The reason the ACT is virtually unique in Australia arises from the idea that as a city develops, the value of land increases. Such was the concern that landholders and particularly land speculators (who had done nothing to create the increase in value) would benefit, a social experiment arose. That experiment enabled the increase in value to be given to the whole community (i.e. the government), as it was through their collective efforts that the increase in value had arisen. This was seen as a way of Australia being able to build its new capital city without spending taxpayers’ money
This idea came from an American social philosopher, Henry George, whose views were in vogue in the late 1800s. George took the view that land/resource rents should be used for the public rather than taxes on labour. He was particularly critical of how railway companies made vast fortunes on the land speculation surrounding the construction of railways.
Edmund Barton the first Prime Minister of Australia) took the view that as the land in the ACT became more valuable over time due to the development of Canberra, the rent payable to the Commonwealth would increase due to a regular valuation of the land (as rent was proportionate to land value). In addition, there would be a requirement that anyone who owned land would be required to build on it within a set period following acquisition. This would prevent land banking. Land banking is the process where a developer or land speculator buys land but does not develop it immediately. Rather, the developer or land speculator waits for the value of the land to rise before selling or developing the land to make a profit.
And so, during World War One, the Federal Capital Commission set about compulsorily acquiring the freehold land in the ACT and by the early 1920s, Crown leases were ready to be issued.
Unfortunately, what followed was a failure to enforce the requirement to build and further, the land was not revalued for a period of 20 years until the 1940s which meant that the revenue raised did not increase.
Then the Gorton government in 1970, with a by-election in Canberra looming, promised to abolish rents entirely. Consequently, rents on leasehold title were abolished in 1971.
What this meant was that the rental income anticipated by this system was never realised and further, the land is effectively valued as freehold rather than leasehold.
This is an extract from our forthcoming book Kerin Benson Lawyers Guide to ACT Strata Law set to be published June 2017.