Victoria's Site-Value vs Net-Annual-Value Rating: A 1966–78 Natural Experiment

Overview

Between 1966 and 1978, local government areas in the Australian state of Victoria used one of two property-rating bases: site value rating (SVR), which taxes land only, or net annual value (NAV), which taxes land plus buildings. The practitioner-author Fred Harrison's The Power in the Land (1983) reports that 27 SVR municipalities recorded average dwelling growth of 12.9% over the period, compared with 2.8% in 15 NAV municipalities, and that building permits in 1975–78 ran at 39.9% of their 1966–69 level in SVR areas versus just 9.5% in NAV areas (Ch. 15).[1] Harrison treats the cross-municipality split as a natural experiment because both groups of councils operated within the same state economy and legal system over the same period, differing mainly in rating base.[1]

A methodologically independent, more recent study lends indirect support to the same general finding. Cameron Murray and Jesse Hermans (2019/2021), using historical Victorian council data in a difference-in-differences design, find that municipalities switching from capital-improved-value (CIV) rating (land plus buildings, a close cousin of NAV) to site-value rating saw a 20% increase in the value of new residential construction.[2] The comparison base (CIV vs. NAV), period, and method differ from Harrison's, so this should be read as corroborating the general direction of the effect rather than replicating his specific 12.9%/2.8% figures. Of the two, it is the Murray–Hermans estimate that carries the evidential weight behind the claim that split-rate taxation increases urban construction; Harrison's figures are the earlier practitioner account that drew attention to the Victorian contrast.

Murray and Hermans's paper has a second, distinct finding beyond the construction effect: using three Victorian datasets at different levels of geographic aggregation (79 local government areas, 396 statistical areas, and 12,899 smaller statistical areas), they find the ratio of site value to capital-improved value rises significantly with household income at every level of aggregation — a one percentage-point rise in an area's income is associated with roughly a 0.10 to 0.57 percentage-point rise in the SV/CIV ratio. Because a higher SV/CIV ratio means a larger relative share of a property's value is in land rather than structures, the authors read this as evidence that site value is the more progressive property tax base: land-heavy properties are disproportionately owned by higher-income households, so a council that raises the same revenue from site value rather than capital-improved value would shift the tax burden toward the wealthy. This bears directly on the wiki's claim that land value taxation can be progressive, adding an Australian, area-level data point to that page's largely US-based evidence base.

See Also

• The Power in the Land (Fred Harrison, 1983) — the practitioner account reporting the 1966–78 Victorian SVR/NAV comparison (Ch. 15)
• Split-rate taxation increases urban construction — the broader outcome claim this evidence supports
• A land value tax can be progressive — the distributional claim Murray & Hermans's SV/CIV-income finding bears on
• Land Value Tax
• Site Value
• Fred Harrison

Sources

1. Fred Harrison, The Power in the Land: An Inquiry into Unemployment, the Profits Crisis and Land Speculation (New York: Universe Books; London: Shepheard-Walwyn, 1983), Ch. 15 — used for the 27-vs-15-municipality Victorian SVR/NAV dwelling-growth and building-permit figures. Wiki summary
2. Cameron K. Murray & Jesse Benjamin Hermans (2019/2021), "Land value is a progressive and efficient property tax base: Evidence from Victoria," OSF Preprints (full text read directly, January 2021 revision) — used for the independent, modern difference-in-differences finding that switching from capital-improved-value to site-value rating is associated with a 20% increase in the value of new residential construction, and for the separate finding that the site-value/capital-improved-value ratio rises significantly with household income across three Victorian geographic aggregations, supporting site value as the more progressive property tax base. Free PDF (OSF) (also mirrored at osf.io/download/5ddb67506fc7690009d6cfe7/) — IDEAS/RePEc record