The Lesson of the Slums
Or take the illustration of a slum area. Each tumble-down tenement is rated and taxed on the assessment based upon its annual rental value. In many places in the central parts of towns the total of these assessments is less than the sum for which the whole site could be sold as a building area, nevertheless if all the tenements fall or are pulled down the site may remain vacant for years and no rates or taxes are paid. But if substantial and decent buildings are erected on the site, immediately the assessment is raised to their full annual value. The individual or public body that has cleared away the slum and erected something decent in its place is thus immediately punished for doing so, with the result that such a thing is seldom done except at the public expense. The remedy for all these absurdities is quite a simple one. No one disputes that the sums necessary for municipal and imperial taxation have got to be provided. The question is, in so far as they are to be raised from lands and buildings, how can they be assessed most fairly and with the least injury to trade and commerce? They should be assessed upon the value of land which is not due to any effort of the owner or occupier; they should not be assessed upon nor increased because of any buildings which he may have erected or any improvements which he may have carried out.
This question was closely investigated by the Land Enquiry Committee appointed by Mr. Lloyd George in 1913. They were unanimous in condemning the existing system and in regarding the one which I have just described as the ideal. They were, however, met by great difficulties in its immediate practical application, because, owing to the long prevalence of the wrong system, an immediate and total change would bring about rather startling alterations in the value of existing properties. The Committee closely considered these objections, and a number of alternative methods of bringing the change into operation gradually and without these drastic changes in value were put forward. The one which immediately suggested itself as the simplest, and from many points of view the most desirable, was to leave the rates and taxes of existing properties on their present basis, to impose them at their present rate on the annual value of all unoccupied land, but to exempt from rates and taxes all future buildings and improvements of every kind.
To illustrate the way in which this would work, let us revert to the case of a block of slum property. As long as it remained in its present condition the existing valuation based upon the annual rent obtainable for it would apply, but any parts of it which now are or may hereafter become unoccupied, would, instead of escaping as they do now from all rates and taxes, contribute on the basis of the value of their sites, which would be assessed at an annual rent for the purpose of comparison with the existing valuations, at least until the capital values of the whole rating area could be ascertained. If any improvements were carried out the assessments would not be raised on that account, as they would be under present conditions, and if a whole area were pulled down, replanned and rebuilt, the assessment instead of being based, as it would be to-day, on the annual value of the reconstructed property, would be based upon the site value alone. Gradually in this way site value would become the prevalent basis of assessment. “It is obvious,” as the Committee said in 1913, “that unrating of future improvements is from the economic point of view of far more importance than the unrating of existing improvements; if we want to encourage new buildings and new improvements, what is really important is to ensure that new improvements (not old ones) shall be exempt from the burden of rates.” The Committee were, however, compelled to reject this suggestion at that time on the ground that “it would cause an unfair differentiation between the man who had already put up buildings or improvements, and the man who put up buildings or improvements after the passing of the Act.” But as between buildings and improvements which existed before the war and those which come into existence under post-war conditions no such unfairness could operate, because the increase in the cost of building even to-day is greater than the benefit which would accrue from the unrating of improvements. The present is therefore the unique opportunity for bringing into force this much-needed reform in the most effective way, free from the difficulties which had to be met in 1913. If it had been carried out immediately after the Armistice it would, in my opinion, have done more than anything else to solve the housing problem, and even now it is not too late. In fact, in view of the present unemployment it would be most opportune. Incidentally it would soon render unnecessary the renewal of the Rent Restriction Act. I understand that something on these lines has been introduced in New York to meet a similar problem.