Grant Shapps fleshes out another half-baked idea which won't work...

Grant Shapps floated this idea long before the election, but it's covered in more depth in The Times:

Grant Shapps, the Housing Minister, has told The Times that he will reward local authorities that give planning approval to housing developments by matching the council tax revenue collected from these homes... Mr Shapps said: “An authority that ensured 10,000 new homes are put up could be in line for £100 million over six years. The incentives will be available for housing schemes that receive planning permission today.”

Councils that fail to ensure the building of social and private sector homes will be penalised and will receive more money only by raising council taxes. Mr Shapps aims to remove council tax increase capping. The incentives are intended to boost the struggling housebuilding industry. The construction of houses has fallen to its lowest level since 1924 and there is a shortfall of one million, despite the targets set by the previous government.

Since the election housebuilders have stopped work at various sites after Eric Pickles, the Communities Secretary, said that local authorities did not need to meet these targets...Housebuilders also suggested that some would pay a big council tax bill rather than have their view spoilt by a new housing estate.

Mr Shapps, MP for Welwyn Hatfield, Hertfordshire, said: “£100 million would pay for the regeneration of Hatfield — the town centre is falling apart. It’s never been regenerated because of a lack of money.” He said that the Treasury had agreed the project with funding coming from the £29 billion Revenue Grant. The distribution of money from the grant would favour local authorities that backed developments.

“At the moment, a house gets built, the people move in, the council collects, say £1,500 in council tax. The council does not really see that money — it’s revenue neutral. Our scheme will mean that when councils give planning assent they will collect from central government matched funding, pound for pound, for every single new home that is occupied for six years.”

1. The nice thing about 'market forces' is that they help match up supply and demand by setting the clearing price for anything at a price which ensures optimum allocation of resources; which is another way of saying that 'price rationing is the best form of rationing'.

2. The problem with our existing land use system is that it is a one-way bet; homeowners want to maximise the value of their own homes (a 'market force') and so they oppose the construction of anything which might detract therefrom (which is purely a political thing, i.e. a 'non-market force') but there is no equal and opposite counter-market force; the NIMBYs like to ration by quantity only (having helped themselves to what they need) but it is 'somebody else' who has to pay the higher price, of course.

3. So in that sense, Shapps is heading ever so vaguely in the right direction, even though the idea of 'matching funding' is a Big Fat Lie. Council Tax is in itself a very minor top-up tax, and in practice, eighty per cent of the money that any council gets to spend comes from Whitehall.

4. Sure, the Tories skewed the grants slightly to favour Tory-run councils, and Labour skewed the grants massively to favour Labour-run councils, but in principle, most of those central grants (which comes our of general taxation) are dished out on a per capita basis. So even under the current system, for every new house that is built, the local council (or local NHS or local schools) will receive about £10,000 per annum anyway (some of it Council Tax, most of it central grants).

5. But the whole thing is very arbitrary - unless Shapps is prepared to go a lot further, the difference between the incentives for allowing development and the 'fine' for not doing so will be negligible, and the whole thing will get bogged down in a turf war between Shapps and that fat bastard who runs the DCLG and who is a die-hard NIMBY. Whatever numbers we end up with will be so diluted by politics that they will be absolutely no reflection of true market value of the costs and benefits of allowing or indeed preventing more development in any area. In some areas, there will be far too much new development, and in other areas, there still won't be enough; we'll end up just building in the wrong places, which is a criminal waste of resources.

6. Yet again, this is one of the problems that Land Value Tax would sort out with a minimum of administrative hassle (there'd be no need for targets or any bribes or coercion from central government):

a) If the NIMBYs in the big houses don't like the fact that they pay three times as much tax as the young couples squidged into a flat across the road, then all they have to do is allow some more houses to be built for those young couples; hey presto, the young couple get their house and can start a family, and in relative terms, the tax that each type of household will be paying will tend to equalise - the no-longer-NIMBYs will pay less and the young couple will pay more, and tax will still be collected from whomever buys the flat they have vacated. Overall, the more you build, the higher the total tax take, but the lower the tax take per property.

b) Or maybe the town reaches a critical mass where people are prepared to pay a lot extra to live near the centre; in which case the people with the big gardens near the centre of town might decide that they'd rather buy one of the new houses at the outskirts (to halve* their tax bill) and in the middle of the town the houses with big gardens get replaced by flats; although the tax per square yard of land might be twice as high* as on the outskirts; people living in the flats won't mind as they are only using a few square yards thereof.

c) Ultimately, you'd find that most people would be paying much the same amount of tax - either you live in a flat in the centre of town, or a house with a garden a bit further out (depending on whether you prefer convenience or peace and quiet, etc). The people with the highest incomes would still be living in the nicest properties, and the people with the lowest incomes would still be living in the not-so-nicest, but again, the tax they pay would reflect their 'ability to pay', or more importantly 'their willingness to pay'.

d) And of course, the revenues from the tax would be use to reduce or replace other far more damaging taxes (make up your own minds which); or used to top up welfare payments to The Deserving Classes (which are either single mothers or Poor Widows In Mansions, depending on your political leanings).

What's not to like?

* I have used the factor of two for illustration only. The larger the conurbation, the higher the differential, of course, with London the differential between centre and outskirts is more like a hundred. But let's assume in our model town, the location values in the centre are ten times as high as further out; you can choose between:
a) a 100 sq yd flat in the centre in a four storey block with one parking space, so you're 'occupying' 40 sq yds @ £100 per square yard = £4,000 per annum; or
b) a semi-detached house occupying a 400 sq yd plot further out and you pay 400 sq yds @ £10 per sq yd = £4,000 per annum.
c) Or anything in between, of course.