There have been several excellent comments about the importance of land value taxation (LVT), land-based finanding (LBF) or value capture (VC) — which are typically different ways of talking about the same thing.  My research indicates that achieving the right balance between user fees and LVT/LBF/VC is vitally important to achieving the economic development, environmental and equity goals that we claim to support.  In particular, the failure to implement LVT/LBF/VC can be a fatal flaw, causing infrastructure investments to leverage lower amounts of development (particularly affordable development), exacerbate sprawl and exacerbate inequality.  Here are some links to reports and article that I have written or co-authored on this topic:

“Funding Infrastructure for Growth, Sustainability and Equity,” a 50-page report to the DC Tax Revision Commission in 2013. It can be found at https://media.wix.com/ugd/ddda66_d46304b5437c178e2f092319a6f30364.pdf

“Funding Infrastructure to Rebuild Equitable Green Prosperity,” an article in Revitalization News at https://revitalizationnews.com/article/funding-infrastructure-for-sustainable-equitable-revitalization/

“Break the Boom and Bust Cycle,” an article in PM Magazine (ICMA) at  https://webapps.icma.org/pm/9407/public/cover.cfm?author=Rick%20Rybeck%20…

Please let me know if I can provide any additional assistance.

Please note that the form of property tax used by most cities and towns all over the world is upside down. Houses and other buildings are taxed more heavily than the land value. Plus the land value is nearly always underassessed. Removing taxes from houses and other buildings harnesses  incentives for the private sector to make property improvements and provision the affordable housing needed everywhere. But the land value is created by society and as population increases and improvements are made (infrastructure, education, etc.) land value increases, and faster than wages. This immutable “law of rent” drives wealth inequality. If the land rent is not captured for use of society as a whole, then land becomes vulnerable to speculators and rent-seekers with the result that land costs and consequently housing costs inflate. In this situation which is is the problem nearly everywhere, wages cannot keep up with the increasing price of land and a greater amount of wages then is needed to pay for  home mortgages. Fully and accurately assessing the land value, and applying a percentage of the total in order to collect the land rent on an annual or twice a year basis, is the key to having this tax approach provide adequate public revenue. There is no need to for “dead weight loss” taxes on  wages and production. Please read The Taxable Capacity of Land by Mason Gaffney for full documentation, this document is easily found via a websearch.

There is no question that land-based finance is underutilized in many parts of the world. And I agree than UNHABITAT could do more to emphasize and support these tools. But I also think it is important not to oversell the revenue potential. Even in countries with the legal and administrative systems to make use of land-based finance, other revenue systems are still needed. Land-based revenue can and should fund basic services in the largest cities. Smaller cities and services such as health care and education will still need supplemental funding from some combination of user charges and transfers.

When financing is made available and public amenities and services are thus provided, then the quality of life can increase dramatically in a community. This will typically result in an increase of land value as more people will want to live in that community or area and are willing to pay more to live in a quality environment and setting. If this increase in land value can be captured, then this can offset the cost of providing the public services – be they for education, transportation, waste management, lighting, water hookups, etc. Each of these tends to result in a substantial increase in the value of land close to where the services are provided. 

However, if the increase in the price and value or rent on land is not captured, then this loss creates a drag on the local economy given that so much has to be paid out and goes for land rent. This also results in a failure to capture one of the most promising opportunities for raising public revenue and boosting both employment and the local economy that exists at the local level. Such an outflow of financial resources can also make it even harder to provide the much needed public and social services and to continue to build and maintain required infrastructure. The amount of money tied up in land rents, particularly in the developing world, is of such a magnitude as to be able to provide for all of the community’s development needs and over time would probably provide sufficient resources so as to be able to achieve the UN’s new SDGs.

Las tres escalas territoriales que acompañan la pregunta generalmente enfrentan desafíos diferentes en materia de prestación de servicios públicos, pero las tres deben encontrar solución al problema de financiamiento.

Muchas áreas metropolitanas han sido creadas para responder a problemas de coordinación en materia de transporte o protección del medio ambiente, sin embargo, estas áreas deben compartir su territorio con otras agencias responsables de la prestación de servicios públicos como acueducto, alcantarillado e incluso otras agencias responsables del transporte. A escala metropolitana, la primera cuestión que debería ser resuelta es la de la planificación de los servicios y ligado a esta, el financiamiento de los servicios públicos de alcance metropolitano o de aquellos servicios cuya prestación trascienda los límites municipales. Una lección interesante en materia de financiamiento y planificación de servicios puede ser observado en la región metropolitana de Phoenix en Arizona.

