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Johannesburg

Mason Gaffney:  The Taxable Capacity of Land

The question I am assigned is whether the taxable capacity of land without buildings is up to the job of financing cities, counties, and schools. Will the revenue be enough? The answer is "yes."

The universal state and local revenue problem today is whether we must cap tax rates to avoid driving business away. It is exemplified by Governor Pete Wilson of the suffering State of California. He keeps repeating we must make a hard choice: cut taxes and public services, or drive out business and jobs. (When a public figure gives you two choices you know they're both bad, and he wants one of them.)

The unique, remarkable quality of a property tax based on land ex buildings is that you may raise the rate with no fear of driving away business, construction, people, jobs, or capital! You certainly will not drive away the land. However high the tax rate, not one square foot of it will put on a track shoe and hop out of town. The only bad thing to say about this tax's incentive effects is that it stimulates revitalization, and makes jobs. If some people think that is bad, maybe this attitude is the problem.

 There is the answer to Governor Wilson' dilemma. I hope here in The Empire State you will supply a practical demonstration of the answer, one we may then use to inspire The Golden State. California now, following Proposition 13, has become a morality play, a gruesome object lesson in what happens when the property tax is pushed down toward zero. It forces higher taxes on production and exchange. Non-property taxes, you know, mostly have the character that they "shoot anything that moves," penalizing and discouraging economic activity. New buildings gain by having a lower property tax burden, it is true; but they bear the brunt of these new taxes and impost fees up front, at the time they are built. These offset the benefits of their lower property tax rate. ...

We also hear, sometimes, that "it's never been done," or it's only been done by our drab neighbor Pennsylvania, for whom familiarity may have bred contempt? Only "far kine have long horns." Or, whatever progress ensued there was happening anyway. We are destiny's tots in the grip of cosmic forces. We rise and fall with the tide. We cannot control Fate; relax and accept what the gods dish out. Fatalism: it's a sure recipe for milling around ineffectually while life passes us by.

 Let's raise our sights far afield to where "it" has also been done. I was in Johannesburg not long ago, a city that thrives in the face of daunting handicaps. I am struck by the miracle of the place; it is Bootstrap City. It should have died when its gold mines played out, like a normal mining boomtown. Instead it remains as the economic capital of its nation and half a continent.

 Johannesburg defies and belies many "laws" of urban economics, such as that "mines create no great cities." Its once-fabled gold mines are just tailings now, so it should be a ghost town. It has no harbor, no water transportation, not even any gravity water supply. It is, in fact, on a ridge-top (the Rand or "reef"), at an elevation over 5,000'. Water supply is pumped uphill.  

It has no sunburst of rail lines, like Chicago or Boston, "The Hub," except perhaps what it has attracted itself. It is on the main rail line, but so are a thousand miles of other sites. The natural site lacks outstanding amenities, and can't hold a candle to Cape Town. Jo-burg has no governmental economic base. Surrounding farmland is poor, the climate droughty. Why Johannesburg? Why is it the largest city, the center of finance, industry, commerce, and international air travel?  

As a public finance economist I may overvalue incentive taxation, but Jo-burg has it. The property tax is on site value alone, and at a high rate: they tell me it is 4%. This is what makes Jo-burg distinctive. Challenge and response: Jo-burg had to do something right in order to survive, and that is what it did. It not only survived, it became and remains Number One. Give me a better explanation and I'll back off. I haven't heard one yet.  

Jo-burg is not heaven, far from it. It is surrounded by and transfused with social problems we can hardly imagine, much more expensive to handle and solve than what we know. That is part of the present point. Jo-burg obstinately prospers in the face of these, added to its natural geographic disadvantages.  

Cape Town, by contrast, is Sleeping Beauty. Nature has been generous there. It is gifted with one of the world's great harbors and sites, ideal climate and scenery. It has the national legislative Capitol. It enjoys the business potential of New York, the climate of La Jolla, the scenery of Vancouver, and the political base of Washington (or at least Albany). Tourists flock there, and would do so even if the place were misgoverned by Mayor Idi Amin with Police Chief Saddam Hussein. Meantime Jo-burg, the ugly duckling, walks off with most of the nation's business. What is Cape Town's problem? It taxes buildings, the way we do.  Read the whole article


Jeff Smith and Kris Nelson: Giving Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any one thing and find it connected to everything else in the universe." Tug on the property tax and find it connected to urban slums, farmland loss, political favoritism, and unearned equity with disrupted neighborhood tenure. Echoing Thoreau, the more familiar reforms have failed to address this many-headed hydra at its root. To think that the root could be chopped by a mere shift in the property tax base -- from buildings to land -- must seem like the epitome of unfounded faith. Yet the evidence shows that state and local tax activists do have a powerful, if subtle, tool at their disposal. The "stick" spurring efficient use of land is a higher tax rate upon land, up to even the site's full annual value. The "carrot" rewarding efficient use of land is a lower or zero tax rate upon improvements. ...

