Friday, 26 October 2007

Idiots attacking idiots (3)

No wonder our housing market is such a mess, when all the parties involved are so wrapped up in their own prejudices. This article gives a flavour.

The Nulab government thinks that building 3 million more homes will help. Funnily enough, there is plenty of evidence to show that it won't. They also think that bunging small amounts of money at councils will help. And they have this frankly stupid idea about subsidies for bringing empty homes into use.

The quango NHPAU point out, correctly, that the price/earnings ratio is now 7, and they have obviously stuck a ruler on a chart and extrapolated it up to a multiple of 9.5 by 2026. So they clearly haven't bothered to look at long term charts that show that property prices go in roughly 18-year cycles, with a multiple of 3 or less in the troughs and peaks at around 5 or 6 (7 is highly unusual).

The NIMBY pressure group CPRE wade in with "This could have horrendous consequences in terms of environment, landscape and also quality of life - traffic congestion, pollution and the like. There are also issues like access to water supply for these homes and the likelihood of them being built in flood-risk areas"

Er, it's people that use up water and cause traffic congestion and pollution, not houses! Or is she suggesting a cull of human beings, that would reduce traffic congestion and water use enormously! And who says that new houses have to be built on flood plains? As to quality of life, wouldn't it vastly improve our quality of life if we had bigger homes with bigger gardens, a bit like other countries?

The only bits that are worth taking seriously are the point that there are up to 1 million empty homes, that the CPRE, correctly, say should be brought back into use. I might add that it would help if single people in large houses swapped with large families in small houses. But they won't do this out of the goodness of their own hearts, will they?

Oh ... I know what would sort all this out, without having to build many new houses at all ... yup, it's my old favourite Land Value Tax.

21 comments:

Anonymous said...

LVT, eh? aren't you effectively saying 'tax' single people out of houses with large gardens, etc, for the 'good of the nation' ~ sod the fact that it's their property purchased with their own money.

Sounds very libertarian. Not.

Or do I misunderstand something fundamental?

Mark Wadsworth said...

You have completely misunderstood what drives property values.

1. The value of a house consists of two things, the brick'n'mortar (which would of course be excluded from LVT) and the location value (which would be liable to LVT).

2. The location value is driven by the State spending taxpayers' money wisely (if it wastes it, it does not increase location values) on stuff like police, grammar schools, transport infrastructure etc etc. So it seems to me to be fair to raise the money to pay for those things out of a tax that relates to the value of those things. A sophisticated user charge, if you will.

3. People always say "but I have paid for my house". No, you paid the previous owner for the present value of those things that you hoped would be paid for out of taxpayers' money in the future. So what the previous owner sold you was the right to enjoy police, schools and transport infrastructure paid for by future taxpayers.

4. Without an LVT to dampen price swings, we get these awful 18-year price cycles that do nobody any good apart from property speculators.

5. Young people who are renting are paying twice over. They are paying the market value in rent of services that they are funding to 75% out of their own income tax/VAT (only 25% of local spending comes from council tax). That seems dashed unfair to me.

6. Try reading up what Milton Friedman and Winston Churchill had to say on the topic in my "Words of wisdom section".

7. It is very libertarian. People should pay a lot less in income tax and VAT and be able to spend their money as they wish. If you want to live somewhere nice, then pay for it. If you'd rather have a nice car, well pay for that instead. The returns to work and enterprise go up and the returns to landowners go down.

Anonymous said...

Interesting. Although, I suspect it would suffer from what I call the 'Scotland' problem. Allow me to explain.

My weekend abode is in the countryside. It sits in huge ( > 6 acres) of grounds. It would therefore have a high LVT.

Houses in the area are worth a small fortune, because of it's beauty. However, they are few and far between.

Most of the 'voting' power, therefore is in the urban areas of my local councils area, where house values, and land plots are smaller.

It wouldn't take them (the urban voter)long to realise that they could vote in every more extravagant tax and spend councils, and they would pay disproportionately less than myself ~ even more than now under the banding system.

The sting, of course, is that we 'out in the sticks' get fuck all of the services, such as schools, transport, even police.

I suppose it comes down to me not being convinced that the 'location value' of very rural properties is mainly driven by the factors in point 2.


( The 'Scotland problem' is a reference to how the SNP and Labour in Scotland often screw over crofters and other rural folk because they are insignificant in terms of votes, with the vast majority of voters being in the central belt)

Mark Wadsworth said...

If I may rephrase slightly

Houses in the area are worth a small fortune, because of it's beauty [and because] they are few and far between.

That beauty is partly a function of natural beauty (which nobody created, it's just there, so taxing it doesn't make it go away) and the fact that the local council/NIMBYs won't allow more houses to be built there (which would of course detract from the beauty).

