Sunday 26 September 2010

Houses Of The Holy

Cross posted at Nourishing Obscurity:

Today, let's look at the relationship between house prices and earnings in the various regions of England & Wales. A simple scatter graph with an auto trend line shows a relationship, which might be skewed by the one in the top right hand corner (London), so let's try that again without London (click to enlarge).


Yup, definitely a correlation.

So let's plot the house price-to-income ratio for the ten regions of E&W, in order of increasing 'gross' incomes (the lower series, double line). As you can see, the trend line for that series slopes upwards slightly (so in areas with higher incomes, house prices are disproportionately higher).

You can flatten off the trend line by deducting an amount to represent bare minimum living costs excl. housing costs of £5,500 per capita (this figure arrived at by trial and error, but seems reasonable enough) to arrive at 'disposable' income. The result is the upper series (bold black line). I can suggest a couple of reasons why the South West ratio is so high*, but I'm not immediately aware of any reason for the East Midland ratio being so low. Click to enlarge.

What conclusions do we draw from this, if any?

How about this:

i. There are no massive regional differences in the standard or quality of housing, so it must be fair to say that the main driver of the price differences is the extent to which regional incomes exceed a basic level of spending on other necessities (i.e. £5,500 per capita in this case).

ii. The rent or mortgage payments for an 'average' household in any area will be x% of the value of the house or flat, or y% of that household's gross income minus £5,500 per person.

iii. We also know that income tax/National Insurance are calculated as 43.8% percentage of your gross income above an arbitrary amount of £6,064 per annum.

iv. Your rent or mortgage is just a payment to live in that home in that area, of course, but if you live in a higher income region, a large part of what you are paying for is the fact that it is easier to find a high paying job in that area. Similarly, income tax/NIC increases the more you earn; it is the 'rent' that you have to pay for the right to go about your trade or profession.

v. We all know that income tax/NIC are 'publicly collected taxes' (boo! hiss!), but if rents and mortgages are calculated on more or less exactly the same basis, are they not just 'privately collected taxes'? It's fair enough for a landlord to charge you for what he provides (a roof over your head, repairs etc.) but isn't he also charging you for 'stuff that havs nothing to do with him' or even worse 'the right to work'?

vi. In other words, while it is conceptually easy to scrap 'publicly collected taxes' you can never get rid of such 'privately collected taxes'. We already have Land Value Tax, it is just that it is collected privately (in non-cash form in the case of owner-occupiers).

vii. There will never be such a thing as a 'tax free' society - the only question is whether LVT should be publicly collected** and spent on things that benefit us all (like scrapping income tax, NIC, VAT and so on, let's get rid of the taxes that we can do something about), or whether we ought to allow it to be privately collected.

* A high proportion of second home owners; a slightly higher proportion of pensioners that rest of UK (so GVA per non-pensioner is higher), rabid NIMBYism and the fact that it's just a nice place to live, with the beaches and everything.

** Yes of course there'd be exemptions or discounts or a deferment option for pensioners.

16 comments:

Trooper Thompson said...

Do I still have to pay my mortgage?

Mark Wadsworth said...

TT, under LVT and in the long run, the mortgage would be no more or less than the value of the bricks and mortar (because that truly belongs to the land 'owner').

Under LVT in the short run, the LVT would be approx. equal to all the taxes you currently pay - a bit less if you 'under occupy' and a bit more if you 'over occupy', whereby I cheerfully admit to being an 'over occupier'.

James Higham said...

Mark, I've read your post, I've read this:

http://www.landvaluetax.org/what-is-lvt/

and I've read this:

http://markwadsworth.blogspot.com/2010/09/fundamental-difference-between.html

and this:

http://www.cooperativeindividualism.org/gerber-george_arguments-against-land-value-taxation.html

Though understanding more about it now, I still don't see that you've defined Home-Owner-ism any more clearly.

You define one third as those who wish their children to be able to afford a home and pay the children's deposits to do so, as my parents did.

