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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