Saudi Arabia to try out a sort-of Land Value Tax

In cities like Riyadh and Jeddah, huge lots often owned by wealthy Saudis sit empty, with the owners waiting for property values to rise or using the land for speculative trading. “Land has been seen as a wealth-storage option,” Steffen Hertog, a professor of Gulf politics at the London School of Economics, tells CityLab. “This is due to the continuing appreciation of land values.”

Storing wealth in this way has been easy, as proprietors paid no tax on the land. “Some estimate that these plots constitute as much as 40 percent of available land in major cities,” Fahad Nazer, a political analyst with JTG Inc., tells CityLab. There is even a term for this property: “white land.”

Such land-hoarding has contributed to a severe lack of affordable housing in Saudi Arabia. Though the popular image of the kingdom is one of extreme (oil) wealth, this wealth does not necessarily trickle down. Hertog says that the median Saudi household income is fairly low, so houses need to be priced accordingly.

He notes, however, that because developers can profit so much more by building luxury housing, they are reluctant to construct more affordable dwellings. This, in addition to the white land issue and factors such as population growth, has created a situation in which only 35 percent of the country’s adult population owns a home.

All sound familiar? Here’s what the Saudi government intends to do about it:

The Saudi government recently introduced a 2.5 percent tax on white land. The Council of Ministers approved the tax in November 2015, and it is expected to go into effect later this year. Regulations regarding the tax’s implementation will be announced near the end of this month. The hope is that the tax will induce owners to develop their land—in particular by building low-cost housing. [CityLab]

A policy worth keeping a close eye on for lessons for Britain.