Mientras haya crecimiento urbano no planeado habrá zonas periurbanas y estas zonas pasarán por un período en el que sus habitantes tendrán problemas para acceder a esos servicios de la misma forma que los ciudadanos de las zonas urbanas centrales. El desafío consiste en planificar para asegurar la prestación de servicios al interior de unos bordes claramente establecidos por la ley y el Plan. La falta de agua, alcantarillados u otros servicios en las zonas periurbanas de los PED demuestra deficiencias en materia de gestión del suelo. Sin embargo en los países desarrollados, la ausencia casi total de transporte público en las zonas periurbanas demuestra otro tipo de problema también ligado a la gestión del suelo. En ambos casos, corregir los problemas sale más caro que invertir para anticipar ese crecimiento. Ante la ausencia de recursos para inversión en infraestructuras por parte de muchas autoridades locales, se debe implicar al sector privado en el financiamiento de los servicios públicos, que sea como parte de los proyectos que estos construyen o como constructores y operadores de servicios públicos.

A escala de los pequeños núcleos urbanos, y ante otros problemas que favorecen la migración desde estos hacia las grandes ciudades, de nuevo la cuestión del financiamiento sale a la superficie. No se trata solamente de servicios de base sino de la calidad del servicio. Ante la precariedad de las fuentes de financiamiento, los pequeños núcleos deben ser inscritos en una estrategia de cofinanciamiento que permita a niveles superiores de gobierno de contribuir en ese sentido.

Gracias Rafael. Es interesante tu planteamiento respecto de las áreas metropolitanas. La falta de coordinación (fragmentación) en muchas ciudades de mayor tamaño puede generar problemas serios. Al respecto será interesante conocer la propuesta que se trabajó en el Policy Group N. 4 (URBAN GOVERNANCE, CAPACITY AND INSTITUTIONAL DEVELOPMENT), quienes estaban desarrollando en capítulo al respecto de cara a la conferencia.

UN Habitat should establish best practices training for land value taxation to public officials so that they can fund and thus provision public services.

A number of economists are now speaking to the benefits of the land value taxation approach. For example, Dr. Paul Collier, author of The Bottom Billion and Professor of Economics at Oxford University said this in his speech titled Land as a Key Development Issue: Insights and Implications for the Policy and Research Agenda:

Density is valuable and that value is reflected in the price of land. In the urban centers there are enormous rents on rising land value. The taxation of land appreciation offers huge scope for financing the cost of urban infrastructure.  

The 1996 UN HABITAT II Action Agenda holds a similar perspective stating:

The failure to adopt, at all levels, appropriate rural and urban land policies and land management practices remains a primary cause of inequity and poverty. It is also the cause of increased living costs, the occupation of hazard-prone land, environmental degradation and the increased vulnerability of urban and rural habitats, affecting all people, especially disadvantaged and vulnerable groups, people living in poverty and low-income people.” [B.75]

The Action Agenda makes these recommendations: “Apply transparent, comprehensive and equitable fiscal incentive mechanisms, as appropriate, to stimulate the efficient, accessible and environmentally sound use of land, and…[76(d)] Consider the adoption of innovative instruments that capture gains in land value and recover public investments.”[76(h)]

Thus the International Union for Land Value Taxation believes that it is time to do more than state the preferred public finance approach over and over again. It is time for Habitat to focus on conducting training programs for the implementation of best practices for land value taxation.

The partnership between UN-Habitat and the Global Land Tool Network (GLTN) has recently produced a training tool on land-based financing instruments that includes modules on land value taxation and other land value sharing approaches. The tool includes a reader that explains the instruments, provides case studies to illustrate each instrument and a template for developing a localized action plan.  The tool also includes a trainer’s guide. The content has been reviewed by international experts in the field and the training materials have been successfully field tested in both Egypt and the Philippines.

Larry and all,

Thank you Larry for letting us know about this. I did a web search and found that the GTLN has produced 3 documents. I include the links below. It is great that they have done this; and while I haven’t had time to read the materials yet, I cannot find anything on the UN Habitat website about how they are supporting or helping to implement the policy. It seems to almost be hidden and if one didn’t know it was there, would not be able to find it. I cannot find it anywhere on the menu bar or drop down menus; in fact there is not even a listing for municipal finance. 

