Land Value Tax and Productivity

Why fixing the tax foundations of our economy is essential to Canada’s future prosperity

Canada is having a long-overdue conversation about its lackluster productivity. The federal government has placed growth, investment, and national resilience at the centre of its vision, and rightly so. For decades, our economy has struggled to convert talent, capital, and ambition into rising living standards. We under-invest in innovation, technology adoption, and the productive side of the economy writ large.

This is not because Canadians lack talent, ideas, or work ethic. It is because the structure of our tax and property system redirects economic gains toward rising land prices.

A Land Value Tax (LVT) is not simply a housing policy or a revenue scheme. It is fundamentally a productivity policy that reshapes how capital is allocated and how Canada competes in the global economy.

THE PROBLEM

Canada’s Productivity Crisis Begins in Its Land Market

A system that rewards ownership, not production

To understand why productivity is weak, we have to understand where Canada’s wealth is actually going and why. Owning land in Canada is generally more profitable than building businesses. As a result, Canada’s residential land is now worth more than twice the entire capitalization of the TSX. And because finance flows where returns are highest, investment follows the land market, not productive activity. 

National accounts show:

These trends are not independent; they are the natural result of an economy where rising land values systematically outcompete productive investment. 

The opportunity cost: what Canada loses

Every dollar in the land market is a dollar not invested in innovation, equipment, or expanding productive capacity. This mechanism (capital diversion) is well established in economics (e.g., Stiglitz’s “The Theory of Local Public Goods,” 2014) and Canada is the poster child. If rising land values are where Canada’s investment capital is going, then the central question becomes: how do we redirect it?

THE SOLUTION

How Land Value Taxation Increases Productivity

LVT increases productivity because it changes the incentives that determine how land is used and where capital flows. Without any other accompanying change, LVT boosts productivity on two fronts: it frees land from being hoarded or underused by stripping out unearned gains, and it releases the vast pools of capital currently trapped in land speculation back into real investment and production. 

1. Making better use of land

By removing the financial upside of sitting on valuable sites, LVT pushes landholders to put well-located parcels to work. Sites that would otherwise remain vacant, underbuilt, or held purely for price appreciation instead move into circulation, enabling more housing, commercial activity, and productive land use. In short, LVT ensures that land availability reflects economic demand rather than speculative preference.

This results in the: 

  • Redevelopment of chronically vacant or underutilized parcels

  • Intensification around transit and existing infrastructure

  • More efficient use of serviced land

  • Reduced land-assembly bottlenecks

  • More predictable and accessible land supply for builders

2. Making better use of capital

Land speculation absorbs vast amounts of capital that could otherwise support business expansion, innovation, and productive investment. By reducing speculative returns, LVT redirects this capital into the sectors that actually grow the economy: equipment, technology, new ventures, and the built environment. This shift raises capital intensity across the economy and improves the rate at which Canadian firms adopt new tools and ideas.

In short: by increasing the carrying cost of idle high-value land, LVT accelerates redevelopment. (Source: Oates & Schwab, 1997).

Developer efficiency and project viability

More directly, high land prices function as a monopoly input that constrains supply of housing, commercial spaces, rail lines, or data centers. Even capable builders cannot construct what the market needs if land absorbs too much of the project budget. By lowering the underlying cost of serviced sites, LVT expands the set of financially viable projects. Capital is directed toward building rather than bidding wars, increasing both the volume and diversity of construction that can take place.

Where the economy wants to Invest: housing

Canada’s housing deficit represents one of the clearest investment opportunities in the economy. The demand is real, rising, and durable; what is missing is a tax structure that rewards meeting that demand rather than profiting from the scarcity itself. By realigning returns toward production, LVT ensures that building the homes Canadians need becomes as profitable as the economy clearly requires it to be.

Bonus: Replacing less efficient taxes

In addition to the two effects above, LVT boosts productivity by replacing taxes that impose far higher economic costs. LVT does not distort economic behaviour because land cannot move, shrink, or hide. Among all major taxes, it creates the smallest deadweight loss (Source: Tideman & Plassmann, “The Efficiency of Land Value Taxation,” 2019).