However, you define HOists as those who wish to keep the property bubble going.

Well, that includes the givers of credit and land speculators who buy second and third properties in order for real estate value to go up.

Is that whom you mean?

I also presume you agree that if LVT does force businesses out of London to, say, Warrington, then the land value increases in that area because there is employment and the area is then desirable.

Building projects and slum removal will take place, it becomes the new mini-London and LVT is reassessed upwards, making it less desirable to be in and so people have to move again to, say, Thurso, where the same thing happens over and over.

Is that what happens?

__________________

I've put the same comment at my place.

James Higham said...

Also, any chance of answering Wolfie?

Mark Wadsworth said...

JH: "You define HOists as those who wish to keep the property bubble going. Well, that includes the givers of credit and land speculators who buy second and third properties in order for real estate value to go up. Is that whom you mean?"

Yes of course, that's exactly who I mean!

Anonymous said...

In a situation of artificially-created shortage of a vital commodity, obviously the price will be determined by ability to pay. That would not necessarily be the case if there were not a shortage.

As I've said before many times on this blog, the supply of housing, or indeed building land, is not fixed except by the planning system.

Mark Wadsworth said...

AC: n"In a situation of artificially-created shortage of a vital commodity, obviously the price will be determined by ability to pay. That would not necessarily be the case if there were not a shortage."

While I share your enthusiasm for liberalising planning reg's a bit, you have completely missed the point. Even without planning restrictions, land will always have a significant rental value, all of which is 'privately collected tax'.

In fact, the more liberal the planning, the higher the rents that can be collected (compare Manhattan with Dartmoor).

Bayard said...

That's the bugger about rents: any improvements put the rentable value up, whether they also put the rent up is up to the landlord.
Which, to my mind, is why Council Tax should be a land tax, not a property tax.

Mark Wadsworth said...

B, sure, but a proper land tax would be a simple £x per square yard of developed land (where x is about £40 in crummy areas; up to £100 in genteel areas and about £1,000 in town centres), such that the buying/selling prices of land/buildings still exceeds their depreciated rebuild cost/value.

Robin Smith said...

Yup! Proved here also too...in abundance:

The Free State

Robin Smith said...

@adamcollyer

As I've said before the planners are not in control of planning in any shape or form. The Private State is in complete control, through its government lobby, mostly through the banks who coerce the HOI's

Proof? I see it regularly sitting on the Planning Committee at the local Council. What primary evidence do you have to support yourself?

Given your perfect logic does not fit observed facts, your presumption must be false.

Are you prepared to discuss that?

Robin Smith said...

@MW

Uh hum... "Land Tax"

You should know better

"Land Value Tax"

Call me a pedant.

Mark Wadsworth said...

RS, 'planning' is of course dictated entirely by competing private interests as you say (you're the expert).

But the HOists cleverly call it 'Stalinists' when the state allows houses to be built to meet demand, when in fact what Stalin mainly did was prevent businesses from meeting demand.

Land Tax, Land Value Tax, what's the difference?

Robin Smith said...

Agreed. And these competing private interests are not doing the best job for the whole evidently!!! Much is the same case with privatised money creation. Though the government would still be corrupt if they did both, they would not be corrupted as much as if done privately. I wonder if this is a self evident truth and observed fact that requires infinite evidence? I realise this idea is a great struggle for libertarians much like free trade is for socialists.

Difference between land tax and a land "value" tax? The one is a tax on production and the other is a tax on the free gift. Jeez! Think about taxing all land area equally rather than its rental value.

Mark Wadsworth said...

RS, my exact words were: " a proper land tax would be a simple £x per square yard of developed land (where x is about £40 in crummy areas; up to £100 in genteel areas and about £1,000 in town centres)" which I think is crystal clear.

Robin Smith said...

Its your call. I've seen so much toil and trouble when the term land tax has been abused.

I try to gratify myself with the least possible effort rather than the most. There's only one exception to this (: