1. Introduction *
1.1. General *
1.2. Underlying Principles * 2. Support For Clauses In Bill *
2.1. Adoption Of Rates Policy (Ch 2, Part 1, Point 3.) *
2.2. Special Rating Districts (Ch 2, Part 4, Point 19.) * 3. Clarification Necessary *
3.1. Definitions (Ch 1, Point 1.) * 4. Objections And Suggestions *
4.1. Amount Of Rate (Ch 2, Part 2, Point 10.) *
4.2. Power To Levy Rates (Ch 2, Point 2) *
4.3. Rates To Be Levied On All Rateable Property (Ch 2, Part 2, Point 7) *
4.4. Differential Rates (Ch 2, Part 2, Point 8) *
4.5. Exemptions, Reductions And Rebates (Ch 2, Part 2, Point 14) *
4.6. Constitutional Constraints (Ch 2, Part 3, Point 15) *
4.7. Limits On Annual Increases Of Rates (Ch 2, Part 3, Point 17) *
4.8. Contents Of Valuation Roll (Ch 6, Point 41 ) * 5. Public Transport * 6. Warning Of Misinformation * 7. Conclusion * 8. Appendix: Johannesburg Land Value Model *
8.1. Model Of Johannesburg CBD And Suburbs *
8.2. Comments On Model *
8.3. Rating Surveys, RSA *
8.4. References: *
Note: The Author requests permission to make a verbal presentation of his case. Introduction General The above Bill should and could become the keystone in bridging the gap between the extremes of poverty and wealth; a gap that was aggravated in the past by the Apartheid system. However the demise of Apartheid has not done away with the basic causes of poverty which also exists in other nations where democracy has long been entrenched.
The Bill should also take into account the Constitution of the Republic of South Africa, 1996, where in the Preamble it states; "We, the people of South Africa, Believe that South Africa belongs to all who live in it". Since we cannot all occupy the same prime land, the implication is that those who enjoy the privileges should compensate those excluded.
The advantages of any piece of land come from natural factors plus what the community has built up in infrastructure and markets and continues to provide in labour, technology and buying power. The advantages are independent of improvements supplied by the owner. Locality plays a major part. In a free market the advantages are quantified in annual rental value of the land or, more commonly, annual rent capitalised in market price or land value.
The annual value of land provides the only just and morally legitimate source of local government financing. It provides a fair contribution from those landlords who society favours most with unearned privileges, to those poor masses deprived of access to basic human requirements. Underlying Principles Traditionally peasants and farmers paid the rent of land to the landlords according to its productive value. The landlords in turn contributed to government in proportion to the annual rental value of their estates, not according to the improvements thereon. In effect, governments drew their revenue from land rent.
The highest land values are in the cities; these include business, industrial and residential land, where a portion of a hectare is worth more than a large farm. The market value of land depends on the economic benefits enjoyed on a particular site as a result of many factors provided both by nature and society, irrespective of anything that the landowner may do.
Collecting rates from land or site values only discourages the withholding of land from use in order to obtain an unearned profit. This applies in both urban and rural localities. On the other hand the experience both in RSA and overseas has shown that collecting rates from improvements encourages slum-lording and leapfrog development. Witness the slums at Muizenberg Surfers Corner. Rating land only would soon put a stop to that type of anti-social practice.
Wealthy landlords will always try to find ways to side-step their duty to support the poor via location dues or land rent. Their support of universities and seats of learning in the past has made it possible to divert attention from the fundamental aspects of economics.
The economic success of Hong Kong in the past was based on the fact that most of their revenue came from land values via periodic auction of leases and annual rent.
The Scottish Parliament has just voted in favour of investigating land value taxation as a means of solving their land problem. Unemployment is high. A new report in "Land and Liberty" shows 1252 landowners own 66% of the privately owned land in rural Scotland, resulting in an ongoing mental crippling of young people. Male suicide rate is double that of England and Wales. Does this have a message for us?
