Umbongo, in the comments to an earlier post:
Oswald then concludes (I think) that [unemployment is] somehow prevented by a flourishing O-O market. A more obvious and less laboriously constructed conclusion (again, per Friedman) is that were there not frictions in every part of the housing market then all markets (including the employment market and the transport market) would be more efficient.
Oswald is entitled to draw any conclusions he likes. I was just presenting the raw data, not saying that I agree with him in everything. The point is that high owner-occupancy rates are inimical to a "flourishing" or "frictionless" housing market, because owner-occupiers tend to strongly oppose new developments - whether that is of new executive villas, normal estates for normal families or indeed sink estates - and vote for whichever party promises the least new development. And negative equity is a real brake on (geographic) mobility.
Forgetting that O-O might be, to a large extent, a non-economic ambition. Oswald's implied solution (since it's one of the 5 "problems") must include the prevention of owner-occupiers exercising their political strength (in planning inquiries etc) so that the state (through councils/housing associations) or developers can impose their preferred solutions locally. This would certainly contribute to reducing home-ownership.
O-O is very much an economic ambition! People genuinely believe that a home should not just be somewhere to live but a source of tax-free income and capital gains. That's (partly) which O-Oer's oppose new development - to create an artificial scarcity value (or to preserve their private enjoyment of whatever public benefits accrue to people living in any area).
And what is this mantra "developers imposing their preferred solutions"? There's demand for housing from perfectly ordinary people, who'd also like to be able to afford to buy a house. The same as there's demand for cars or apples or private schools. I never hear anybody complaining about car manufacturers or farmers or private schools "imposing their preferred solutions" (except maybe the Lefties, but they're just as bad).
Such a solution might "solve" some unemployment but would certainly create some messy democratic problems.
OK, young couples who'd like to buy a house are a minority at any one time, so on a static basis, existing O-Oers can use their vote to thwart their wishes. But wasn't everybody young once? Isn't the O-O market actually a great big Ponzi scheme?
Since Oswald's paper has been posted on a blog which strongly advocates LVT as an economic panacea, Oswald's implied solution would not, of course, be a problem for fans of LVT since the downgrading of a local area would be "compensated" by a lowering of LVT.
I never said "panacea". There are two kinds of economic problems. Those that will be solved by LVT and those that are insoluble. With LVT, local councils would be doing their utmost to ensure that their area is as attractive as possible and not "downgraded", or else they choke off their only source of income, that's the whole point.
I would be happy to pay a higher LVT (as I currently pay a higher council tax) to keep my local area in the way I and my neighbours want it. However, a lower (or nil) LVT would not, I think, ever be able to compensate for the parachuting of problem families (or worse) into the neighbourhood. This lack of a true compensation mechanism is one of the basic weaknesses of LVT (unless a negative LVT is contemplated).
As to the "problem families", logic says that the best thing we could do is round them all up and make them live on some isolated army-style barracks somewhere in the middle of nowhere. Far too many people say "Oh, we can't liberalise planning laws because we'd get stuck with a council estate." How about "We don't want a council estate so we'll ask the council to allow more new housing for O-O to be built"? When did you ever hear that?
Finally, of course there's negative LVT. More LVT = less of other taxes. Whether you see that as an "income tax cut" or an "LVT refund" is a different matter.
*/sigh*
Thursday, 26 November 2009
*sigh*
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6 comments:
MW
A few points:
1. Since your blog is devoted (in part) to advocating the introduction of LVT I think I'm justified in assuming that you didn't post (bits of) Oswald's paper by accident. The conclusion of the paper - to the effect that a reduction in owner-occupied housing may decrease unemployment - channels directly into your consistent (and reasonable - although I don't happen to agree with it) case against owner-occupied homes.
2. The problem with LVT is that it deals with only one part of the taxation dilemma and also - as all taxes - has non-economic consequences. Your preferred local tax solution involves the introduction of LVT, the abolition of council and other taxes and the abolition of planning controls. My point is that planning controls protect my and my neighbours' economic and non-economic welfare.
3. Economic, obviously, because dumping a council estate, a private developer's estate or a power station next door will affect the value of my house for which there would be no realistic compensation through the LVT process. You say that "of course there's negative LVT. More LVT = less of other taxes". In my example of a power station next door, nothing can compensate: paying nil tax until the day I die would never compensate for a ruined neighbourhood. Nevertheless, you - I think - rule out any compensation except through the LVT mechanism. In my example, if I interpret you correctly, I cannot be compensated. Accordingly, "compensation" must come through some political or planning system: not as money received or tax relieved but as a damage prevented.
