Betterment: a taxing problem

Date05 March 2018
Publication Date05 March 2018
AuthorRichard Grover
SubjectProperty management & built environment,Real estate & property,Property valuation & finance
Betterment: a taxing problem
Richard Grover
Department of Real Estate and Construction, Oxford Brookes University,
Oxford, UK
Purpose The purpose of this paper is to review the issues involved in land value taxation and betterment
and the issues involved in apportioning value between land and improvements.
Design/methodology/approach Thetheoretical andvaluation issuesin betterment arereviewed and a case
study of a betterment tax introduced in the UK is used to illustrate the practical problems in implementation.
Findings The idea of land value taxation depends upon being able to apportion property values between
land and improvements. This raises both theoretical and practical problems that are difficult to overcome.
Practical implications The apportionment property values between land and improvements produces
results that cannot be verified by market evidence, suggesting that an alternative approach be adopted
through value-based recurrent property taxes revalued at frequent intervals.
Originality/value Much of the literature has concentrated on the theoretical advantages of land value
taxation rather than examining the practical problems of implementation. These suggest a different approach
with less emphasis on betterment taxes and more on how recurrent property taxes can be an effective
instrument for value capture.
Keywords Value capture, Value-based recurrent property taxes, Betterment, Improvements, 1909 Budget,
Land value taxation
Paper type General review
Betterment: the issues
A rise in the price of a prop erty can come about in response to two types of change.
First, the owner may have undertaken improvement works. In the case of commercial
property, these could increase its income-generating capacity or reduce the risk that the
income flow might be interrupted or curtailed in the future, thereby lowering the yield and
increasing the capitalised value of the projected rentals. For residential properties,
improvements can enhance those characteristics to which households assign greater
utility and for which they are prepared to pay a higher purchase price or rent in order to
gain access. In essence the owner has invested capital in the improvements and has borne
the risk that subsequent owners are willing to pay a higher price or tenants an increased
rent. The notion that the owner should benefit from such entrepreneurshipis generally not
controversial in market economies.
Rising property values can also come about due to factors that are beyond the control of
the owner. Thus, an increase in values could result from economic growth, urban
development, or demographic factors thereby increasing demand. A particular source of
betterment is local improvements, particularly of infrastructure, producing increases in
property values. For instance, investment in transport infrastructure can alter journey times
and, therefore, the accessibility of locations and the bid prices offered by households and
businesses. Local improvements can make improvements viable that would not otherwise
have been possible. In many countries development is controlled because of the potential
adverse externalities that can be caused to neighbouring owners or those living or trading in
the vicinity. Landowners do not have an absolute right to do as they see fit with their own
property but must seek consent for proposed development s or changes or use.
Such permissions can result in massive increases in land values. For instance, farmland
that may have a value of £15,000 per hectare when used for agriculture may become worth
£2.5 million per hectare if consent is granted for housing development.
Government economic policy can also result in rising property values. Low interest rates
can have the effect of increasing the value of risky assets ( Joyce et al., 2011; Bell et al., 2012;
Journal of Property Investment &
Vol. 36 No. 2, 2018
pp. 217-226
© Emerald PublishingLimited
DOI 10.1108/JPIF-06-2017-0046
Received 27 June 2017
Accepted 28 June 2017
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