Home > Uncategorized > The case for a land tax, BIS edition

The case for a land tax, BIS edition

The BIS (Bank for International Settlements) does not explicitly mention a land tax. But their recent study on ‘non-interest policy tools’ to stabilise house prices yields that such a tax on the ‘location, location, location’ value of houses might, together with abolishing interest deductions, be what we need (emphasis added):

Using data from 57 countries spanning more than three decades, this paper investigates the effectiveness of nine non-interest rate policy tools, including macroprudential measures, in stabilising house prices and housing credit. In conventional panel regressions, housing credit growth is significantly affected by changes in the maximum debt-service-to-income (DSTI) ratio, the maximum loan-to-value ratio, limits on exposure to the housing sector and housing-related taxes. But only the DSTI ratio limit has a significant effect on housing credit growth when we use mean group and panel event study methods. Among the policies considered, a change in housing-related taxes is the only policy tool with a discernible impact on house price appreciation.

  1. November 15, 2013 at 6:07 pm

    Reblogged this on Arijit Banik and commented:
    Will the BIS go “Henry George” on us? Perhaps there is late recognition that houshold balance sheets outstripping household incomes is an eventual recipie for either a crash or long term moribund growth given that the liquidity contraints households come under as a result of long term debt servicing of ever increasing liabilities.

  2. Podargus
    November 15, 2013 at 7:00 pm

    Land taxes,like interest rates,are blunt weapons. They cause a lot of collateral damage while failing to get to the root cause of the problem.
    If people taking on excessive debt is a problem then the place to apply the surgery is at the source of the lending.
    But we wouldn’t want to lay even one little pinkie on the sacred FIRE sector now,would we?

    • November 16, 2013 at 11:47 am

      Podargus is right to suggest income taxes and some land taxes are blunt weapons.

      However, unlike taxes on developing land or on the sales of land, an annual Land Value Tax applied to the location value of every site would not only encourage house building but would create jobs, allow governments to reduce taxes on wages and trade, deter banks lending to create a land price bubble and return to the community the land wealth we all create.

  3. November 15, 2013 at 9:13 pm

    Land tax goes right to the root of the problem. Property prices (ie the price of land titles), are the capitalisation of the expected future rental income stream, plus a variable amount of hope value on top of that. Giving credit secured on those land titles is a recipe for cyclic instability, since it creates a positive feedback loop in the system.

    LVT on the annual rental value provides negative feedback and stabilises the system. It also reduces prices, since the rental income stream is reduced by the amount of the tax. So lenders are going to be less inclined to lend on the security of the titles, and they will consequently be more careful about making sure that those to whom they lend have the resources to pay back the loan.

  4. November 16, 2013 at 9:24 am

    Excellent find.

    Podargus, land taxes are highly sophisticated instruments! They can replace bad taxes on output and earnings, dampen speculative bubbles, encourage regeneration of an area, prevent land banking/hoarding etc etc, what’s not to like?

  5. dbcreed@hotmail.com
    November 16, 2013 at 10:11 am

    it is not the land tax which is a blunt instrument but the current reliance on interest rates as the sole means of economic adjustment. Raise interest rates to stop inflationary mortgages and you curtail loans going to business/ investment. Prof Cechettti has been going on about this for years but he need not have bothered given the present level of ignorance.

  6. Vilhelmo
    November 21, 2013 at 7:02 pm

    Podargus :
    Land taxes,like interest rates,are blunt weapons. They cause a lot of collateral damage while failing to get to the root cause of the problem.

    t has long been recognized that the most efficient form of taxation is an Economic Rent Tax (monopoly, land, resources, etc).
    Unlike other taxes it does NOT add to prices, deter production, distort market mechanisms or create deadweight losses.

    What collateral damage were you referring to?

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