Sobers here:
"LVT without planning liberalisation is just a mechanism to tax the value created by planning restrictions. And as planning permissions are not in the control of the landowner but the State, it seems unfair IMO to tax them."
Notwithstanding that planning restrictions destroy infinitely more value than they 'create', I don't think that 'the State' cares much one way or another what people do on different bits of land, the driving force behind this is when 'owners' of surrounding land put in objections to applications for change of use. Their power to do so will be severely curtailed once I'm in charge, but that's a separate issue.
'The State' then bends to the wishes of the majority (or the vocal minority) and prevents people from putting land to its optimum use, so clearly there are those who benefit from the restrictions which 'the State' imposes on others, and those who lose out from those restrictions. Is it really so terribly unfair to have a tax system whereby those who benefit from this pay more tax, and those who are correspondingly burdened pay less?
The maths and logic are again, perfectly simple: LVT would discourage NIMBYism and BANANAism.
Because rents are price elastic, if the amount of usable buildings were increased by five per cent (and quite clearly, existing land and buildings are being used at only ninety per cent of their actual capacity, so this does not entail a massive building programme), the average rental value (and hence the LVT bill) on existing plots would go down by (say) two per cent and overall tax revenues would go up by (say) three per cent.
So if fewer objections are submitted and upheld, everybody wins. IF you already own land and buildings, your tax bill goes down by two per cent and IF you don't already own land and buildings, it's now cheaper for you to rent or buy... AND... because the cost of core functions of the state only uses a quarter of all tax revenues, the amount of cash dished out as a Citizen's Income to all and sundry also goes up by (say) four per cent.
AND... IF NIMBYs continue to enforce inefficient use of land THEN they end up with higher LVT bills and a lower Citizen's Income. That's their problem, isn't it?
Sunday, 5 December 2010
Killer Arguments Against LVT, not (79)
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7 comments:
"And as planning permissions are not in the control of the landowner but the State, it seems unfair IMO to tax them"
AFAICS, it is fairer to tax them than it is not to tax them. If the local authority grant you planning permission on a plot of land for one dwelling, they have effectively handed you a cheque for £80-100K. What have you done to earn that £100K? Nothing apart from persuading a group of people to give it to you. Why should that £100K not remain in the possession of the authority who created it? If you need to build a house, either to sell if you are a builder or to live in, you don't need a £100K handout from the state, you can pay £2K for your plot, get planning permission and, when you sell the property, you benefit from the value you have added from turning a pile of building materials into a house and the state benefits from the value they have added by turning a piece of agricultural land into a building plot.
B, that's music to my ears!
The funny thing is that Sobers actually owns a fair bit of land at the edge of some conurbation, and makes a living by battling with the authorities to get planning permission (it's an expensive and messy business) and then selling off bits of it, so he knows all this stuff.
To be fair to Sobers, if he can send me an email I'd be happy to send him a blogging invitation so that he can do his own posts on this 'blog putting the Home-Owner-Ist point of view. As an aside, I made him Agriculture Minister in my Bloggers Cabinet to show there are no hard feeling.
My thoughts are not so much for the person who obtains planning permission being taxed - as you say they have just been given a large capital increase on planning being granted. Its more that the State decides what goes where, which affects home/land owners who are not party to the planning application.
Let us say you own a house with a decent sized garden. Then one of your neighbours gets planning to build a house in his garden. Your house has suddenly risen in value because it is now possible for you to do the same. You did not apply for planning, you do not have an actual planning certificate, but you have to pay extra LVT anyway. You have 3 options - pay the extra LVT, sell your house & garden, get planning and sell the plot for the new house yourself. I see no reason why any of those options should be forced upon someone who has done nothing. I think there should always be a status quo option for people to choose.
Equally the State often decides over the head of house/land owners what goes where anyway. Some things reduce a property in value (the high speed rail link passing close to your house for example), which would reduce your LVT. Whereas if you were far enough away from a new rail line to not be inconvenienced but close to a new station you might experience a higher house price and more LVT. But you had no say in that extra value being created. I've said it before and I'll repeat it - I think it is unfair to tax people on increased property values that they personally have no say in creating, or get any financial rewards from in immediate cash terms.
I would have no problem in saying that it would be fair to tax said increase WHEN IT WAS REALISED. Put CGT on housing by all means. But don't ask someone to pay something they have no new cash to pay with. Especially on an annual basis.
I'm honoured to be asked to put the Home Owner-ist point of view on this blog, which is ironic, as I don't actually own any houses, only farmland. But I think I'm considerably below the intellectual level that this blog maintains constantly on a day to day basis. I shall confine myself to putting the odd contrary view via the comments, just to break up the LVT-fest if nothing else!
As for being made the Agriculture Minister, I shall attempt to provide a unbiased viewpoint of issues concerning the farming industry.
S: "Let us say you own a house with a decent sized garden. Then one of your neighbours gets planning to build a house in his garden. Your house has suddenly risen in value because it is now possible for you to do the same...."