This is what I mean; UN Habitat does not seem to be doing much to promote the policy nor even to actively provide much information to local governments about municipal finance. Please let me know if you know otherwise. This is why the types of recommendations that I have suggested really need to be included in the Habitat 3 outcome document. They are again:

⁃Direct the United Nations through UNHabitat to establish some type of a program or partnership initiative to focus on implementing LVT/C policies

⁃Recommend that UNHabitat be tasked with coordinating and supporting efforts to implement LVT/C policies

⁃Recommend that UN Habitat be asked to work with the SDG/LVT Cities Initiative to do a study on the success and effectiveness of the program in raising funds to support sustainable urban development and ensure that adequate resources are made available to meet the basic human needs of all.

This last recommendation refers to an SDG/LVT Cities Initiative that the  International Union for Land Value Taxation is putting forward. The IU is now developing the program proposal and project for such an SDG/LVT Cities Initiative. We will be reaching out to governments and municipalities and inviting them to participate in it. Our intention is to work with at least 5 to 10 cities initially to implement Land Value Taxation and to then use much of the additional revenue raised to support efforts to achieve the Habitat 3 outcome agreement and the Sustainable Development Goals. These cities will then become examples for how well the policy can work in actual practice and will demonstrate how successful the policies can be. 

Rob Wheeler

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Land Based Financing: Global Land Tools Network

Innovative land and Property Taxation (Eng – 2011)

Land and Property Tax: A Policy Guide (Eng – 2011)

Land Based Financing – A brief (Eng – 2015)

Land-based financing (LBF) is a collective name given to a range of tools by which local governments could expand their revenue base and generate funds that will help them realize their service delivery, infrastructure development and maintenance goals. The broader contexts within which this tool is being developed are local governance and sustainable urbanization. Therefore, LBF does not include financial resources that can be raised from extractive industries (mining) that are also land-based but have traditionally been outside the domain of local government agencies.

The attraction of land as a source of local revenue is obvious. Land is immobile and taxes and fees tied to land cannot be avoided by relocating to another place. The land-based financing tool is premised on the fact that urban land is a key factor of production and an important source of financing for urban development, including infrastructure, social housing and basic services.

Thank you Larry for your inputs.

Land is the most important source of revenue for most of the urban authorities in developing countries’ cities. Property taxes are the most common way to generate revenue from urban lands.  What other tools can local authorities use in order to maximize revenue they can generate from urban lands?

Thank you for your question Ananda. 

The issue paper on Municipal Finance says that, “Most cities in the developing world still rely heavily on transfers and grants and a great deal of effort is being made to reduce this dependency on central government. The structure of local revenues show that property tax is potentially a good source of local revenues but in most developing cities, property tax represents less than 3-4% of local revenues, compared to 40- 50% in cities in Australia, Canada, France, UK and the US.” 

If land is currently the most important local source of revenue for urban authorities in the developing world, then it is quite clear that this is still a most under-utilized resource that could do wonders for the community’s on-going development and provision of public services and infrastructure – to say nothing about the need to finance the transition to sustainable ways of doing things. 

In addition if one looks at the incentives and results from how property taxes are applied and implemented it becomes obvious that where possible it is best to tax either significantly more or primarily on land value rather than on buildings or on the two lumped together as one figure – as more commonly happens. While this does mean putting in place the processes, procedures, and informational capacity to be able to do so, it is typically well worth the while given the substantial returns that can occur from putting such policies and practices in place. 

 Some of the many benefits from primarily taxing land rather than property value as a whole include: reducing the price and thus cost of rent and housing; creating more compact and affordable cities and reducing urban sprawl; increasing opportunities for building low income housing; providing jobs for those involved with development projects; funding infrastructure development as land rents tend to escalate rather dramatically when public amenities are built and created, etc. 

With the more prosperous parts of developing country cities looking more like those in the developed countries every day, it is a pity that more is not being done to capture the value and wealth that accrues from such development to provide much needed services for the community and people as a whole. 

It is also true as stated in the Thematic Consultation Concept Note and Policy Issue Papers that policies and legislation are needed at the National level to support and enable urban authorities to apply and implement such tax policies. UN Habitat should be tasked in the Habitat 3 outcome agreement with supporting the development and implementation of such tax policies and legislation at both the local and national level. 

I see three primary challenges that limit public services in urban areas. First, because of the pattern of existing (often informal) development, improving public services is difficult and expensive. Second and probably more important, there is often a lack of public confidence in local administrations. This lack of trust means that people do not pay taxes because they do not believe the money will be used wisely for public improvements within their own community. Third, established and entrenched interests limit the availability of affordable land for both public and private investment. The limited availability of land makes public investment more expensive, but more importantly it encourages unplanned development of marginal land.

Solutions will likely involve some combination of land readjustment through a transparent and participatory process; greater transparency and public engagement in setting community priorities; improved public accountability; and actual collection of higher taxes on land (with light or no taxes on improvements).