As we must generate revenue to fund essential public services, we must levy some taxes. Unlike all other levies, taxes, charges or tariffs, LVT alone generates public revenue without depressing or distorting work, consumption, investment, construction, or entrepreneurship.


Evidence from around the world

These are not theoretical claims: jurisdictions that have implemented LVT have consistently seen more construction, higher economic activity, and reduced speculation.

Pittsburgh, Pennsylvania
A split-rate LVT resulted in significantly higher construction activity, especially in the downtown core.
(Source: Oates & Schwab, 1997)
(Source: Banzhaf & Lavery, 2010)
(Source: Liu, 2021)

Estonia
Estonia’s post-1990s land tax helped channel scarce capital into SMEs and housing rather than speculation.
(Source: World Bank: Estonia Land Taxation Review)

Seoul and Taipei
Land taxes and vacancy charges accelerated redevelopment in core districts.
(Source: Kim, 2008)
(Source: Lin & Lee, 2019)

Australian Capital Territory (ACT)
Transitioning from stamp duties to land taxes has increased allocative efficiency and improved revenue stability.
(Source: ACT Treasury Tax Reform Evaluation)

Across all these cases, reducing speculative returns increased productive investment.

GOING DEEPER

Why LVT is a good fit for Canada

Canada’s structural characteristics (and its weakness) make it particularly well-suited to benefit from a shift towards LVT. 

Our productivity issue is rooted in land, not labour

Canada has one of the most educated workforces in the OECD (Source: OECD Education at a Glance). The challenge is not people; it is capital misallocation.

Over the past several decades, the manifestation of the misallocation has revealed itself in low capital intensity, weak investment in equipment and slow adoption of new technologies by our businesses (Source: OECD Economic Survey of Canada / Bank of Canada productivity commentary)

This is precisely what one might expect with an economy where high land returns crowd out productive investment.

Canada’s growth agenda and LVT

The federal government has emphasized unlocking investment, building domestic capacity, and attracting global capital (Source: Canada Strong Budget 2025). LVT aligns with these objectives by reducing taxes on productive activity and discouraging speculative landholding.

Unleashing Canadian capital

Canadian institutions manage more than seven trillion dollars in capital with the dominant non-financial asset (over 80%) being residential real estate (Source: Statistics Canada National Balance Sheet Accounts). This concentration means even modest improvements in land allocation or taxation can unlock disproportionately large productivity gains.

The issue therefore is not a lack of capital; it is where that capital is going. 

Strengthening Domestic Resilience and Economic Sovereignty

LVT’s structural effects extend beyond efficiency; they shape the resilience and strategic capacity of the entire economy. An economy cannot be productive if its land market, upon which all other activity happens, is unproductive. LVT changes what gets built, when it gets built, and how efficiently space is used. For Canada to build the type of self-reliant economy it now aspires to build, it requires the incentives that reward production rather than passive ownership.

IN SUMMARY

A Strategy Worthy of the Moment

Taken together, these insights point to a simple but powerful conclusion. Canada cannot unlock the next generation of growth until it aligns its tax system with the sources of real economic value. The case for LVT is one for rebuilding the economic engine itself. This policy does not merely improve investments  or municipal finances; it rewires the incentives that determine how capital is deployed, how cities grow, and how productive capacity expands. Nowhere is this more evident than in housing, where the greatest unrealized productivity gains are locked behind land speculation and hoarding.

In a moment when Canada is searching for the foundations of long-term prosperity, LVT stands out as one of the few reforms capable of shifting the entire system in a more productive, more resilient, and more future-oriented direction.

Land Value Taxation:

Canada’s prosperity problem begins with land; so too must its strategy for unlocking the next generation of growth. 

Further Reading

The academic literature is unusually consistent; across urban economics, public finance, and macroeconomics, LVT is one of the few tools that both raises revenue and increases efficiency.