If you goad Home-Owner-Ists for long enough (a few seconds usually suffices), they will advance two arguments against taxes on land values or liberalising planning regulations (which have the aim of keeping house prices low and stable and enabling other taxes to be reduced):
1. "I worked hard and did without to be able to pay off my mortgage. The younger generation just wants something for nothing, they waste it all on flat-screen TVs. They should do like the older generation did and learn the value of thrift."
2. "I worked hard and did without to be able to pay off my mortgage. My house is my pension fund in retirement and something I can pass on to my children."
Some parts of that we can discard immediately:
a) Today's flat-screen TV is today what things like washing machines, electric cookers, black and white TVs and so on were a few decades ago, and expressed as a multiple of a week's wages, probably a lot cheaper.
b) It's the older generations (i.e. most home-owners) that want something for nothing - they desperately oppose new development because that would erode the unearned, windfall, tax-free paper capital gains they have made on their houses.
c) Very old home-owners bought their houses at a time when we were routinely allowing three or four hundred thousand new homes to be built each year; at a time when we did have property taxes (like Schedule A taxation or Domestic Rates) and as a result of which, houses were relatively cheap. That's all the priced-out generation are asking for, really, to go back to the mythical good old days.
d) Your house can't simultaneously be your pension (which you spend) and your children's inheritance (which they spend). It's one or the other, but let's go with the latter for the purposes of this argument.
But the real contradiction is this: do Home-Owner-Ists genuinely want their children to vastly overpay for a house today, in the hope of inheriting part of the value of a vastly overpriced house in a few decades?
Remember always that the family, as a unit, is not benefitting from the paper capital gain that the parents are sitting on, but suffers from the fact that the adult children will be debt-slaves for most of their working lives. The latter 'cost' must vastly outweigh the perceived 'benefit'. In a world of Big Fat Lies, to claim that Home-Owner-Ism is in any way designed to benefit future generations is one of the biggest and fattest lies of all.
Tuesday, 22 December 2009
Contradictions within contradictions within contradictions ...
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24 comments:
Actually Domestic Rates weren't really a property tax, any more than Council Tax is now.
I agree with you 100% on liberalising planning laws. We need to let the market take care of the demand for housing. I don't agree on the Land Value Tax, mostly because any new tax would be seized on by the bureaucrats to extract extra from us.
AC, if not a property tax, then what were they?
I know you don't agree on LVT, but, politically, getting LVT out of people is a damn' sight harder than via stealth taxes, which is A Good Thing in my book:
Compare and contrast, Council Tax raises £25 billion odd, VAT, the most damaging and the most dishonest tax raises £70 billion odd.
So if we had more in-your-face property taxes (with negligible economic deadweight costs) and fewer stealth taxes (with massive deadweight costs), inevitably, the overall tax burden would come down and GDP would go up.
I don't agree that the Great House Price Bubble, was caused by a restriction in the supply of housing caused by restrictive planning policies and my reason for not agreeing is this: The whole bubble/price inflation thing happened just the same in central London, where there is no land left to build on, it was all built on years ago, as it did subsequently in the home counties and then on out to places further afield, spreading like a ripple. Sure, restrictive planning policies haven't helped, but if there hadn't been any, we would have just ended up with many more expensive houses, not cheaper ones.
B, "The whole bubble/price inflation thing happened just the same in central London, where there is no land left to build on..."
It makes no difference whether the restrictions on new construction are natural or artificial, the effect is the same. As it happens, central London is not very densely built-up - it's restricted to five or six storeys, as opposed to other capital cities, but that's another topic.
Very old home-owners bought their houses at a time when we were routinely allowing three or four hundred thousand new homes to be built each year; at a time when we did have property taxes (like Schedule A taxation or Domestic Rates) and as a result of which, houses were relatively cheap. That's all the priced-out generation are asking for, really, to go back to the mythical good old days.
This is more complex than just home ownership. It involves the credit controllers/providers ramping up prices and breaking the connection between wages and prices which always threatened to get out of hand but didn't until the explosion of credit.
Getting house prices back to affordable involves stopping the creation of non-existent money through FRB and basing all transactions on real commodities or genuine services.
JH, yes, sensible banking supervision/minimum capital requirements also play a part. But the problem here is not the supervision itself (which is a doddle) but having the political will to burst bubbles long before they start.
Speaking as a simple, (no jokes please), working class type of guy who is not up to speed with all the tax stuff.....
I would love to own my own home but I just simply refuse to play the game. The price of a house is outrageous. A house should be bought to be a home. If it's to be an 'investment' rent it out.
Buying a house is a rip off. As far as I can see.
"Remember always that the family, as a unit, is not benefitting from the paper capital gain that the parents are sitting on, but suffers from the fact that the adult children will be debt-slaves for most of their working lives."
Is this strictly true? Isn't a family unit where parents have a large house and children are trying to buy a flat, better off than one where parents rent (all other things being equal) and children are trying to buy a flat? And one that does better from house price inflation?
RCN, you are one of the few people who talks sense on housing.
M, good one - but it is obviously better to own a big house than no house (assuming no mortgage), but neither the family with the parents that own a big house nor the family with the parents who rent get richer (relative to what they were before) as property prices increase (until and unless parents sell up and trade down).
My thinking was as children of renters who want to buy are definite losers, and children of owners who want to buy neutral, someone must be gaining. I suppose it is children of owners who are happy renting.