Cape Town, South Africa, quit the regular property tax in favor of a land levy. Altho' sited on one of the world's major shipping lanes, Cape Town's development had always lagged behind the inland Johannesburg, an abandoned mining town that prospered in part from levying only locations and not any improvements. Not knowing what to expect in the aftermath of apartheid, Cape Town's civic leaders wanted to ease the transition to a sound, integrated economy. ...

How long would it take for the PTS to take effect? A clue comes from Johannesburg, South Africa. That city taxes land, not buildings, and has the fastest site recycling rate in the world, a little over 20 years. That means, within a few decades of shifting the property tax, cities could be rebuilt by market-based incentives to human-scale, becoming relatively car-free. At last civilization could realize its promise to humanity.

A big problem needs a big solution which in turn needs a matching shift of our prevailing paradigm. Geonomics -- advocating that we share the social value of sites and natural resources and untax earnings -- does just that. Read the whole article

Fred E. Foldvary — The Ultimate Tax Reform: Public Revenue from Land Rent

The German colony of Kiaochow, China, established in 1898, had a single tax on land value set at 6 percent.35 Its principal city, Tsing-tao, developed into a fine modern city. The Germans lost the colony in 1914 at the outbreak of World War I, but their experience influenced the Chinese revolutionary Sun Yat-sen, who became head of the government of China. He and his successors in the Nationalist Party were not able to implement land value taxation in that country, but when they moved to Taiwan in 1950 after the communists took the mainland, Chiang-kai shek implemented a land-to-the-tiller reform accompanied by a tax on land value. Taiwan has since developed into a major industrial power. Hong Kong and Singapore became major commercial centers in large part because much of their public finance is based on taxing land values, or in the case of Hong Kong, from selling land leases, with low taxes on trade and commerce.

Of course there are many reasons for the success of economies such as Hong Kong’s, but the evidence is that more economic freedom is widely associated with greater growth and per-capita income, in accord with the economic theory that the deadweight loss caused by restricting and taxing production leads to lower production.

Many cities worldwide, including Johannesburg, South Africa and Sydney, Australia, have levied real estate taxes on land values only. Some cities in Pennsylvania have had a two-rate system, where land values are taxed at a rate higher than the tax on improvements.36 ... read the whole document


Jeff Smith: Planning by Markets

...  How long would it take to ecologize cities after shifting its property tax? While Johannesburg (South African) levied a rate of only 3 percent on site value, it enjoyed the fastest site-recycling rate in the world, a little over 20 years. Within a couple decades, we could have those cities we'd love.

As cities grow more livable and lovable, their site values rise. The resultant increase in land dues would push owners to continually convert to highest and best use automatically. In this positive feedback loop, cities would constantly renew.

While generals and anarchists might not easily find common cause, planners and markets can, when planners paddle with, not against, the mighty current of rent. Correcting the market, so that taxes and rents no longer interfere with the choices of owners and developers, would attain highest and best use of sites automatically.  Read the whole article

 

Al Hartheimer: Affordable Housing and the Land Value Tax Perspective: a letter to Asheville, North Carolina

Johannesburg, South Africa has no tax on buildings. The entire property tax is on land. Mason Gaffney, a highly respected land economist and Professor of Economics at UC Riverside, visited Johannesburg. This is what he said about it.

" The miracle of Johannesburg: Jo-burg is a Bootstrap City. It should have died when its gold mines played out, like a proper mining boomtown; instead it remains as the economic capital of its nation and half a continent.

"Johannesburg defies most laws of urban economics, e.g. that mines create no great cities. Explainers still cite the mines, but its mines have played out; it should now be a ghost town. It has no harbor, no water transportation, nor even any gravity water supply. It is, in fact, on a ridge top, the Rand or "reef," at an elevation of 5,000 ft. Unlike Chicago or Boston, it has no sunburst of rail lines, except perhaps what it has attracted itself. It is "on the main rail line," Explainers say, but so are 1000 miles of other sites. The natural site lacks outstanding amenities, and certainly can't hold a candle to Cape Town. Jo-burg has no governmental economic base. Surrounding farmland is poor. Why Johannesburg? Why is it the largest city, the center of finance, industry, commerce, and international air travel? As a public finance economist I may overvalue incentive taxation, but Jo-burg has it. The property tax is on site value only, and at a high rate: they tell me it is 4%. This is what makes Jo-burg distinctive. Challenge and response: Jo-burg had to do something right in order to survive, and that is what it did. It not only survived, it became and remains Number One. Give me a better explanation and I'll back off. I haven't heard one yet." ... read the entire article

 

 

 

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