The Home-Owner-Ist movement has two main aims: to restrict new construction as far as possible and to reduce taxes on property values as much as possible. A few of the justifications from their manifesto are as follows:
1. My home is my pension (so nothing may be done which detracts from its capital value).
2. I have worked hard to build up 'capital' and I want to have something to leave to my children.
3. I don't oppose new construction out of base financial motives, I am doing it to preserve our Green And Pleasant Land for future generations, any private benefit to me is purely incidental.
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Items 1. and 2. are completely contradictory of course. If you save a pot of cash for your retirement, by spending less than you earn during your working life, then as a quid pro quo you can spend more than you earn once you've stopped working. If you judge it right, your living standards will remain more or less constant throughout your life; you will die more or less penniless; and your kids will inherit nothing.
So if the capital value of your home is your retirement pot, the implication must be that you will live off mortgage equity withdrawal once you stop working and that by the time you die, the mortgage (which you had paid off while you're working) has increased again to wipe out the equity in your home.
Which drives a horse and cart through the idea that you can leave your house to your kids as well as consuming it during retirement - it's one or the other. Further, with an average life expectancy of seventy, your kids will be in their mid-forties and their children (your grandchildren) will have left home, so at this stage they have reached their peak earnings level and their expenses will fall to a minimum (mortgage paid off, grandchildren have flown the coop etc) so they really don't need the money at that stage - and your grandchildren might be too young to spend it wisely.
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Items 2. and 3. are also completely contradictory. We know that the cost of an average house is about £170,000, being £70,000 construction costs and £100,000 for planning permission/scarcity value. So my latest bright idea is that instead of granting planning permission (and the associated windfall gains) to land-owners, planning permission for half a house would be granted to every 25-year old (so that a newly married couple can exercise its option and have a house built for £70,000).
Sure, the capital value of your house might then fall by £100,000 (because the scarcity value disappears), but you wouldn't need to worry about leaving money to your children, because they wouldn't really need it - they'd automatically be £5,000 a year better off for most of their working lives (while they pay off a much smaller mortgage), meaning that they in turn could save up more for retirement out of their net incomes.
I doubt very much that the loss in amenity value to existing home-owners from a bit of new construction would be anywhere near the £5,000 a year real money that their children stand to save - not to mention their increase in amenity value from being able to spread themselves out a bit - so it's very much a positive-sum game.
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And Items 1. and 3. are completely contradictory as well. Do NIMBYs do it for modest increase in amenity value or for large increase in capital value? It's one or the other. As a house is a non-income producing asset (in the narrow sense), an increase in its capital value - however artificial or long-term - means that every £1 capital gain to the owner is a £1 capital loss to the eventual purchaser, there is no increase in overall wealth (and because of frictions in the banking system, probably an overall reduction therein).
Saying that you will deprive future generations of slightly more than £1 in real money in order to create a £1 paper gain for yourself is of course hardly the kind of 'preserving' that future generations are looking for. Of course we want our land to be Green And Pleasant, but we also want to be a modern, industrial-commercial economy, not a museum for some mythical past.
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Pensioners and soon-to-be pensioners oppose property taxes particularly violently, because of the whole 'ability to pay' nonsense. They cheerfully overlook that a) the bulk of pensioner incomes are taxpayer-funded (probably rightly so, it's the cheapest and least risky way of doing it) and b) three-quarters of property owners, and hence property-tax payers are not pensioners, so as long as long you learn to look at all taxes as one big pot, which is partly used to pay old age pensions, there is still be a net transfer from working-age people to pension-age people, even if we ignore the roll-up-till-death option.
We can do fun-with numbers on this. Surely what matters most to pensioners is their net income after taxes - so if property taxes per home were increased by £1,000 a year (leaving your children 'only' £4,000 a year better off during their working lives) and that entire pot dished out as a Citizen's Pension, pensioners would end up £3,000 better off in cash terms (plus £4,000 on the pensions side, minus £1,000 on the property tax side). So it can't be difficult to tweak the figures so that most pensioners would be indifferent to an increase in property taxes.
Just sayin', is all./What's not to like?*
* Delete as appropriate.
Thursday 3 December 2009
[Inevitable conclusion] Home-Owner-Ists hate their own offspring
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11 comments:
From time to time I talk to people of pension age who are given to saying things like "I'd rather put a match to my house than let the State take it to pay for my care" and as you say, "I've worked hard blah, leaving to children, blah, pension blah..."
I enjoy asking them (very politely of course) if they can explain to me why I should pay additional income tax to pay for their pension and / or care so that they can leave several hundred thousand pounds-worth of house or cash equivalent to their children.
Some (a few) get it, some look at me as though I'd grown three heads. Another few get very, very offended. It's still a good question, though, and astonishing how few otherwise sensible people ask it of themselves.
Mark,
You hit the nail on the head. Its an issue I have thought about a lot but haven't been able to marshall my thoughts as clearly as that. Your proposed solution is a bit convoluted though.
ft's queston is one I have put to a number of people as well and received the same response. Some really do expect the tax payer to pay for their care so that their children benefit, I suppose that's the Tory mddle class bribes kicking in.
There is one response that is at least considred: We ask, bribe, people to save for the future to protect themselves against against shocks and old age. If they die before they spend their money then their children benefit. If they live a long time then their children don't benefit and may even have to pay for ther parent's care. A moral hazard when you consider that the state looks after people without money.
To which my response is that life's a bastard and their chldren, like my son, should be under no illusion that they have no rght to inherit anything. They have a duty to themselves to save and nobody has the right to expect others to look ater them in old age, especialy if they have been well paid abd tax incentives to save have been available.