London Transport is now looking for ways of capturing some of the large increases in land prices that result from the new installation of additional underground subway stations. A survey by Don Riley, a property developer, showed that land prices are increasing by nearly four times the cost of the Jubilee Line extension. A large portion of this increase could be captured by Site Value Rating, but not by Improved Value Rating. Support For Clauses In Bill Adoption Of Rates Policy (Ch 2, Part 1, Point 3.) This is an important section, particularly point: 3. (2) (d) and (f).
3.(2) (d). States; take into account the effect of rates on the poor and include appropriate measures to alleviate the rates burden on them. Ch 2, Part 2, Point 10. (1) (a). is in direct contravention to the important clause above.
Special Rating Districts (Ch 2, Part 4, Point 19.) Point 19 (1) (a) , We support this clause as it will encourage additional development in certain areas without draining municipal funds away from where they are most needed. The direct effect will be additional construction, trade and employment that would not otherwise take place. In time, the improvements to the selected areas will result in improved land values and thus increased rates. Site Value Rating (SVR) would best capture these, as the rate in the Rand on land is about four times as much as it would be with Improved Value Rating (IVR).
Clarification Necessary
Definitions (Ch 1, Point 1.) The following definitions are not clearly stated:
Organ of state
There is no mention of ownership by public companies, private companies, closed corporations, partnerships etc. This is a weakness from a tax point of view as it allows a tax evader to hide illegally acquired funds in property under a meaningless street address. Transparency of ownership of all property should be compulsory, including full identity of individuals and percentage ownership.
Owner (a) i
Person
Property (a)
These definitions appear to go around in a closed circle as they refer to each other in the definition and can’t stand alone. Objections And Suggestions There are several areas of concern as the Bill goes directly against the intentions of our Constitution, The Bill of Rights and common practice established over nearly a hundred years. Unfortunately certain good economic practices of the past are incorrectly confused with and associated with bad practices of Apartheid. Political and personal freedoms are very different to economic freedom and a lot of work is still required to bring about economic justice.
The following objects and suggestions are raised in order of the priority according to the author and not necessarily in the order of the document.
Amount Of Rate (Ch 2, Part 2, Point 10.) N.B. Very Important!
This section denies freedom of choice and forces all municipalities to use the least popular and economically most restrictive of the three possible systems of rating previously applied.
If there is to be unity of rating systems throughout the country then why not make the best system the only choice.
Point 10 (1) states: ‘A rate levied on property must be-
(a). a rate based on the improved value of the property shown on the current valuation roll of a municipality;’
A survey, carried out on the 112 largest towns in RSA in 1984, showed that of the 48 largest towns only two were committed by default to the system now being mandated by law on the whole of South Africa. Of these, Cape Town decided to change to Site Value Rating (SVR) a few years ago and had almost completed a new valuation roll based on site values only. The threat of legal action against the municipality and the uncertainty of this present Bill put a stop to that valuation roll. Legal action was threatened by a group of wealthy property owners represented by the Rates Action Group (RAG). RAG objected to part of their rates being channelled to aid the poor areas; presently deprived of reasonable facilities. They also objected strongly to Site Value Rating. They must be laughing!
Two rating surveys carried out by the writer showed that those cities on Site Value Rating enjoyed twice the percentage growth compared to those on Flat or Improved Value Rating over the same periods. For details see comments on the Johannesburg Land Value Model at the end of this submission.
‘According to the Deputy Director General of the Department of Provincial and Local Government, Jackie Manche, the current property tax system is unfair because people in some upmarket suburbs of Cape Town pay less than those in the nearby township of Gugulethu. Some wealthy property owners in the former homeland areas have never paid property tax before’ (http://www.bday.co.za/bday).
The problem in Cape Town mentioned by Jackie Manche was partly because of Improved Value Rating (IVR) itself and partly because this IVR system of rating prevented rapid mass land valuation. The Cape Town Valuation Roll was some twenty years out of date whereas Johannesburg which has been based on Site Value Rating (SVR) was able to update their roll every three years and could have done it yearly if required, as the data is easier to collect.
The writer spent years fighting the injustice of the Cape Town rating system. A few years ago Cape Town decided to change to SVR and had almost completed a new Valuation Roll based on land or Site Values, when it was stopped by this very Bill. The injustice has continued for a few more years.