[As you know I am in favour of home ownership as a pension asset as it is the only way of paying now for future consumption needs, however I am also in favour of liberalising planning permission. LVT...I still can't quite understand the implications]
M, the children who want to buy in both examples are clearly losers. Whether the parents who own a house are really winners is debatable, but even if they are winners, the children's loss outweighs the parents' gain.
"I am in favour of home ownership as a pension asset it is the only way of paying now for future consumption needs..."
Well, that's simply not true is it? In countries like Germany or Switzerland where less than half of people own their own homes, they seem to manage. Pensioners live mainly off taxes that other people pay (which is a perfectly sensible way of doing it, I hasten to add).
Never been able to understand people who don't get LVT;( as opposed to those who get it but don't like it).
How can you expect to run an economy where people saddle themselves with 100 k extra debt (for the land) over and above what they pay for a bricks and mortar house?
This proposition is self -evidently ludicrous but in our warped society it is seen as really sensible.
As for the old world of building 300 thousand-plus houses a year: Macmillan who pledged to build this many in 1950(! post-war shortgages and all ),also supplied thousands of new jobs in whole new towns while beginning to decolonise with the "Winds of Change" speech. And he was a Tory!
One thing all this Homeownerism has done is make it simple for really thick people to get into politics.What did Blair actually do compared to Macmillan or the early social reforming Wilson?Started a lot of wars? Nope can't think of anything else.
"It makes no difference whether the restrictions on new construction are natural or artificial, the effect is the same."
It makes a big difference to the timing of that effect, though. The "Good Old Days" reigned in London too, despite said physical restrictions. My conviction is still that relaxation of credit controls started the bubble and the government, realising the election advantages of keepng it going, (illusion of prosperity, debt-fuelled consumer boom, home-ownerism), has been doing so ever since. Bubbles are controlled by belief that the speculated commodity will continue to increase in value, not the laws of economics - look at the classic bubbles of the past - Railway Mania, Canal Mania, South Sea Bubble. There was no shortage of supply of shares in dodgy companies there, but that didn't stop them one bit.
Point C, that house prices used to be less affected by "planning" is a good one.
On point D I think many home owners think it can be both just so long as house prices keep rising far faster than the rate of inflation because they can keep taking money out of the house & still see it all there. This is known as perpetual motion.
All fine in principle and end result a good one. Problem is getting there when large numbers of homeowners would in the process end with an asset worth less than they paid for it.
DBC, to be fair, LVT is counter-intuituve and decades of politicians and economists have been lying about it or ignoring it, it took me a year to realise the beauty of it (and I was starting from a neutral position).
Bayard, "My conviction is still that relaxation of credit controls started the bubble and the government, realising the election advantages of keepng it going..."
Agreed, the problem is politicians going for short-term gains, people have to understand that these are actually long-term losses.
NeilC, somebody else posted my reply to Comment C and I added it to the armoury.
Bruce, the answer is
a) massive de-hoodwinking programme followed by
b) gradually shifting from taxes on economic activity to taxes on land values. The tax burden as a % of GDP will fall almost automatically so at every step there would be more winners than losers (although the losers always whine more than the winners show gratitude).
The argument about your house being your inheritance is plain stupid. Given increasing life expectancy our children are likely to be close to to retirement when we die.
This means the time when they need the house/inheritance will have passed as their children will have grown up.
I'm still not convinced about LVT but still have an open mind but agree on planning permission.
And while I'm on the subject the state needs to stop paying for care homes for people who have a house just so that their children can inherit.
PS can you set your comments to open in a new window rather than a pop up so that I can use google spell check as I'm a crap prrof reader
GS, thanks. I tried it with the new comments window but that was even faffier, I'd prefer the typo's.
Mark, I'm not responding to your dog whistle this time.
Have a Happy Christmas!
The arguments will continue in the New Year.
On b) There is an error in thinking about desperately opposing new development. It is almost certain that if development goes ahead, that on the whole the value of houses in the locality will increase more than if no development. Would they still complain if they started to think and recognised this ?
On planning regulations, I have yet to see how these regs stop the million empty homes from coming into use and raise prices ? Would it be better to ask how much of the speculative price is due to regs and how much to the other first ? I fear you will find the regs are doing a tiny amount in proportion. Besides more houses than are necessary get built in any case. Cart before the horse ?
RS: "I have yet to see how these regs stop the million empty homes from coming into use"
Fair point. But the Home-Owner-Ists have an easy solution to this. They say we should pay owners of vacant properties large subsidies to persuade them to bring them back into use :)
Sorry for the delay in replying. I badly worded this:
[As you know I am in favour of home ownership as a pension asset as it is the only way of paying now for future consumption needs,
it should have been
[As you know I am in favour of home ownership as a pension asset as it is the only way of DIRECTLY paying now for GUARANTEED future consumption needs]
Germany's an interesting case - it's much worse to be a renter than a home owner in a time of high inflation, and the Germans are very anti-inflation.
Matthew, no dispute there - having a physical house built is a 'good investment'. But surely that supports my argument that we should be building more houses, and not the Home-Owner-Ist argument that we should be building no more houses?
Ditto roads, railways, power stations, ports, factories, offices etc etc, of course.
Sure, no disagreement from me on that point - I'm a paid up member of the 'more things should be built' club (which doesn't clash with believing in home ownership as you say - the advantage I see is the flow of services you get from owning a house, not any capital appreciation, which must be illusionary when taken collectively).
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