Could a property tax actually be good for the new government, homeowners, AND the property industry?

By Nick McKeogh Hon FRIBA , Chief Executive, NLA

As I sat listening to the numerous presentations and discussions at London Real Estate Forum at Guildhall on Wednesday, I kept coming back to a question that has been percolating in my mind over the last year as I have worked with colleagues to find new ways to drive investment into London to deliver the urgent need to decarbonise our built environment, deliver more homes and drive greater prosperity for all.

Despite being a child of the 70s that grew up in the 80s with an entrepreneurial father riding various property cycles - and therefore being rather wary of excessive tax and regulation - I have increasingly been coming to the view that a universal land and property tax may hold some of the answers to the seemingly intractable equation of securing long-term investment into our creaking infrastructure whilst delivering a transformation to the carbon consumption of our existing domestic and commercial building stock.

Here are ten reasons why:

1. A simple but small annual tax on all privately owned land and property would not be overly burdensome on individual owners, but has the potential to raise billions for the exchequer over a relatively short amount of time. (0.1% of value levied annually on a ￡500,000 property is just ￡500 but with the total estimated value of privately held property approaching ￡10 trillion, that is a receipt of almost ￡1bn per annum).
2. A marginal increase in this tax for foreign-owned assets could increase the overall amount, and without driving foreign investment away from the UK, ensuring that we are capturing some of the uplift in value of these properties that are often designed to prevent other taxes being levied effectively. It could also improve public perception of international investment into UK property.?
3. Tax relief on decarbonisation projects - both domestic and commercial - would accelerate private investment into retrofitting and allow individual asset owners to target where they may wish to spend their own money that drives best value for them. In addition, future tax relief on property development that delivers much needed social infrastructure such as social housing, schools and healthcare facilities has the potential to focus the investment equation away from short-term IRRs towards long-term value creation, and help improve the viability equation of many schemes.?
4. Capturing the tax locally and ring-fencing it for investment into local and regional infrastructure including public realm, climate resilience projects, transport and low-cost energy provision or essential health and social care services might encourage communities to welcome development into their neighbourhood and support a speeded-up planning process, and devolves a meaningful amount of tax to local and regional government to spend most effectively for their communities.
5. By having a fixed rate for both land and property values ensures that additional revenue can be captured through the planning and development uplift in values as well as over the long term, and encourages both developers and local authorities to move more swiftly through this process.
6. The uplift of land and property values generated through infrastructure investment will automatically be captured through the tax system and therefore allows a different investment case to be made for infrastructure and one that is far less complicated and expensive to delver than bespoke tax increment finance schemes. This uplift in asset value is also created for existing home owners in these areas which should outweigh the burden of the increased annual tax if the amount is kept low enough, and evenly spread.
7. Older generations that tend to sit on larger properties (or even multiple properties) because their highest tax burden relates to the transaction of selling and buying may be encouraged by an annual tax to downsize - this creating more velocity in the domestic transactional market.
8. The cost of delivering a simple and universal tax must be relatively cost effective for the treasury compared to multiple complex schemes (if Zoopla can pretty accurately value individual properties, then a little AI applied to existing data must be extremely do-able for the government).
9. This is not original. You only have to look to US Cities to see how property taxes are levied and used in most of the ways that I have described above to deliver social value and drive investment.
10. I have run the idea through The New London Agenda - NLA’s ‘why, how, what’ guide to best practice in city making and it ticks all of the 12 boxes we point to (see diagram below) - but a full explanation of that is for another post on another day.

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Clearly, I am not an economist or political analyst - so I am sure that there are some very obvious reasons why what I have set out above will (A) cause immediate economic meltdown in the capital markets (B) ensure that the Government is guaranteed to lose the next election or (C) simply be too expensive to implement against the gains to be had!

So I would be fascinated to hear views on this - for and against - even if only to stop me returning to this theory every time we tackle another complex conversation about how to deliver the right kind of investment into London’s built environment that we so desperately need.