Victoria is reviewing its Local Government Act 1989. The original Act is now subject to over 90 amending acts, so the Review is timely and necessary.
Buried among the good ideas to improve local government is a very bad one, obliging all councils to use Capital Improved Value as the ratings base.
CIV imposes rates on buildings as well as the land. It means we construct fewer buildings and what goes up is of inferior quality. The alternative, Site Value, is superior – it acts as a modest and persistent prompt to land holders to put their sites to the best and highest use.
There are very good Melbourne studies from the 1960’s, when some municipalities moved from CIV to SV, that show real and enduring benefits from the change. Dr Gavin Putland has an excellent paper here that lays out the benefits.
This is not some abstract economic geek theory. There are real and tangible benefits available that have been noted by others.
In A History of Camberwell (Lothian Publishers, 1980, p.86), Geoffrey Blainey wrote of matters in the 1920’s:
A few hundred people owned large areas of cow paddock and market garden and vacant land and refused to sell them for housing partly because they believed the speculative value of the land would rise. Such people blocked Camberwell’s growth and contributed little to its municipal revenue. At Camberwell junction and other shopping centres, owners of old wooden shops were paying smaller rates than the enterprising landlords who built expensive shops and attracted business to the centre. In residential streets, landlords who allowed houses to go unpainted paid smaller rates, while the landlord who improved his property and therefore the neighbourhood’s appearance and land values was penalised for his enterprise with higher taxes. The reformers argued that a new method of municipal taxation would accelerate the pace of Camberwell’s growth and improve the quality of the suburb. Calling for a referendum, they carried the poll after a fierce campaign… From 1922, the new method of taxation undoubtably forced many large landowners to release vacant land for house building…
That new tax method was not new at all – it was Site Value.