Madam, – Vincent Munley argues (Opinion, March 27th) that this is not the right time to introduce a property tax in Ireland. He makes some good points about the political problems associated with its introduction, but his argument that with falling house prices, giving them another kick downwards is the last thing we would want at this time.
Alas, the erudite professor seems to be suffering the usual confusion in conflating house prices with land values. The Irish housing market has suffered from an enormous bubble in land prices; house building costs have risen only with general inflation. The price of land is the basis for the incontinent lending by the bankers, and their free-lending policies fed straight into the one factor of production that is in fixed supply – land.
Tax land values, and yes, you remove from bankers the incentive to lend to unproductive profit seekers, who hope to gain from future land prices. Instead, these banks would have to seek investments which have the potential to earn a return by producing useful goods and services.
All of this has been well-known since the days of David Ricardo, as I am sure the professor is well aware. Of course there are transitional problems with the introduction of land value taxation (LVT). Today’s home-owners have paid for the house as well as the land price which embodies the value of all those public services provided by the taxpayer. The best time to introduce LVT is when prices are down, just like now. Introduce LVT straight away, but phase it in over a decade or so, to ease the burden of recent buyers.
After that, there should be no more house-price bubbles (do you really want another one of those?) but there would be a buoyant counter-cyclical source of tax revenue.
I should declare an interest. My father was a district valuer for the Irish Valuation Office. In its offices which used to be in Ely Place, Dublin, you could find the elements of the Land Value Survey conducted 100 years ago to prepare for Lloyd George’s 1909 “People’s Budget” LVT proposal. As with devolved government, this tax proposal fell with the outbreak of the first World War. Pity. – Yours, etc,