What is the logic of this Bill forcing the whole country into the system that even Jackie Manche recognised as totally unjust?
The problem in former homelands will be best corrected by bringing them under Site Value Rating and having realistic valuation rolls.
Changes underlined; Point 10 (1) (b) allows for banding. This subject needs to be given far more consideration, especially in conjunction with Part 3, 15, (2) (h)
The effect of Central Government taxation on various types of ownership should be taken into account in this Bill
Power To Levy Rates (Ch 2, Point 2) Point 2 (1) states: ‘A metropolitan or local municipality may levy a rate on property in its respective area.’
The word ‘may’ should be replaced with ‘must’.
The following text should be added to point 10 as Point 10 (3): ‘A minimum of 2c in the Rand should be levied on all land values.’
Rates To Be Levied On All Rateable Property (Ch 2, Part 2, Point 7)
Point 7(1) states: ‘If a municipality decides to levy rates, it must, subject to subsection (2), levy rates on all rateable property in its area,’
The intention of this Bill is to facilitate the collection of rates as public revenue. Thus the sentence should be changed to the following:
‘A municipality must, subject to subsection (2), levy rates on all rateable property in its area,’, by removing the ‘if’ and ‘decides to levy rates, it’.
Differential Rates (Ch 2, Part 2, Point 8) Changes underlined
Previous comments withdrawn as Government policies could affect the necessary wording. Exemptions, Reductions And Rebates (Ch 2, Part 2, Point 14) The following concept should be considered for inclusion as point 14 (1) (c):
Provision should be made in the Bill for pensioners to defer part of the rates where land prices have escalated unreasonably. This unpaid amount should become a "Second Bond" against the property in favour of the municipality and payable when the property is transferred after sale or inheritance. Whilst the community should take care of the elderly, there is no need for the municipality to subsidise the heirs who will enjoy a free bonus from inflated land prices.
Constitutional Constraints (Ch 2, Part 3, Point 15) Point 15 (2) states: ‘Rates that are disallowed in terms of subsection (1) include rates on- ‘ …’(g) property belonging to land reform beneficiaries for a period of ten years from the date on which such beneficiary’s title is registered in the office of the Registrar of Deeds, for so long as the property is owned by the land reform beneficiary who first acquires title and his or her heirs;’
The following should be added at the end:
‘ provided the land value is below a specified limit’ Point 15 (2) states: ‘Rates that are disallowed in terms of subsection (1) include rates on- ‘ …’ (h) at least the first R15 000 of value of all residential property, unless that the Minister may, in consultation with the Minister of Finance, from time to time, increase this monetary limit to reflect inflation;’
The following should be added at the end:
‘ This will be a lower amount if rates are based on Site Values or Composite Rating.’
Limits On Annual Increases Of Rates (Ch 2, Part 3, Point 17) Point 17 (1) states: ‘The Minister may, with the concurrence of the Minister of Finance and by notice in the Gazette, set a limit on the percentage by which a rate on property may be increased; ‘
The following should be added at the end: ‘provided that within three years the rate be brought in line with the value reflected in the latest valuation Roll and at the applicable rate pertaining to similar properties.’
Contents Of Valuation Roll (Ch 6, Point 41 ) Point 41(2) (f) states: ‘name of the owner’
The following should be added at the end: ‘, with full details of residential address and ID number. In the case of a partnership, closed corporation or private company, full details will be given of all partners or members together with percentage holdings.’ Public Transport
Site Value Rating favours the improvement of public transport to the long-term benefit of the whole community.
The installation of a mass transport system results in increased land values of approximately four times the capital investment. Whilst previously a known factor, it has recently been proved again in the case of the extension of the Jubilee Line in London. Donald Riley, a property developer in the vicinity of one of the new underground stations, showed large unearned gains in property values as a result. His book "Taken For a Ride" shows that the Jubilee Line extension cost £3.5 billion and it delivered an increase in the capital value of land of the order of £13 billion. The cost of the line could have been amortised by Site Value Rating, but not by Improved Value Rating. Had the city collected £3.5 billion from increased values, the landlords would still have benefited by nearly £10 billion.
