning interacts
• 4 storey replaced yard &
single storey shed/store
• Planning policy did not
specify density - only
‘appropriate for the location’
• Result is prospect of higher
densities in surrounding area
• Higher densities means
higher land values
• Higher land values require
higher densities.

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5. Effects of taxation on
protecting the environment
• Attractive locations attract more investment
• Unattractive locations attract less
• Environmental, social and economic inequalities
develop
• Result is increasing urban/rural decline alongside
increasing urban/rural affluence
• Decline becomes more costly to overcome due to
inflationary effects = less improvement.

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5. How planning interacts
• Uses variety of designations to protect urban
and rural areas
(Conservation Areas, Areas of Outstanding Natural
Beauty, etc)
• Policies designed to maintain/improve these
areas
• Planning applications vetted more rigorously
• Nimbyism plays a part
• Locational inequities perpetuated.

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Observations on above
• Planning cannot overcome influences and
effects of existing tax system
• Overall it reinforces the adverse effects of
this system
• Result is little scope for planning to
improve upon the situation.

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Effects of a tax shift from
capital and labour towards land
1. Would reduce demand for land which would
reduce land and property prices
2. increase incentives to make better use of land
3. encourage urban redevelopment/improvement
4. help boost local economies and businesses
5. produce revenue without targeting productive
economy
6. create a charge more difficult to avoid
7. be more compatible with aims of town
planning.