And it would appear that it is this naturally-created but State-protected beauty that drives the value, not local amenities (I take your word for it that there are none).

So LVT would mean that you sell off 5 of your 6 acres, you sacrifice a little of the beauty so that 5 other people can enjoy it from their own one-acre plots. You all pay less than one-sixth of what you were previously paying. The sum total of human happiness goes up.

Mark Wadsworth said...

As to liberarianism, those young people who have been struggling to get on the housing ladder, are they not practically slaves of the bank/building society? Stuck in little houses with f*** all in teh way of disposable income?

Had land values/house prices been kept at their pleasantly low levels of the mid-1990s via a fixed-rate LVT, taxes on income/turnover/profits could have been halved by now.

Anonymous said...

So we are causing taxes to tell people how to live, are we not ~ all be it inadvertently. For instance ~ where am I going to keep my pigs? The new neighbours will complain about the smell, so the tax has forced me to change my lifestyle.

OK, I'm being factious, but would it not be much simpler to solve the housing 'crisis' by scrapping planning controls completely, yet recognising the view from a property (as opposed the just the light) as a value or property which would have to be negotiated out via compensation? Let the market sort it out.

The problem I see with your idea, which does have some value, I'll admit, is that you are placing a taxable value on solitude, rather than a market value. I don't think I'm making much sense here, perhaps I should construct a post on my blog to better explain what I mean?

Mark Wadsworth said...

As to the 'Scotland' problem, in the medium term this is not an issue.

Let us assume that the proles in small houses in the town vote for an extra LVT to fund services that will only benefit themselves, let's say a better bus service for the town but on routes that do not come out as far as your weekend retreat.

This increases the value of the small houses in the town but does not increase the value of yours. So their land increases in value and they pay the extra tax, not you.

Mark Wadsworth said...

You don't negotiate anything via compensation, it all flows automatically.

Let us assume that you keep pigs. This reduces the value of neighbouring plots. So they automatically get a reduction in their LVT bill.

Solitude quite clearly has a market value. Let's say, you have a house with a wonderful view over a quiet beach and the sea, it's worth a million pounds.

The council then allows a whole row of high rise blocks to be built between you and the beach. You lose your solitude and your view, your house is now only worth half a million. The value of the solitude/the view was half a million pounds. Your LVT bill falls by 50%. That is your compensation.

CityUnslicker said...

blimey that is an argument.

And I thought the answer was instead just to stop rampant immigration!

Anonymous said...

Ok, cool ~ I think I can see now where we are going to disagree on definitions and beliefs (for want of a better phrase) of libertarian principles, or the definition of libertarian principles, or whatever, if you see what I mean.

I have a march to go on tomorrow (followed by a very boosey (sp?) do involving the army), so, may I suggest I do that, post my thoughts on my blog Monday, and take it from there?

Jock Coats said...

Mark, this is particularly disappointing as a first stab at it from Stephen Nickell's NHPAU. Two of the best academic advocates of LVT are right there in his own college sharing high table with him. There must be some way to bring their influence to bear on him!

Longrider said...

Interesting discussion... While I am broadly supportive of what you propose, I did not buy my house in order to get what future taxpayers pay for. What I bought from the previous owner was a plot of land with a house sitting on it.

The amenities, I pay (through the nose for) with my council tax. I am the taxpayer and I am the one paying for it - and when I get that bill in March, don't I know it. That I use few of these amenities, is neither here nor there, I still pay dearly for them - and with the Lib Dems and Labour in the majority, it increases alarmingly each year. Not as bad as Bristol city, but bad enough. So, no, I am not hoping that future taxpayers will pay for my amenities - it would be nice, though ;)

In comparison, my French house is in a rural rather than an urban environment and the equivalent taxes come to about two-thirds of the UK ones and that includes the television licence (yes, they have that, too). This, along with the solitude and beautiful environment, is why I plan to relocate there as soon as possible.

Mark Wadsworth said...

Longrider, please note:

The Nulab government dishes out loads of money to Labour councils and very little to the rest. Councils then decide how much to spend. The balance is made up by council tax. On average, council tax only covers 20% - 25% of local expenditure.

Has it never struck you that an average earner pays (say) £5,000 in PAYE and another £2,000 in VAT to HMRC, but only £1,000 in Council Tax? Where do you think that the PAYE & VAT goes? All spending is local spending.

Longrider said...

Yes, I am aware. My point, though, is that I am a taxpayer, so I am the one paying (whichever pot it comes from), not some future taxpayer. I don't get a free lunch here...