The City of London and London Transport are presently looking at ways of financing much needed improvements in public transport out of the increased land values that will result.
Perth and Freemantle in Australia have a Central Area Transport (CAT) system that provides free bus rides within the Central Business District (CBD) in order to keep cars out. This can be more than paid for out of increased land values. These increases can be sufficiently collected by means of SVR but not by Improved Value Rating. Warning Of Misinformation Wealthy landlords of the West have continuously looked for ways of evading their duties to the community by shifting the tax burden from themselves onto the middle class and poor. They have been successful in getting academia on their side by supporting universities and other seats of learning.
Today large vested interest and land speculators, particularly in USA, fear both Land Value Taxation and Site Value Rating. They are fearful that the successful rating system that RSA has enjoyed in the last century could spill over into their areas.
Many academics from USA have visited RSA in the last ten years, or sponsored visits to USA. They have shown an unreasonable bias in favour of Improved Value Rating. There has already been a fair measure of success where USA cities have taken a step away from Improved Value Rating to what they call the Two-Rate system. These cities have shown a marked increase in new building activity. The author can provide statistics to prove this claim. Conclusion This Bill is far too important to the future of South Africa to make a mistake in basic concepts. At the very heart of the matter is Section 10. History favours rating land and not improvements.
Rates on improvements does and will stifle progress!
Rates on ‘land only’ will transform both the economy and land distribution. It also discourages ‘land speculation’ and this releases land for redistribution to the local communities.
This will lay a solid foundation which will assist South Africa in becoming a thriving economy, with maximum employment.
This will lay a solid foundation which will assist South Africa in establishing a thriving economy.
If a mistake is made now, most of us will live to experience the resulting bad effects, but few will live to see them corrected.
Appendix: Johannesburg Land Value Model Model Of Johannesburg CBD And Suburbs See Attachment : Jhb Land Value Model.ipg
Land Values Model of Johannesburg Central Business District (CBD) and extending about 3 to 4 km. in each direction.
The model was built by students of the School of Economic Science; Johannesburg.
Land values or Site Values were taken from the then new Municipal Valuation Roll (1972) and calculated in terms of value in Rand per square foot. The model was then built to scale. Values of less than R1.00 per square foot were not recorded. The model was made before a couple of major highways were constructed and when the CBD was possibly the most important shopping centre in RSA.
The picture shows a view from the North- West. Beyond the CBD is a swathe of mining land running from East to West that is not rated by the city and contributes nothing towards the running of the city. Similarly on the near side of the CBD there is educational, hospital and show ground land, not rated. You can see quite clearly where some of the tram lines ran sixty years ago with shops, corner cafes and apartment buildings near the tram stops. These have higher land or site values than surrounding residential sites.
On the left forefront, near the edge of the model is Kilarney, an affluent, multi-storey apartment suburb. Land values are high. Towards the right front of the model is Forest Town and the Zoo.
The peak value in 1973 was the old Carlton Hotel at the corner of Eloff and Commissioner St. with a value of R177.00 per sq. ft. Residential land overlooking the Zoo had a value of only R0.50 per sq. ft The author personally had a stand overlooking the Zoo subdivided and sold 850 sq. m. for R170 000.00 in 1990. This was equivalent to R2Million per hectare, the price of a reasonable size farm at that date.
Whilst gold mining was the start of Johannesburg as a major city, the mining land has also had a negative effect on its growth to the south. Every motor car or bus journey, every road, pipe or cable has been extended by approximately a kilometre because of "dead" land that has contributed nothing towards the financing of the city: The mining land has been a cause of major urban sprawl to the South. Comments On Model
This model shows clearly the importance of land or Site Values compared to Improved Values. The contrast between prime land values in the CBD and the average residential land values is far more striking than the difference between improved values for the same properties. An improved value model would be relatively flat in comparison.
