A hot-dog vendor speaks

I was chatting to somebody recently who does hot-dog and coffee stands, beer tents and so on at fairs all over Europe. He told me he was negotiating for a pitch for a hot-dog stand near a tourist attraction in central London, but the rent they were going to charge him was hundreds of thousand pounds a year.

This seemed quite amazing, until we ran through the figures, and agreed if he can sell a thousand hot-dogs or cups of coffee a day, with a gross mark-up of £1 on each one, minus £30,000 for wages and payroll taxes, minus other overheads, he would probably still be left with a fair profit margin after paying the rent.

I didn't ask, but I assume that the pitch he was talking about belongs to the council, in which case they are acting like any other landlord and charging the highest rent they can get away with. But because the rent is a pure site rent, it is more like a licence-to-operate. If you look at it that way, you could say that it is an eighty or ninety per cent tax on his business profits. Maybe it is, but this is further evidence for my generalisation that rents and taxes are ultimately the same thing, or at least that there is a big overlap. The difference is, I suppose, that 'taxes' are paid to the government, and 'rents' are paid to landowners (including cases where the government is the landowner, as in this case).

Selling hot-dogs is a nice simple business model, but let's now look at his employees, bearing in mind that unless the wages he pays cover their rent and other living costs, they won't work for him. They have to live somewhere within reasonable commuting distance. As we also know, rents rise (or fall) in line with average wages, or as the Nationwide express it, the house price/wage ratio changes in line with the house price/rent ratio:(click to enlarge):
So if business picks up in an area - whether through the wise decisions of the local council, historical accident, a new airport being built or the sudden discovery of natural resources - then of course jobs will be created and wages will go up, but local property owners will benefit disproportionately. If they are landlords (and the first arrivals to take up the new jobs will of necessity be tenants, as they move the fastest), they will put up their rents; if they are home-owners, even if they have no direct income from the new industry, their homes will go up in value; if they are local farmers, they are now much more likely to get planning permission for new homes and make a windfall gain. The real bummer is for those tenants whose wages don't increase (because they have no involvement with the new growth industry) who see their rents rise as well - they are paying 'tax' on somebody else's income.

So 'rents' (on land and location values, as distinct from a fair return on the capital value of actual bricks and mortar) are just privatised taxes, really. And taxes are just the 'rent' that the government charges business for the licence to operate e.g. within the borders of the UK. So if you have a business that is renting its premises, and all its employees are tenants, it is paying two separate layers - taxes and rents.

The above may all seem blindingly obvious, once you think about it, but there seems to me to be only one reasonable conclusion that you can draw from it all ...