04. Industrial Land Values

In the explanations of part 2, it may be queried why there is no mention of industrial land?  This is because there is a big distinction to be made between ‘heavy’ and ‘light’ industry.  For the purpose of the part 2 explanation, light industrial land comes under the heading of ‘commercial’.  Heavy industrial land is somewhat anomalous in that, where land values are concerned, it does not follow the same pattern of development as for other forms of economic activity.                                  

The evolution of heavy industry land values are perhaps better understood in a historical context.  In Britain the earliest industrial activity was related to the location of natural resources.  The iron ore and water power of South Yorkshire gave rise to the steel industry.  The wealth of South Wales was based on the rich coal seams; the coal, humid climate and soft water of South Lancashire gave rise to the cotton industry.  But the steelworks, coal mines and cotton mills themselves did not increase the land values of the sites on which they were situated.  On the contrary these industries gave rise to what became blighted areas surrounded by slum housing which had the effect of depressing overall values.  No doubt the simple presence of an increased population added to the overall economic pressure but the benefit of that was manifested elsewhere, and not in the industrial area itself.  The very activity of mining for instance depressed the value of the site and surrounding areas.  The mining rights and the mining installation may have had very high value to the owner or any potential buyer, but the location value of the site due to agglomeration was negligible.

Areas previously engaged in heavy industry do not generally have high land values.  They are located at or beyond the urban agglomeration where land values are low or marginal.  The wealth created from these activities is spent elsewhere.  The coal, iron and cotton industries of 19th century Britain created great wealth, reflected in the growing size and prosperity of the provincial cities, in the business districts and select residential areas where the wealth was spent.  It was in these separate and sometimes distant areas that land values increased, on the site of the industry itself the land values were low.  Clearly a land value tax in this situation would be ineffectual; so how should the industry be taxed?  I would suggest that a formula should be devised that might include aspects of the present corporation tax  or more realistically based on company profits which after all reveal the strength of the industry and therefore its ability to pay.  Such a formula would need to be agreed between the government and representatives of the industry and might well include some degree of a tax on the land value, where the industry was adjacent to a high value area.  Where the extractive industries are concerned the best solution might well be a licensing system as described in item 3.03, Resource Rents.

Taking a more contemporary situation; a modern oil refinery may be of immense value as an essential piece of capital equipment and command a high resale price, but the site on which it stands may have originally had only low agricultural value, and if the industry were to shut down, the installation would not only become a liability, but the land would not even have agricultural value.

In recent times, where industries have gone into decline or disappeared altogether, the abandoned ‘brownfield’ sites may be adjacent to or within a growing agglomeration and may therefore have high potential value for a different use, but remain un-saleable due to the cost of clearance and de-contamination.  Such sites could be purchased by the local authority, who would bear the cost of rehabilitation. The site could then be sold for redevelopment, under a different designation, to the highest bidder who would thereafter pay the appropriate land value tax.