greg mcgill: the effects of taxation on land use town planning

July 2013 International Union for LVT 1

The effects of taxation on land use & town planning

Greg McGill

Planning and Development consultant


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)


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)


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


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.


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.



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.


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.


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


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



• 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.


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).



• 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.


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.



• 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.


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.


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 land3. encourage urban redevelopment/improvement4. help boost local economies and businesses5. produce revenue without targeting productive

economy6. create a charge more difficult to avoid7. be more compatible with aims of town

planning.

greg mcgill: the effects of taxation on land use town planning

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