The model also shows the importance of having municipal rates collected from site values only and not from improvement values. Site Value Rating (SVR) encourages investment and growth with the corresponding high level of employment and business activity. Rating Improved Values, commonly known as Flat Rating, discourages growth and results in lower levels of employment.
SVR encourages putting land to its best use consistent with town planning. Flat Rating allows dilapidated buildings to stand empty and vacant land to become dumping grounds.
Rating improvements encourages urban sprawl and also the withholding of land from low priced township development.
The psychological effect of paying increased rates on home improvements has a discouraging effect out of proportion to the extra amount that will need to be paid. Residents, particularly in sub-economic areas should be encouraged to improve their property and not penalised for doing so.
Experience overseas has shown that when there has been a shift from Improved Value or Flat Rating to a higher amount on land than on improvements, those cities have experienced an upward surge in new construction, in employment and business activity, out-stripping surrounding cities.
A further plus factor in the above cases has been that the average homeowner has paid less than before and the poor have experienced the greatest percentage saving. Site Value Rating has the best positive effect on the working class, pensioners and the poor in general whilst not penalising those who put prime property to best use. Rating Surveys, RSA Two surveys were carried out on the major towns and cities of South Africa showing the effect of different forms of rating over the periods 1959 to 1979 and again 1974 to 1984. Statistics were taken from the official Municipal Year Book and were the most reliable available. The results were very interesting:
Of the total municipal rates collected by local government in South Africa; 70% came from those on Site Value Rating, i.e. from land values only, 20% from those on Composite Rating, i.e. higher on land than improvements, and 10% only from those on Total Value or Improved Value Rating.
The municipalities on SVR showed twice the percentage growth over both periods compared to those on Improved Value or Flat Rating. (940% vs. 536% over a twenty year period and 328% vs. 171% over a ten year period.)
The largest growth took place in those municipalities that changed their system to SVR during the two study periods. (1013% and 357%)
From the second survey it would appear that the level of investment, construction and employment was more than twice as high, percentage wise, in those cities on SVR compared to the only two cities then on Improved Value or Flat Rating. (413% vs. 189%). Those on Composite Rating, i.e. higher on land than on improvements, showed fifty percent more growth then those on Flat Rating. (282%).
Allowance will need to be taken for the fact that valuation rolls were updated every ten years in the Cape and three-yearly in the former Transvaal.
The only cities that were still on Improved Value or Flat Rating were Cape Town and Port Elizabeth. Of these, Cape Town had almost completed a new Valuation Roll based on Site Value Rating a few years ago. It was stopped by the threat of legal action by wealthy property owners represented by the Rates Action Group and based on technicalities, together with the uncertainty of the present Property Rating Bill. The technicalities hinged on the fact that a group of high value property owners were unwilling to help the poorer suburbs to establish some of the facilities that they themselves already enjoyed thanks to the previous efforts of the community as a whole.
Details of the two surveys can be found in Chapter Fourteen of "That All May Live" 1990, by Godfrey Dunkley.
The new Property Rating Bill closes the door to the system of rating that South Africa has found to be the best for the majority of RSA citizens. Early drafts of the Bill allowed freedom of choice between the three systems of rating. The present draft Bill enforces Improved Value Rating. This will disadvantage the poor and favour the land speculators and those who would hold land out of use in order to show an unearned profit.
A single clause in the Property Rating Bill namely 10(1) a, will bring about the destruction of the best rating system in the world, will increase unemployment and poverty and take fifty years or more to correct. It goes completely against our Constitution, the Bill of Rights, the Freedom Charter and Trades Unions principles.
The above clause also delays the changes necessary to bring about a more equitable land distribution, self-employment and restoration of human dignity. There is a wealth of information available to substantiate the above claims and a number of experts around the world would be prepared to give assistance in providing peaceful solutions to the problems that accompany progress and result in poverty. References:
Society Use Your Land By G.R.A. Dunkley
Presented to the 1974 Grahamstown Congress of the South African
Association for the Advancement of Science on the theme
"Land Use and Society"
Land Tenure; A Time Bomb Ticking In South Africa By G.R.A. Dunkley
Both presently only available in hard copy. Copies being sent under separate cover.