If you'd been wondering what Mrs R's actual surname is, she commented on this week's Fun Online Poll thusly:
In an expensive area it takes longer to save a deposit to start buying a house, and rents are higher. This means that rent and mortgage repayments are a greater part of take-home pay so living standards for ordinary folk [in areas where property is expensive] are lower than in areas where property is cheaper - because they have less money to spare.
Actually, the two effects - higher incomes but higher rents* in some areas; lower incomes but lower rents in others - usually cancel out, so net disposable incomes after housing costs are much flatter across the country than a mere comparison of gross incomes would suggest. They must be - if net disposable incomes were much higher in some areas, then everybody would move there, pushing up rents etc.
This is exactly what Ricardo's Law Of Rent explains/predicts. Funnily enough, Ricardo himself saw this as justification for taxing land values rather than incomes, whereas his namesake suggests the opposite, but hey.
* On a very obscure point, the prices of easily transportable goods, like clothes, consumer electronics etc. are also fairly flat across the country; but the price of a cup of coffee or a pint varies enormously - with a cup of coffee or a pint, you are not just paying for the liquid itself, but you are paying to drink it at a certain location, some of which are more desirable, convenient and hence more expensive than others. Lower wages in an area also correlate with lower prices for a cup of coffee or a pint, but do not lead to lower prices for clothing, consumer electronics etc.
Dismayed
42 minutes ago
10 comments:
I'm not going to try to quote anybody or any theory, but I do know how averages work, and one or two very high figures can make a complete mess of things.
You're still 'assuming' that everybody who lives in an expensive area has got a good income - it simply isn't true.
Mrs R, I am not 'assuming' anything, I am merely describing the world as it is, and matching it up to the theories and vice versa.
What about petrol - it's easily transportable, but the price still varies a lot from region to region. I'm not trying to disprove your theory, just wondering if there's something special about road fuel.
B, the more likely it is that things are consumed at or close to the point of purchase, the more likely it is that their price goes in line with local wages/rents. Petrol is like a cup of coffee or a pint or a hotel room or a haircut, you consume it at or near where you buy it.
If you have to drive twenty miles there and twenty miles back to save 10p on a litre of petrol, then the time and petrol costs of the round trip wipe out the £5 saving on a tank of fuel.
If Primark were selling dresses in Newcastle for £10 and in London for £20, then some enterprising person would arbitrage this by buying up north and selling them down South. Which is why Primark charge the same for the same dress in Newcastle as on Oxford Street. it just so happens that they can sell ten times as many dresses on Oxford St than in their Newcastle store, which is why the Oxford St rents are ten times as high as in their Newcastle store.
The famous Law applies over time as well as space perhaps ?
Today its fair to say that the majority of people live just around the margin, what is left over of their wages and capital once the "rent" has been taken out.
Same applied 100, 200, 300 years ago. It applies in all times and all places. This is what makes it a natural law.
Mrs R - are you suggesting that if I move to a really posh area and buy a really expensive house then I should be subsidised by poorer people who can only afford to buy in a cruddy area? Why can't these "asset rich cash poor" individuals you refer to sell their house and move somewhere that best suits their circumstances, thereby realising some of the huge unearned capital in their property? With LVT their capital gain wouldn't be taxed.
Anon, that is another policy refinement I am working on.
Let's say we shift from 1% property value tax to 2% (and hence to proper LVT).
For working age people, that extra tax will be (more than) offset by reductions in VAT, income tax etc.
For pensioners, the extra tax collected would be dished out as additional Citizen's Pension (clearly labelled 'Property Tax Credits' or something), so that post-tax income of the vast majority of pensioner households is not affected (additional PTC greater than or equal to tax payments), but there is a cash transfer from pensioners in large houses to pensioners in small houses.
Let them fight it out between themselves.
If you don't want to sell your house - e.g it's been in your family since the C14th - there's lots of other things you can do to "sweat your assets" and if you don't want to do those either, then pay for the privilege of having a large house with only you in it.
Ah yes, asset rich cash poor. It's those 95-year old women with no living relatives and no income other than their state pension, in two-up, two-down houses they bought for £50 in 1935 and now worth a couple of million. LVT would really hit these people hard.
And another thing. LVT is not related to ability to pay. Millionaires like pop stars and footballers could avoid paying LVT by living in cardboard boxes under Brighton Pier.
There is also the question of the multi-billion pound IT companies avoiding LVT by moving their offices to Stornoway.
Sorry, forgot, there are Earls. They need to buy coronets and ermine capes, which is a constant expense especially if the trimming is real fur and not fake, because they can get moth in them and then they need new ones. There is also a need to leave them enough money to breed racehorses, go hunting, keep well-stocked cellars and send their male offspring to Eaton. That is why we need a landed aristocracy which LVT would damage.
The Swedish aristocracy lost their land in the 1680s and that led to Wallender and lots of gruesome murders round Ystad, and Fjällbacka is bad too if you read Camilla Läckberg (just starting to come out in English). Murders and suicides all the time now.
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