4. BTW just because successive governments have mismanaged the economy, debauched the currency and allowed unrestricted population growth (either by immigration or by financing the fertile underclass) to the benefit of holders of assets in fixed or limited supply isn't an argument to reduce home ownership. It's an argument for governments to act more responsibly and thereby remove the wealth protection aspect of land-holding: crazy I know but no crazier than expecting a pure, unsullied introduction of LVT by similar governments to result in nirvana.
5. You argue that it's in the interests of a rational council to preserve its more desirable neighbourhoods since it can maximise its LVT take. But LVT, its proponents say, is based on the unimproved value of land: Hampstead or Peckham, Buncefield or Kew Gardens - it's all basically the same unless you're talking about unimproved value somehow depending on improved value elsewhere. Accordingly, my Borough of Haringey wouldn't care less and would rather like to dump a power station - or sink estate - in Highgate: the unimproved value of the land would not change and thus the LVT income would remain constant.
6. Briefly my (and my neighbours') non-economic preference not to live near a council estate nor next to a power station nor near a property developer's dream (for someone else but not for him) - and for which I (and they) have coughed up a hefty premium - is protected by planning controls. I like living where I'm living: I believe my neighbours like living here also. Unfortunately, apart from my hope that governments behave responsibly I have no panacea in respect of housing shortages or property inflation. As I said in my original posting, neither have LVT advocates.
I have read Mr Oswald's paper and I'm not convinced. Two things he doesn't mention: job vacancies and historical trends. Firstly vacancies: immobility of labour largely causes unemployment by rendering workers in one place unable to fill vacancies in another. If this were the case, high unemployment would also be accompanied by high vacancy rates, but he doesn't mention vacancy rates. High unemployment plus high vacancy rates would be a much better argument for his theory than high unemployment alone. Secondly historical trends: we all know that unemployment was high in the 1930's, but that was when owner-occupancy was still low. There may be a reason for this, but it is not given.
Remember, there were no nuclear bombs before women got the vote.
Umbongo, following your numbering:
2. "the abolition of planning controls". I never said abolition, I said 'liberalisation'. So by all means, put pressure on the council to prevent new developments, but be prepared to pay the price (which you are, so no arguments there).
3. Nobody in his right mind would buy up hugely expensive residential land in the centre of London to build a power station. It would be like buying a Picasso oil painting and using it the canvas to patch up a pair of jeans. It's just not a realistic example.
4. I never said "reduce home-ownership", where did I ever say that? If we allowed more private homes to be built that would increase home-ownership. It's not home-ownership that bothers me (I intend to buy one once prices have fallen) it is Home-Owner-Ism. But I can honestly say, I have never objected to planning permission for anything in my area, being an easy-going Libertarian sort of chap.
5. We have argued over the meaning of "the unimproved value of a plot of land" before and it is quite simple. It is the value that the land would sell for if there were no buildings on it (but assuming existing planning permission). Why do you think the Candy Brothers paid nearly £1 billion for 12 acres of central London a year or two ago?
6. The cause of housing shortages and property price inflation (immigration notwithstanding, I probably agree with you on that) is lack of supply and low taxation/risk free profits. So what's the answer?
Bayard, his paper is far from perfect. But there are much higher vacancy rates where there is low employment - have you never heard of 'ghost towns'?
"logic says that the best thing we could do is round them all up and make them live on some isolated army-style barracks somewhere in the middle of nowhere": that's approximately what was done in Adelaide when we lived there.
Mark, I'm sorry, I wasn't clear there. I meant job vacancies, not housing vacancies. Took me a while to understand your post as a result of that!
"O-O is very much an economic ambition! People genuinely believe that a home should not just be somewhere to live but a source of tax-free income and capital gains." Not me though. But I am as NIMBYist as the next man. As I want a home in a location with as few close neighbours as possible (in truth they probably don't want ME) I like the prospect of being able to prevent development. I like not having good roads, street lighting, proximity to 'public' services, entertainments within convenient reach, public sewerage (we have our own system which amuses me - I like drains) etc etc. But perversley I would welcome LVT if it did away with Council tax, VAT, IHT, CGT etc etc because I think it would actually work in my favour in preserving my isolation. I have noticed that people like all the stuff I dislike so they would not want to buy in my area and developers would find it very expensive to provide the amenities that would encourage purchasers. Excellent. Thinking about it, all I really want is electricity and water, but as regards the latter I already have a useful borehole (btw that's not a description of my character!) and I could feasably generate my own electricity. So LVT, bring it on.
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