GS - that's why we need to ditch pensions altogether as a savings strategy. Rid the employer of the overhead. Pay the employee the money now and let them spend or save as they see fit. Lighten company balance sheets by removing "pensions black holes" that reduce viable companies to bankrupt wrecks. Relieve the public purse of employing tens of thousands of public sector employees who're there to police the thousands of rules and to make sure people don't play tax games.
How stupid, how costly, is all that?
The Citizens Pension is the key. Everyone gets it and if you can live on it, crack on. If you can't or don't want to, then save, or spend your house equity to have the standard of living you want.
If you want to live in a nice care home eventually, insure. If you're happy to live on the taxpayer's £, don't insure, but don't whinge either if it's mandatory lights out / TV off at 2100 each day.
Sorry. Rant mode off. I always get on me soapbox when this crops up. Mrs FT usually throws something at me :-)
ft,
Quite agree, as long as the interest from those savings isn't taxed as income. Currently it is at draw down and quite rightly so because pension savings are (were) meant to be deferred salary.
FT, GS, thanks for covering fire.
GS, your last comment, the rule must be that all income is taxed and taxed once only, which the existing rules achieve:
If you claimed tax relief on the way in, then tax has to be paid on the pension you get back.
Conversely, if you save up cash in a bank account, then of course the interest is taxed, but not the capital wihtdrawals.
There is also a rule that if you take cash from your bank account (i.e. post tax income) and buy an annuity, the tax rate is adjusted down so that only the interest element of monthly payments is not taxed, but not the capital element.
GS, if these "lifetime savings" are from taxed income, my instinct is that drawing it out should be tax-free.
I suspect MW won't agree but a tax break on capital growth seems fair, and if so there should be a tax break on interest or dividends paid.
As a general note on interest if you keep long term savings in cash you run the risk of inflation eroding it all away - cash is not a low risk investment. Especially if we end up in the Euro. After all, they've given every other piece of our independence away.
Other than that my personal view would be that there should be as few rules as possible - right up to letting people choose for themselves whether they want to get to retirement and blow the lot. They still paid tax on the income they used to fund the savings; so why not, if that's what they want to do?
The essence of this is that it's a simple optional extra (and an appealing one) rather than a State-mandated opportunity to pay huge charges to a pension company in return for a million rules and regulations about what you can do with (what's left of) the money. It should be difficult to cheat, and difficult to avoid paying the tax on the original income.
And did I say "no safety nets"?
FT, of course "drawing out" the capital is tax free, it already is tax free and would remain so.
As to 'tax breaks' for interest, I am a flat taxer - better to tax employment income and interest both at 27% than to tax employment income at 30% and interest at 0% (for a given total revenue). It's not as if employment income is 'risk free', if you lose your job that's one heck of a whole in your income.
Dividends for basic rate taxpayers aren't taxed anyway (so with a flat income tax, wouldn't be taxed at all, of course) and capital gains on shares ought to be exempt (there are so many exemptions, the tax raises bugger all and Stamp Duty can go as well AFAIC).
"3. I don't oppose new construction out of base financial motives, I am doing it to preserve our Green And Pleasant Land for future generations, any private benefit to me is purely incidental."
What "base financial motive" are we talking about here? I don't think it is unreasonable to oppose something that reduces the value of your house compared to others like it elsewhere, which is all most NIMBYs are interested in. After all, this would be a loss to you regardless of what house prices in general were doing.
B: "I don't think it is unreasonable to oppose something that reduces the value of your house ..."
But there is a contradiction, are NIMBYs complaining about a modest fall in amenity value, i.e. they have fewer fields to stare at or are they really complaining about the huge paper capital loss they would suffer if planning laws were liberalised? It's one or the other.
And are NIMBYs prepared to pay for things that increase the value of their house? Nope - somebody else can pay for that.
Finally, for every NIMBY opposing all new construction, there's a child of a NIMBY who's having to overpay by £100,000. If you take the family as a whole, NIMBYism is completely insane, it's a negative-sum game.
I personally have never opposed any new construction of anything whatsoever out of libertarian principle, but if I knew that my kids were going to buy houses on the new estate near my house, that'd be even less reason for me to oppose it. The fact that my kids might choose to live elsewhere and the children of NIMBYs might choose to live near me is neither here nor there.
"But there is a contradiction, are NIMBYs complaining about a modest fall in amenity value, i.e. they have fewer fields to stare at or are they really complaining about the huge paper capital loss they would suffer if planning laws were liberalised? It's one or the other."
I think it's the former, as I think that a) the modest fall in amenity value is much exaggerated by the NIMBYs, b) even a small fall in value hurts if you are convinced that someone else is doing better than you (the politics of envy) and c) if people are stupid enough to think that higher house prices make them richer, they are far too stupid to work out the latter reason you give. I think you underestimate people's small-mindedness (in all senses of small).
"And are NIMBYs prepared to pay for things that increase the value of their house?"
I've never heard of that even being proposed. It would be quite reasonable for a local authority (in my mind) to say to a community "If you want a bypass, then we are going to put your council tax up so that we can pay for it", but I've never heard of this being done, and I'm not even sure if it can be done under the financial rules.
B, "It would be quite reasonable for a local authority (in my mind) to say to a community "If you want a bypass, then we are going to put your council tax up so that we can pay for it", but I've never heard of this being done, and I'm not even sure if it can be done under the financial rules."
Agreed, it doesn't happen nearly often enough, although there are occasions where major infrastructure, e.g. Crossrail, is to be one-quarter funded by a precept on local Business Rates.
If that's possible, then it must be possible to fund the whole thing out of a precept on Business Rates/Council Tax in north London (plus the other bits to the west and east), in which case the whole decision could be decided by a local referendum ("Do you want to pay for it? Yes or no?"), rather than having the Mayor of London slug it out with the government, and expecting taxpayers all over the UK to pay for it.
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