INTRODUCING POLICY AND TARIFF STRATEGIES THAT WILL ENCOURAGE EFFICIENT AND PRODUCTIVE USE OF VACANT LAND FATHIMA KHAN CIGFARO CONFERENCE 2019
TAXATION OF VACANT LAND • discourage speculation and encourage development of Vacant Land. • motivate the private sector to develop Vacant Land. • Do not use Vacant Land Taxes solely to address budget issues. • Use taxation to change the behaviour of the private sector and block speculation.
WORLD BANK REVIEW • Vacant Land taxation around the world shows that various governments have different ways of : • defining, identifying, and prioritizing Vacant Land; • structuring Vacant Land fees; • choosing an implementation mechanism; • deciding who benefits from the fee and how; • penalties to be imposed in the absence of payment. • differences in prioritizing how to apply the taxation—whether by geographic location, the time left vacant, or degree of development. • the motivation for implementing the Vacant Land tax is an important factor.
MOTIVATION • In developed countries, the main motivation is addressing disinvestment and blight in cities. • Vacant Land includes land which have abandoned buildings. • In developing countries, the focus of taxation is on fighting speculation. • examples of Brazil, China, Colombia, Korea, the Philippines, and Taiwan.
INTERNATIONAL EXPERIENCE Harrisburg, Pennsylvania, United States • economic decline for the past several decades. • Vacant Land tax program • lowered the tax rate on building values • Raised the tax rate on land values • stimulate new development and conservation of older buildings. • land value taxation used as a local policy tool to help reverse economic decline and encourage urban revitalization. • Vacant Land tax rate that was six times higher than the improved property.
INTERNATIONAL EXPERIENCE Seoul, in the Republic of Korea • 136 percent increase in land prices due to massive speculation. • Increased demand for land and decreased market supply - widening the gap between landowners and non-landowners. • imposed a Vacant Land tax to discourage speculation and promote development. • Any land parcel left vacant for two years was considered idle land and subject to a 5% property tax, instead of the normal 2 %. • a 7 % tax would apply for land left vacant for 3 years • 8 % tax would apply for land left vacant for 5years.
HOLDING COSTS ETHEKWINI • 5.35 cents in the rand • Holding costs are 15% • Capital Growth is 6% • ECOD rebates
HOLDING COSTS CITY OF JOHANNESBURG • 3.9 cents in the Rand • Rebates where development can not take place : • property falling outside the Urban Development Boundary • the unavailability of bulk infrastructure • where development is prohibited by environmental factors
TRANSFORMATION • Punitive rates can’t attract smaller developers • Can’t afford the holding costs • Can’t address the “missing middle” – affordable housing • Costs passed on to the end user • Distorted settlement pattern
FINANCE • Banks reluctant to finance Vacant Land • Capped to a 60% Bond • Risky asset : • No rental income • No growth potential • Holding costs too high • Interest on Capital is lost
STATE OWNED VACANT LAND • Land invasions • Need to identify Vacant Land for disposal
VACANT LAND POLICY BE SPECIFIC!!!! • Know where you want to encourage development • Use targeted programmes • Use targeted budgets • Use targeted geographic areas
VACANT LAND POLICY INCENTIVISE!!! • Use rebates and incentives to influence investor behavior • Must be for a reasonable period
VACANT LAND POLICY PENALTY ON LAND BANKING • Taxation at an incrementally higher rate for each year that the land is left vacant
VACANT LAND POLICY PERMITTED USE rather than actual use
VACANT LAND POLICY TRANSFORMATION • Create a category of Owner • Apply rebates to emerging developers • Set specific criteria – QSE’s; EME’s;
EASE OF DOING BUSSINESS IN YOUR CITY • AFFORDABILITY • IS YOUR VACANT LAND RATES A SOURCE OF DISINVESTMENT ? • REVIEW YOUR POLICY!!!