Incidentally, our council has no overall control by one party - Labour is the biggest single party IIRC with the Lib Dems a close second. For a while, the Lib Dems were in overall control. Tory gains at the last election made inroads into both, so hopefully we will see some semblance of fiscal responsibility emerging. One can but hope.

Mark Wadsworth said...

There are different types of free lumch:

1. If you are lucky enough to have bought your home more than ten years ago (which I did) then you are sitting on a super capital gain, albeit unrealised. You are at a huge advantage compared to sombebody ten years younger who now wants to buy a house. So I am getting a free lunch.

2. If two people bought their houses at the same time next door to each other, and one of them still earns not much and the other now earns a lot more, both are receiving (broadly speaking) the same services. So the high earning neighbour (me) is subsiding the low earning neighbour (the post man next door). So he's getting a free lunch at my expense.

3. If you bought flats in the nineties for a song (as I did) then these will have trebled or quadruples in value. So again, I got a free lunch.

I don't really approve of free lunches (despite I have personally benefitted enormously) because of damage to society as a whole, which is why, notwithstanding that tax'n'spend is far too high, in relative terms, income taxes should go down and land value taxes should go up.

And so on.

Longrider said...

1 - yes, but someone ten years younger is merely ten years behind me, just as I am twenty years behind my parents. Unless it is realised, which for most people it won't be until they pop their clogs, so its a moot point.

2 - both have applied to me, I have see-sawed financially as I have earned well while employed and next to nothing during several years of self-employment. My income has dramatically increased again just recently.

3 - doesn't apply to me, but I don't have an ideological problem with it.

Any form of taxation means that some will end up subsidising others as we all have differing levels of income throughout our working lives and yet still need access to public services.

My only dispute here is your suggestion that when I bought my house, I wasn't merely buying the land and bricks and mortar - that is exactly what I was buying. The local services are paid for though taxation - separate issue.

Mark Wadsworth said...

Longrider.

Point 1. I bought my house ten years ago for three-and-a-bit times my salary and have more or less paid off the mortgage (£800 a month for 11v years)). If somebody ten years younger buys the house next door, they'd be looking at eight or nine times salary and mortgage of £2,500 a month for the next twenty five years. So they are not ten years behind, they are light years behind.

Point 2. I have nothing against redistribution, not in the slighest, as long as it is simple and unversal, which my scenario 2 is clearly not. It is the way in which tax is raised that bothers me.

Yes, the local services are paid through by taxation. Again, the question is what sort of taxation.

Anyway *stamps foot* how come free market liberals from Adam Smith, Ricardo, Henry George, Churchill all the way to Milton Friedman are allowed to say that LVT is the least-worst tax, but not me?

Longrider said...

The trouble with point 1 for me is that when I bought my property, It was about three and a half times my salary. During the past year or so it was about ten and a bit. However, in the past couple of months it has come back to about three and a half. Ultimately, the only difference is that for about eighteen months I struggled to cope with my mortgage and have debts to clear up. Indeed, I was unable to demonstrate that I could afford my present mortgage so was trapped with a higher interest rate deal than I could otherwise have negotiated. What does any of this prove? Not much - but someone ten years behind will catch up as property values rise and incomes go up, too. Eventually it evens out. My parents paid around £2,000 in the late fifties for their first house (it must have been about three and a half times my father's salary from what I recall) and struggled to cope for fifteen years until my father sold high and bought low.

When we bought our property, we struggled as well. It does even out over time as salaries rise and the mortgage becomes more affordable - or people do as my father did.

Of course, all this depends on what someone's salary is...

Anyway *stamps foot* how come free market liberals from Adam Smith, Ricardo, Henry George, Churchill all the way to Milton Friedman are allowed to say that LVT is the least-worst tax, but not me?

I haven't said otherwise. I was merely contesting one assertion with which I disagree - that the purchase of a property is anything other than just that.

Mark Wadsworth said...

Let me repharse the purchase of a property [should not be] anything other than just that and I would agree.

But would you agree that somebody who has just about paid off a mortgage 11 years @ £800 per month is about twenty-five years ahead of somebody who just bought the identical house next door and will have to pay over £2,000 per month for the next twenty years?

The point being, LVT would tend to keep house prices low and stable, that is the point really.

Longrider said...

I accept your reasoning for LTV - always have. As for the differentials, that is going to depend on a range of variables - property values, salary and crucially, location. If I was to be in exactly the same job as I was twenty years ago and bought exactly the same house, I would be looking at about close to 5 times salary as opposed to 3.5 times. So your point about how far behind modern house buyers are stands up for the south east, but in other areas of the country, much less so.

Longrider said...

Oh, yeah, nearly forgot... the other variable is what that salary will buy. Consumer goods have a habit of becoming cheaper as technology improves, so the salary buys more, which tends to have a levelling effect as well.