Aaargh! I keep telling you that is not how it will work. We average out ALL land and building selling prices to arrive at some sort of rate for each postcode sector (about 3,000 addresses), let's say £40 per square yard.
Your neighbour gets planning permission. So what? By the time they have been sold and fed into next year's figures and a rolling weighted average of all selling prices taken, that is going to have no noticeable impact on the tax rate - it may well be that his 'garden grabbing' depresses the price of a couple of other houses in equal and opposite measure.
"I'm honoured to be asked to put the Home Owner-ist point of view on this blog, which is ironic, as I don't actually own any houses, only farmland..."
As I've explained, Home-Owner-Ism is not done for the benefit of owner-occupiers, it's done for the benefit of banks, politicians, large landowners are urban periphery etc.
"We average out ALL land and building selling prices to arrive at some sort of rate for each postcode sector (about 3,000 addresses), let's say £40 per square yard."
Ah, well that makes more sense then. When you said postcode sector I thought you meant each individual postcode, 10-20 houses. Anything that prevents a particular householder having an overnight increase in their tax bill because of something out of their hands is a good idea.
But isn't averaging over such a large area going to throw up lots of anomalies? For example, I live not far from an industrial estate, which on a square footage basis is lower value than housing. There's not many houses round here. So my house (which is worth a fair bit, its in a nice location) will end up being in a lower LVT band than an exactly the same value house that is in an area of purely housing?
Going back through one of your posts I see that in your worked example of a village shop, you state that LVT will transfer the tax burden from business to residential land. Is this politically viable? I personally cannot see that people would ever vote for a policy that made business owners considerably wealthier at the expense of homeowners. It may make economic sense, but not political sense.
The outrage that would occur in the Guardian reading classes if a business owner suddenly paid no VAT, no income tax, no business rates, no CGT and no IHT would probably cause spontaneous combustion!
And also businesses would become uber-profitable overnight, leading to a massive property boom in the value of commercial property. Which would then increase the LVT payable by everyone in that postcode sector. Not very popular I suggest!
S, yup, I always said postcode sector (3,000 addresses) and not postcode unit (15 addresses).
As to your house being in the same sector as an industrial estate, your gain is their loss or vice versa.
"I personally cannot see that people would ever vote for a policy that made business owners considerably wealthier at the expense of homeowners."
It's not just 'business owners' (the successful ones will live in the nicest houses anyway, so swings, roundabouts) who will benefit, it's all their employees, suppliers and customers who will share the gains as well, this is what happens in a free market.
"The outrage that would occur in the Guardian reading classes if a business owner suddenly paid no VAT, no income tax, no business rates, no CGT and no IHT would probably cause spontaneous combustion!"
That is a bonus and not a drawback.
"businesses would become uber-profitable overnight, leading to a massive property boom in the value of commercial property. Which would then increase the LVT payable by everyone in that postcode sector. Not very popular I suggest!"
Sure, the business' profits would go up, but a lot of this will be passed on as higher wages, higher employment, lower prices etc.
"leading to a massive property boom in the value of commercial property."
Not really. There are plenty of vacant and unused commercial premises, and there are few buildings that could not be used more intensively.
If a business expands a bit, it shuffles the desks together (or outsources more). A retail shop can increase the number of lines of stock on display by simply having less of each item. There are plenty of pubs and shops where not much goes on in the upper storeys etc.
And because all these extra employees will have a bit more money to spend, they'll be able to afford any increase in the average LVT also payable on residential.
If we observe that the selling prices of land and buildings on the industrial estate near you go up a lot, due to the rolling revalutions, the LVT will go up over time as well to counter this (in which case you lose out a bit again, tough).
Finally, don't forget that part of the reason why commercial buildings sell for a lot less than residential is because of Business Rates, which is akin to LVT.
S: "I would have no problem in saying that it would be fair to tax said increase [due to new railway station] WHEN IT WAS REALISED. Put CGT on housing by all means. But don't ask someone to pay something they have no new cash to pay with. Especially on an annual basis."
Problem is that CGT is a very bad tax in practice, it distorts investment decisions, unlike LVT which would speed up the process whereby people who like the railway station move to that area and people who aren't bothered move elsewhere.
If you want, we can have a part-deferment option, so if your land and buildings go up faster in value than some benchmark, you can defer the excess, all to be repaid when you sell.
But there is, as ever, a free market solution to this - it's called underpaying your mortgage, and gambling on the fact that the increase in the value of the house will make up the difference. And there's another free market solution - be a tenant not a home 'owner'. Or if you like owning your own home and don't use the train, then sell up and move elsewhere. Or get in a lodger.
You seem to be getting very het up about a potential tax increase of a couple of thousand quid per annum, that's equivalent to replacing your car every ten years not every five; or taking a one week holiday in Wales not a fortnight in Spain; doing a few hours overtime a week etc.
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