Mimi Kirk is a contributing writer to CityLab covering education, youth, and aging. Her writing has also appeared in The Washington Post, Foreign Policy, and Smithsonian.
Saudi Arabia’s affordable housing crisis has spurred the kingdom to tax landowners sitting on undeveloped property.
Saudi Arabia’s citizens enjoy an almost tax-free existence. The kingdom imposes no income tax or tax on basic goods—and this will continue, despite a 15-year plan announced in April 2016 that aims to stimulate the economy and cease the country’s dependence on oil revenue.
But the government has now decided to tax one segment of the population—owners of undeveloped land in urban areas. 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. (In the first quarter of 2016, 63.5 percent of people in the United States were homeowners.)
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.
Of course, there is no guarantee that landowners will develop the land for this purpose. Khaled al-Mobid, general manager of a Riyadh-based real estate company, told the Wall Street Journal earlier this year that proprietors could instead choose to develop the land in other ways, such as with more expensive housing or businesses. And Hertog says that other obstacles, such as a lack of centralization of government land and housing management, plus an enormous backlog of home loan applications, makes it hard “even for a well-intentioned government to keep up with the housing challenge.”
So it remains to be seen how effective the tax will be in making its mission a reality. At least politically, the move seems to have done some good. Nazer notes that the government’s decision has the support of a wide segment of Saudis, many of whom have long blamed the wealthy holding on to their property for the housing shortage and the artificially high price of land.
“Many Saudis view this measure as an effort to restore fairness by promoting social responsibility and ending what many consider to be a predatory practice,” he says.