LibDem LVT support group loses its way

It is depressing how some of our own supporters can lose their way. ALTER, the LibDem group, seems to have suffered this fate with the publication of a Position Paper giving support to the idea of Community Land Auctions (CLA), a brainchild of Tim Leunig, a member of the staff at the London School of Economics.

The idea, which is less than straightforward, is explained in the ALTER position paper. The aim is that local authorities should be able to collect some of the uplift in land price that arises from planning consents. ALTER claims that it is compatible with LVT. It is not.

Land price and land value are two different things. That is the fatal flaw. The underlying value of land is the revenue stream from its rental value. Land price is the capitalisation of the expected rental income stream, plus a layer of speculative froth on top, dependent on, amongst other things, interest rates, expectations of future interest rates and the general performance of the economy.

The change in rental value accompanying change of use is the cause of the uplift in LAND PRICE. The planning consent is incidental – that unlocks the change in use. If there was the expectation of LVT in the future, the land price would be reduced not only by the capitalisation of the amount that had to be paid in LVT, but also by the speculative froth that sits on the top. If people had bought into these land auctions then they would cry “foul” if a government unexpectedly came along with an LVT afterwards. This was understood by Layfield when pointing out that LVT was incompatible with the Community Land Act which was in force at the time and operated in a similar way.

If anyone wants to kill off the prospect of LVT, then CLAs are a good way of doing it. This business also goes to confirm the general principle that anything with the word “community” in it should be regarded with suspicion.