Land and property tax for municipal finance

Land and property tax for municipal finance

As cities grow, the wealth they create becomes capitalised in the rising land values of the city. Parts of peri-urban land in Kigali have increased in value over 1000-fold in the last 10 years. The question for policy then, is who captures this gain? The default option is that it gets captured by a few lucky individuals. In the 19th century, the Duke of Westminster became the richest man in Britain purely because he owned the land upon which the city of London developed. Smart public policy leads to a different outcome. Across East Asian cities, governments were able to capture these rising land values and use the proceeds to fund much-needed public investments. In Hong Kong for example, public ownership and taxation of urban land meant that the government was able to recoup an estimated 80% of infrastructure investments between 1970 and 1991.2 Public investment was able to finance itself through rising land values.

In Section 1, this document briefly outlines the benefits of importance of land and property tax as a source of municipal finance, before exploring the trade-offs that face policymakers in setting land and property tax policy in Section 2. In Section 3 the document then discusses three areas of land and property tax implementation in detail, before considering cross-cutting advice for limited political and administrative challenges to land and property tax reform.