Eugen Philippovich von Philippsberg: Building-Tax Reform

Published in 1904, this official hearing document records Eugen Philippovich von Philippsberg’s expert testimony at the Austrian building-tax inquiry on 10 December 1903, followed by supplementary responses to other participants. His principal statement moves from the economic character of house ownership through rent formation and tax incidence to exemptions and reform. Its central distinction is between buildings managed as income-producing investments and buildings occupied or used by their owners. Applying the same fiscal assumptions to both, he argues, creates injustices that a purely capitalist account of property cannot explain.

Philippovich begins by questioning the inquiry’s representative property owner: the calculating investor who compares rental returns with alternative investments. Most Austrian buildings belong to a different economic world, including owner-occupied houses, business premises used by their proprietors, and properties whose owners do not calculate commercially. Nevertheless, the expansion of the rental-value tax, the Hauszinssteuer, carries its assumptions into increasingly numerous small communities. Provincial differences in this expansion make the problem one of territorial distribution as well as individual hardship.

For investment property, his starting point is that achievable rents determine capital values, rather than construction costs mechanically determining rents. Higher taxes or material prices encourage landlords to demand more, but do not establish whether tenants can pay. Population, incomes, commerce, and access govern that possibility. Yet tenants’ payment capacity is an elastic ceiling: landlords do not ordinarily extract everything immediately, so a cost increase can prompt a previously unattempted rent increase.

Das zweite Moment, das ich hervorheben wollte, ist, daß wir keinen einheitlichen Wohnungsmarkt haben.

English translation: The second point I wished to emphasize is that we do not have a unified housing market.

This proposition organizes his extensive statistical discussion. Transport improvements redistribute demand between districts; modern buildings draw tenants away from older accommodation; different dwelling sizes experience opposing price movements. Leipzig and Hamburg illustrate rising rents for small dwellings alongside weaker demand for larger ones, whereas Mannheim supplies a contrary configuration. Viennese examples distinguish commercial ground-floor premises from residential upper floors. Aggregate rent movements therefore conceal the conditions determining who actually bears a tax. Ownership entails entrepreneurial risks tied to an immovable location, not merely receipt of a secure investment yield.

His comparison of Vienna and Berlin challenges the widespread claim that Austria’s unusually high building tax explains its housing misery. If the tax were fully reflected in rents under his stated assumptions, Vienna would require a much greater rent differential than the evidence reveals. He compares occupancy, dwelling equipment, rents, and workers’ housing expenditure, while acknowledging imperfect comparability. His inference concerns tax incidence, not the absence of deprivation: Berlin also exhibits overcrowding and heavy rent burdens. The supplementary exchanges defend this distinction against objections concerning differences in living costs.

Where, then, has the tax burden gone? Philippovich considers depressed land values, lower investment returns, construction-cost differences, crowding, and historical changes in incomes relative to rents. He does not claim to establish their respective contributions. Municipal comparisons likewise disclose no consistent parallel between tax changes and rent changes. General economic conditions dominate, although taxation remains one influence within them.

That conclusion does not make the existing tax harmless. Philippovich shifts from an established tax already reflected in purchase prices to property undergoing continuous change. High taxation impedes repairs, modernization, and adaptation to sanitary requirements, and magnifies errors of valuation and adverse market movements. Even a purchaser who correctly allowed for taxation can later encounter conditions that make it burdensome. Reform must therefore accommodate ordinary economic judgment rather than assume an ideally calculating proprietor. His supplementary response states the methodological preference sharply:

Ich glaube aber, daß die Psychologie eines Menschen, der in wirtschaftlichen Dingen unvollkommen denkt, für uns wichtiger ist als die eines genau rechnenden Kaufmannes.

English translation: But I believe that the psychology of a person whose economic thinking is imperfect is more important for us than that of a businessman who calculates precisely.

Temporary tax exemptions exemplify this difficulty. Economically, they constitute a complicated reduction in the lifetime tax rate; practically, their capital value becomes an object of bargaining between landowners, builders, and purchasers. Philippovich prefers replacing them with a transparent, permanently lower rate, while warning that abolition without compensation could restrict construction. Selective rebuilding exemptions can instead generate speculative windfalls.

Steuerbefreiungen sind ein Eingeständnis dafür, daß man in der Besteuerung zu weit gegangen ist.

English translation: Tax exemptions are an admission that taxation has been taken too far.

His strongest conceptual objection concerns owner occupation. An inherited home or proprietor-used workplace is not necessarily capital invested to obtain monetary rent. Assessing it by hypothetical rental income may impose liabilities unrelated to cash resources and force owners into the rental market. He advocates separating such property from the rental-value tax and treating it according to wealth or expenditure, retaining modest class taxation for smaller properties.

Reform consequently combines relief with preservation of public claims. Philippovich proposes gradual movement toward the lower effective rate already implicit in exemptions, longer assessment periods, and deductions differentiated by the proportions of land and building value. He also supports municipal landownership and recovery of publicly created land-value increments. Prussian, Saxon, English, and American examples show ways to charge beneficiaries for improvements instead of financing their gains entirely from general revenue.

Es ist aber auch ein gutes Recht des Staates, zu verlangen, daß er an dem Gewinne der Hausbesitzer seinen Anteil erhalte und es handelt sich nur um ein Kompromiß zwischen diesen beiden Forderungen.

English translation: But the state also has a legitimate right to demand its share in homeowners’ profits, and the issue is simply a compromise between these two demands.

The document’s relevance lies in this separation of housing policy from promises of automatic rent relief. Tax reduction chiefly benefits existing owners and cannot guarantee better accommodation. Its defensible purpose is to ease demonstrated obstacles to adaptation and ownership, balanced against fiscal needs and the community’s claim to socially generated gains.