Transport and Communications

Who benefits?

The problem
Transport and other communications are among the most important factors in determining where a person is willing to live or to run a business. Any estate agent's literature shows how important access to shopping centres, schools, good roads and recreation facilities are to the potential house buyer. Businesses are even more acutely affected by communications and transport - not just by major features, but by minor matters as well. Moving a bus stop fifty yards along a road, or prohibiting parking, may make the difference between prosperity and ruin for a small shopkeeper.

Changes in transport and communications can benefit some people but disadvantage others. A bypass is likely to benefit householders in the town because traffic conditions improve - but may damage shopkeepers and hoteliers who rely on casual trade. A new airport runway, designed to increase the number of flights, will benefit people who want the extra services, but will blight homes situated under the flightpath.

These changes are always reflected in the value of relevant sites. People say the prices of 'houses', 'shops' or 'factories' are altered by such changes. This is an oversimplification. The price of the materials of which these structures are built is hardly affected at all; what alters is not the value of the bricks and timber and other equipment, but the value of the site on which the building stands.

No proper mechanism exists today for compensating people who lose by such changes, or for collecting revenue from those who make windfall gains which they have played little or no part in creating. True, people whose whole property has been taken away (e.g., for a road scheme) do receive compensation. On the other hand, somebody whose business is damaged by construction of a bypass, or whose once quiet home is disturbed by a new motorway a few yards distant, usually receives nothing. This is clearly unjust.

There is a wider problem. The money for building improved infrastructure is drawn from taxation, local or national. Yet why should a Mancunian be taxed to pay for a road in the south-east which he will probably never use? Why should a Londoner be taxed to pay for a road in Lancashire? On the other hand, should someone whose shop happens to be near a new bus route, or whose house appreciates in value because of a new motorway a mile away, pay practically nothing for the benefit which he thereby receives from the general taxpayer?

Even if it were possible to make some reliable calculation of benefits and losses from infrastructure changes on a short-term basis, and compensate the losers or charge the beneficiaries accordingly, this would not be a satisfactory arrangement.

Such changes often produce a very long-term effect indeed. In 1841, a rail link was established between London and Brighton. At the time, a good many people at both ends of the line benefitted, and a good many other people suffered from the effect of dirty, noisy trains. Those gains and losses largely continue to this day. Land values at both ends of the line, and all along its length, are still affected by something that happened more than a century and a half ago.

By the same token, closure of rail lines or bus routes also affects land values. When railways were shut down in the 1960s under the Beeching schemes, shopkeepers and hoteliers foundered in the regions which lost their rail service, while shopkeepers and hoteliers profited in regions which kept their rail links. Land values in these areas rose while they fell in the deprived areas.

Should public transport be subsidised?
Consider another aspect of communications. Most people regard it as desirable that more use should be made of public transport to reduce road congestion and environmental pollution from private cars. The road and rail companies argue that they cannot substantially improve services because the extra revenue from passengers and freight would not meet the cost. The pressure is to cut existing services.

For years, disparate and conflicting proposals have been advanced to solve the problem: Nationalisation? Privatisation? Subsidies from public funds? Free market?

We needed a new approach. Let's focus on the extra land values generated by better public transport services. If some of these were made available to improve transport, it would be possible to provide the services needed. Furthermore, few would lose by the transaction! The travelling public would receive better service; fewer traffic jams would occur. Businesses in town centres and residents at the edges of towns would see their properties rise in value. If some of that extra value were collected in taxation, they would still benefit on balance.

Who gains or loses - and how much?
How can we measure the gain or loss which a particular household or business sustains through the conditions of transport and communications in its area?

If we look at these matters in isolation, there is probably no satisfactory answer. But suppose we consider transport and communications, not in isolation but linked with other developments, positive and negative, which affect land prices. A school, factory, hospital or supermarket is opened (or closed, for that matter) near to the site of somebody's home or business. These changes, just like changes in transport and communications, will produce 'windfall' gains or sudden losses.

The contribution made to the change in land values by the individual owner of residential or business premises is very little compared with what is produced by others: by the people who designed the road, railway, harbour or flightpath; the people who authorised its construction; the people who did the actual work; the innumerable people who later decided to use the new communication link - these are the people who altered the land values.

Towards a solution
There is a way of ensuring that people who benefit from changing land values pay for the benefit they receive, while those who lose are compensated for their loss. It is called Land Value Taxation (LVT).

Under LVT, the site value of every piece of property would first be assessed. This assessment would not include the value of any building or other development on the land. A tax would then be levied as a proportion of that valuation. At the same time, existing taxes, such as VAT or income tax, would be reduced or eliminated. The effect of LVT would be to deal automatically with gains and loses arising in these ways: where there is some benefit, the valuation of a site will rise; where there is some loss, the valuation will decline. The LVT would be collected on a periodic, preferably annual, basis, and it would be necessary to make frequent revaluation to ensure that changes were taken up as they occur.

There is every reason for thinking that improvements in transport and communications will result in far more increases than decreases in land values. When these increases are creamed off by LVT, this will gradually pay for the development, and eventually yield a profit. Thus the ordinary taxpayer will be repaid for the investment in transport improvement. There will then be no question - as there is today - of people paying money to provide transport improvements from which they derive only marginal benefit.

LVT is based on a fundamental moral principle. When people derive benefit through some activity in which they have played no part, they ought to pay for the benefit; when they sustain a loss which was not their fault, they are entitled to be compensated for the loss.

Published by:

HENRY GEORGE FOUNDATION

See also: Review - Don Riley "Taken for a Ride"