I haven't done one of these for weeks, so let's get back into the swing of things by plucking an easy one from The Motherlode Of Shite, i.e. the comments section to any article about Land Value Tax.
Mr Joe: As for LVT, it suffers from that most common fault in socialist ideas - good intentions with horrifically bad unintended consequences.
It's a gift to unscrupulous property developers:
* Find someone with a fixed income who owns a house with a large garden.
* Apply for planning permission to redevelop the property into 2-3 smaller houses.
* Rental value of property with planning permission jumps.
* Owner with fixed income can't pay increased LVT so is forced to sell.
* Property developer buys land and builds houses.
* Rinse, repeat.
That's one of many problems with the scheme - each problem is solvable with exceptions, but each time that happens you create loopholes and make the tax harder to administer...
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Nope.
Having mulled this over for a few years, as I explain in my Powerpoint manifesto, the tax would be set at fixed rate £ per square yard in each postcode sector (or any other such subdivision). For residential land, the rate would be £30 in the cheapest areas (e.g. Burnley) up to £150 in Outer London. The rates for Central London and other town centres would be about £1,000 per square yard. (This is what would be required to replace all other taxes and there'd be exemptions for pensioners etc)
So getting planning permission on one single plot would not make any difference at all to the tax bill for that plot. If enough new development were carried out in an area, then this might have a marginal impact on the tax rate in future years, which might be upwards or downwards.
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Trying to do a plot-by-plot valuation would be administratively unworkable anyway, and even if it could be done, is the result that Mr Joe envisages so terrible? Don't forget that the developer is no longer making a windfall gain when he gets planning, and as soon as he buys the site, he will be paying the higher LVT himself (and what better tax than a voluntary tax?) and so he can only make a profit by getting on with the construction as quickly and efficiently as possible etc.
And it's not just the developer (who are always the baddie in these examples, heck knows why, we all live in houses, don't we? It's a bit like driving a car and slagging off Big Oil) who makes money, it's the construction workers, the brick and mortar manufacturers, the local tradesmen etc. Are all these people baddies as well?
Mr Joe also inevitably focuses on the one household 'forced' out of their house and ignores the plight of the households who are 'forced' not to live in the new houses which the developer might build (thought experiment: we pass a law making it illegal for farmers in the UK to produce food - it's not just the farmers who would lose out). And I'm sure that our developer will be perfectly happy to accommodate the current resident, i.e. build a new house and allow the owner to move into it before demolishing the old house and finishing off the other two new ones. I've had plenty of clients with big gardens over the years who have done exactly this.
So the previous owner ends up with a nice new house (plus minus some sort of cash adjustment) and an LVT bill that has been reduced by two-thirds (because his new house only takes up a third of the old plot); the developer and his remora earn a bit of money; and two households get a house where they want one without a single square inch of The Hallowed Greenbelt being 'concreted over'.
Whichever way I squint at it, that does not look like "horrifically bad unintended consequences" to me. Seriously, what's not to like?
Friday, 5 November 2010
Killer arguments against LVT, not (74)
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15 comments:
This evil developer... applying for planning permission on land he doesn't own. Doesn't that mean the price he has to pay for that land when he buys it has gone up as well?
Pretty crazy developer, inflating the price of land before he buys it.
OP, indeed. The economics of the construction industry is that you make about 80% of the profit by getting planning; earning the additional 20% by actually spending a fortune on having the houses built is a hard and unrewarding slog.
Yes it does seem that the counter argument to "horrifically unintended consequences" is easily countered by pointing out that if these people can think of these made-up consequences so quickly and easily, people who are trying to implement a system can also create it in such a way as there aren't these unintended consequences. It doesn't take a genius to figure out adequate workarounds so that the only people who will really suffer as a result will be the Duke of Westminster and his ilk.
SW, exactly. More to the point, the LVTers (including me) have thought through all the 'consequences' and find most of them to be very positive, so I work backwards from the answer as much as moving forwards from where we are now.
L, to be fair to AB, he nicked his idea from my blog which I peddled for a couple of years to no effect, i.e. replace Council Tax, SDLT and Inheritance Tax with a flat rate property tax of about 1%. Since then I have become ever more rabid about this and would use LVT to replace all other taxes. He is a politician, so he's doing it in fairy steps.
MW. Fair enough. An MP, behind the curve as usual.
MW, Well I am completely with you on LVT - perhaps uniquely among my peer group!
It's uttely beyond me why anyone would not leap at the chance not to pay income tax and CGT and IHT and all the rest of it. And the savings in admin..........!
L, the problem is that the whole tax and economic system is completely upside down and we are used to it (including me).
So when I first heard of the notion of LVT a few years ago, the idea that we could replace all taxes with LVT, it seemed completely counter-intuitive ("But land doesn't generate cash income!" was my first thought, even though it does, really). It took me years to work out that this is a very sensible idea indeed.
"without a single square inch of The Hallowed Greenbelt being 'concreted over'."
Mark, I'll think you'll find that urban green space (parks and private gardens) ranks even higher in the untouchability stakes than green belt. Hence all the fuss about "garden grabbing".
B, indeed. NIMBY hypocrisy is unendless. PS, I didn't say build on the parks! They truly are very important, their value being the ratio of 'private' land to park land to the power of about ten.
Again, one of those not so obvious points but you actually get higher land values and collect more LVT with the parks than without them because of improved amenity. Best example is Central Park, New York which is located on some of the most valuable land in the world. However the loss in tax revenue caused by its existence is more than compensated for by extra tax revenue raised from land (and buildings coz it's not an LVT) adjoining and overlooking the park. I'm sure that the same argument applies to Hyde Park or any other urban public park you care to mention.
D, exactly, hence "their value [or the amount that they add in value to surrounding land and buildings] being the ratio of 'private' land to park land to the power of about ten.".
If you built Central Park next to a small town in the middle of Nebraska, the ratio would be 1:100, which to the power of ten gives a value of the park of about $1.
But in New York, the ratio of 'private' land to Central Park is 1,000:1 to the power of ten means that the park adds value of $1 billion (these numbers entirely plucked out of the air for illustration purposes.
MW - I'd sort of worked out an LVT idea without knowing about LVT because my old dad was a (very good) property developer. He always based his calculations on a notional 'rent'. He also told me that those 'rents' varied with location and amenity. Smart bloke. But I don't think he'd heard of LVT either - although he would have been a supporter because he would have realised that it would've killed off all of his 'bad' competition (Gresham's Law working).
L, I suppose LVT really would sort out the sheep from the goats in the whole construction/property development industry.
The best would be cruising and the worst wouldn't be able to cop out by 'mothballing developments and gambling on a rising market' and so on.
The Old Man's 'competition' came from all those using a 'rising market' to make their profits; entirely illusory profits of course. He always based his sale figures on the original plot cost and used the markets beta to buy the next piece of land, if you see what I mean. I have know a lot of 'property developers' over the years and I have only met one other who had a vague idea about what I was saying about this. LVT wouod sort them out.
"PS, I didn't say build on the parks! They truly are very important, "
I wasn't suggesting you had! One of the reasons I disliked Red Ken and the old GLC was that they thought it was OK to build on public open space so long as they were building social housing. Not Hyde Park, but little bits of green here and there.
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