Property stocks fall as land values dip

Wednesday, 06 August 2008 15:11
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A report in today's Times reports that property stocks have fallen as land values dip. You can read the article here There is an important lesson here for advocates of land value taxation. It is not land values that have dipped but land PRICES, which are not the same thing at all. Land prices are the capitalisation of the rental income stream, plus the speculative froth of hope value on top. All that has happened is that the speculative "froth" has collapsed, leading to the dip. This froth has been blown up in recent years by the banks' enthusiasm to lend, and borrowers' recklessness in taking the loans. This has created this self-feeding and unsustainable bubble. At the same time, rental values have remained relatively stable over a long period, on a trend rising slightly faster than inflation.

The lesson for LVT advocates is that the tax should be based on annual rental values, not on inherently unstable land prices.
 

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