Low-hanging fruit to fix spatial inequity

The hoardings hiding empty urban sites in SA are a boon to advertisers, but there are so many they can’t get to them all, so the blackjacks flourish amid rubble on many unadorned sites.

How is it that this most “in your face” phenomenon doesn’t rate a mention when SA has just been gifted by a 170-page report with concrete recommendations after a two-year investigation by researchers at the prestigious Harvard Kennedy School’s Growth Lab?

Granted, it came out in late November and has had to compete for attention with the growing crescendo of election noise. Moreover, one of the two main conclusions — that SA is performing poorly due to collapsing state capacity “because reforms are encountering systemic, deep-seated and underlying issues of political gridlock, ideology, patronage and an over-burdening of state organisations with goals beyond their core missions and capabilities ”— is hardly news to South Africans.

Nevertheless, instead of one loud yawn from civil society, on the one hand, and a deafening silence from the government, on the other, one would have expected calls for action on spatial inequities — also known as the enormous disparity in land ownership in SA — to redouble. This would include those echelons of government the Harvard Kennedy School researchers thanked for their assistance during their two years of research.

While the researchers did indeed make numerous helpful suggestions regarding collapsing state capacity and addressing spatial inequities, they missed the dynamite that would blow the inequities sky high. This would simply begin with the reversal of an administrative change made by the ANC 20 years ago, when it insisted that municipal rates be based on the value of both land and improvements (buildings), rather than land (site) alone.

It wouldn’t require populist gimmicks such as the ANC’s expropriation without compensation, let alone the EFF’s nationalisation of land. All that is needed to begin with is to allow municipalities to restore site value rating if they want to, or introduce it if they didn’t have it before.

There is no doubt that if Johannesburg were to revert, the ensuing positive effects would encourage others to follow.

The site value rating system that Johannesburg and other Gauteng municipalities had in place before 2004 was responsible for the enormous economic dynamism that continued long after the gold mines surrounding the city had closed.

University of California professor Mason Gaffney, visiting Johannesburg in the early 1990s, remarked that Johannesburg was the only large city not on a river or with a harbour that he knew of, and he ascribed the continuing dynamism to site value rating.

Rating on site (land) value only, as opposed to land as well as buildings (composite), is not rocket science and works simply because it encourages efficient use of land and discourages withholding land from use for speculative purposes. That the latter is efficiently achieved by composite rating is now plain for all to see.

When you have bought a relatively underdeveloped urban property for a song, such as at an “emigration” auction, rating on improvements encourages you to demolish old buildings and hold the land idle while it increases in value as the city continues to grow. On the other hand, site value rating means a property owner pays the same rates even if they keep the land idle. Not having to pay additional rates if the property is developed is certainly an encouragement to do so.

For the record, all of this was explained tirelessly and in great detail

— but to no avail — by Godfrey Dunkley, Peter Meakin, Michael Jacques and others to the parliamentary subcommittee that considered the draft Municipal Rates & Property Bill before it was passed into law in 2004. The majority of the committee members evidently saw buildings as wealth or capital and were of the ideological mindset that all such obscenities must be taxed.

It goes without saying that the above-mentioned gentlemen would also have pointed out that whatever you tax you get less of — except, funnily enough, land. Given that a greater availability of land in general would forcefully address the spatial inequities of apartheid, this is a no-brainer that we all need to consider, since if it weren’t for the spectacular collapse of state capacity and explosion of crime, the full focus of political debate would long since have returned to land.

In fairness, we should also note that the non-resolution of the land issue is due to the unparalleled ability of the ANC to obfuscate and kick cans down the road, as it has with expropriation without compensation. But if we don’t come up with the right answer, it will be back.

The Harvard Kennedy School researchers also emphasised that new strategies are required “to bridge know-how between the productive economy and rural areas of former homelands, which remain largely excluded” and that “black and poor rural communities are largely stuck in desolate rural areas and isolated suburbs far from jobs in urban areas a legacy of SA apartheid”.

Unsurprisingly, it is not just in solving the problem of the proliferation of blackjack farms in the leafy suburbs of Johannesburg that site rating would work. There is also major scope elsewhere for moving from total reliance on taxation to the collection of land rent. That is a conversation we need to have, but in the meantime we must put out some big fires that are relatively easily doused.

As far as those “isolated urban suburbs” are concerned, as a security guard who lives in Pimville put it to me recently, “on weekdays the streets are full as though it is weekend, because the taxis are too expensive and there are no trains so they can’t go to look for work”.

Site value rating would work in the townships as well. Yes, town planning regulations might have to be revisited to ensure greater availability of sites for small and other businesses and industries. Essentially, though, residential and business land values would be lower, encouraging start-ups as well as a move from other areas.

Again, it might seem like a big leap from the leafy suburbs to Harvard Kennedy School’s “black and poor rural communities ... largely stuck in desolate rural areas”, but it isn’t because the same principle of taking into account locational advantage also applies in these areas. However, it would probably require commencing the greater conversation referred to above, entailing a general move from tax to land rentals.

To begin with, though, company and income tax in those areas could be lowered. It should be recalled that, albeit for completely the wrong reasons, this applied in the former homelands and sustained about 250,000 industrial jobs.

Since the advantages of community-created infrastructure in urban and other areas are also reflected in land values, this would provide a quick, ad hoc move before an expanded conversation around general application of the principle.

Meanwhile, we have had the need for action on land and state capacity spelt out in no uncertain terms. Best we listen to this friendly warning and pluck the low-hanging fruit now. Most wars, including civil wars, are essentially about land. So before we have yet another one in SA, let’s begin a move to a more intelligent, just and prosperous solution.

RATING ONLY ON LAND VALUE WORKS SIMPLY BECAUSE IT ENCOURAGES EFFICIENT USE OF LAND