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Sunday, 14 March 2021

FROM CROWNHOLD TO LEASEHOLD FROM THE STATE

Two Chinese islands, Hong Kong and Singapore.

 Despite their rulers’ ignorance they have been amazingly successful at collecting land value, but have they fixed housing? 

We are very lucky to have someone like Andrew Purves to explain the particularly beneficial land-ownership situation in Hong Kong and latterly in Singapore. His book “No Debt, High Growth, Low Tax” is a real eye-opener, and should be read by anyone trying to implement LVT. It is all the more valuable because it is derived from field work in Hong Kong. 

He has extended his analysis onto Singapore in a paper “Models of fair public ownership: lessons from Singapore and Hong Kong”. 

Put very simplistically, both places share a colonial heritage where first The Crown, then the local administration own practically every parcel of land. Of course land is made available for development — industry, commerce, transport and housing — but only as short-term (30 to 60 year) leases. The revenue from these leases makes up a healthy one-quarter to one-third of all government revenue. This, Andrew explains is the real secret of the economic success. All other forms of taxes — income tax, VAT, excise duties — are either much lower or non-existent. 

So what we have here is the happy fulfilment of many commentators dream scenario for fixing the housing crisis —Public Ownership of HouseBuilding Land. (See Ryan-Collins, Danny Dorling, Brett Christophers calling for public trusts, local authority ownership as well as state ownership. Even Halligan wants Land confiscation at current-use price). 

So has public/state ownership of all housing land ensured that Hong Kong and Singapore have achieved reasonably priced housing of good quality available in abundance? 

The Economist (Feb 2020 Housing Supplement) identified just 3 places in the world where ‘the housing market broadly works’ — Germany and Switzerland (which are well-known to us housing researchers) but also singled out was Singapore. The fact that 80% of Singaporeans live in government-built flats, because the subsidies are irresistible—but come with social controls (Economist headline 8.8.2017) is surprising. It suggests a highly controlled environment, which might not appeal to us westerners. 

If Singapore is a housing winner, what about the other nirvana of public-ownership of land, Hong Kong? On price of housing it is named as the most expensive in the world. Maybe that’s just for outsiders trying to buy in. How fares the largely Chinese population of 7 million? It could be worse, but due to massive government intervention in colonial days, sufficient tiny apartments are available, but at a price. 

So Hong Kong is, like the UK, another housing market failure. An observation: In fairness neither of these city-states have the familiar favelas — shanty towns built illegally on the outskirts. In all parts of the developing world, even ‘advanced’ South Africa these are commonplace. Favelas provide cheap housing for the many, but obviously not to the minimal level of decency you’d expect. 

One might wonder why these two paragons of public-land ownership virtue have either failed, or only achieved housing success through hyper-active government intervention ? As Andrew Purves has pointed out  (for me mainly in his exposition at an ALTER meeting in 2015), the administrators in both places don’t really know what they are dealing with. Yes, they realise these resource-poor over-crowded islands must provide the conditions for economic success. The land needs to be leased in a way which supports this. 

But drawing on Georgist ideas they could have gone much further. Land has obviously been leased at way below its full value. Leaseholders can sell their homes at far above the building value. If the authorities had acted like rent (profit) maximising landlords instead of economy boosters they could have achieved two things          

—higher revenues, making all other taxes superfluous. Indeed land-revenues might have been high enough for a citizens’ dividend, a form of basic income. (This is plausible given the ‘island-in-a-sea-of-prosperity’ position that these city-states occupy, akin to the parasitic role the City of London exerts over the UK.)           

— economic growth would have been even greater, in part because of lower labour costs, subsidised by the citizens’ dividend, and the low (reasonable) cost of housing. 

An even more intriguing Chinese-related possibility presents: That the gurus who guide the policy of the CCP realise this and apply it to the PRC generally. What an unparalleled advantage it would enable them to take. The capitalistic-rentier democratic US economy would be left for dead.

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