Land Tax REDUCES Rents



Dr Gavin Putland of the Land Values Research Group drives a stake through a vampire heart in the Letters page of today’s Australian Financial Review

Joanne Seve (Letters, August 5) regurgitates the property lobby’s favourite untruth, namely that land tax is passed on to tenants.

In its crudest form, this argument expects the reader to assume that a land tax is analogous to a sales tax. It isn’t. A seller can pass on a sales tax by holding out for a higher price, and can afford to hold out because the tax isn’t payable until the item is sold. But if a landlord tries to pass on a land tax by holding out for higher rent, the tax is payable in the mean time, but there is no rental income with which to pay it. So the tax increases the pressure on the landlord to find a tenant. And you attract a tenant by REDUCING the rent, not by raising it!

In a more sophisticated form, the argument alleges that because owner-occupied housing is exempt from land tax, landlords can avoid the tax by selling to owner-occupants, reducing the supply of land for rent, hence raising rents. That reasoning is faulty on two counts.

First, to the extent that the tax reduces the supply of land for rent, it increases the supply for owner-occupation. This in turn draws demand out of the rental market and into the owner-occupation market, offsetting the effect on rents.

Second, if the argument is valid to any extent, it means that rents are higher than they would be if the land tax applied across the board — NOT that rents are higher than they would be if there were no land tax at all. If there were no land tax, landlords would have less need to sell or let their vacant properties, so that both prices and rents would rise.

Gavin R Putland
Land Values Research Group
Melbourne Vic

5 Comments

  1. Cameron Murray10-08-2011

    I gut truly sick of the ‘just pass on the cost to tenants’ arguments. If landlords could just pass on costs willy nilly, why not just increase rents for no good reason at all? Landlords are the ultimate price takers.

    The same applies to developers ‘passing on costs to home owners’. Developers are price takers. If they could sell for a higher price THEY WOULD ALREADY BE DOING IT no matter what their real costs where.

    This is just one of those myths that just won’t go away (could that be due to the powerful developer lobby I wonder?)

  2. Paul Meleng13-08-2011

    Good point Cameron. As the large tracts of land on city edges is tightly held, the price of basic homes is “whatever the consumers can pay”. From that figure you take off the costs and end up with a price for the raw land, which at the moment is huge. There is a very large amount by which that can fall for future developments. Where a developer has already paid it, they have to wear the “loss” as house buyers go on strike. Land tax doesnt get added on. It comes off the price gouged by the initial raw land holder

  3. Mr Election24-08-2011

    You chardonnay socialists and your false utopian hopes.

    I’m sure as soon as you inherit some cash (cause you are too lazy or stupid to work for it) and buy your own land instead of stealing it via this tax you will change your tune.

    Typical Un Australian tall poppy syndrome, you people make me sick. I started with NOTHING 20 years ago and now have a massive property portfolio through HARD WORK.

    If an average Joe like me can do it, so can you. I provide affordable housing to my tenants, and my properties are well above the standard for the price. I provided social justice on my terms, not with a big commie gun held to my head. All my houses are kept brand new, with up market appliances, full energy ratings (solar etc) and lots of “homely” goodies to attract good quality tenants.

    See market forces determine the price, not socialist taxes. Even corn flake economists like you guys can see that.

  4. Richard Nixon28-08-2011

    Congratulations Mr Election! You’ve successfully fallen into the wealth trap. The tone of your voice belies your unhappiness and dissatisfaction with life. It’s a shame the hole you’ve dug for yourself consumes so much time there is none left for the simple pleasures of life. If only you had time to read the occasional book or do a little research you might find yourself capable of an informed opinion.

  5. Franky17-09-2013

    Mr Election, the article is not saying anything about socialist taxes, it is an piece denouncing the false argument from vested interests regarding land tax. Land tax is efficient as it can’t be moved and it can’t be hidden. What the article doesn’t say is that if you implement a land tax you will likely remove other taxes including INCOME tax. It is inefficient to tax labour as it is very mobile (especially for high income earners), look up the work of Frank Stilwell (current eco professor at Sydney Uni) or Henry George (the original land tax advocate)

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