a) Land Value Tax would be perceived as 'unfair', because:
You have to remember in the UK a large part of the value of the house is not its size, or its state of repair, or its location to amenities, but the social class of the neighbours. Put bluntly, no-one wants to live next door to chavs, and property prices reflect this. An average based system on [postcode sectors] can never take this into account, and will always produce 'unfair' outcomes.
If you are going to sell LVT to the masses, they are not going to be happy if they are paying more than someone mile away, who has a more expensive house than they do. And because of who lives in rough areas, its poorer people who will end up paying the same as the wealthier people in their middle class housing estates down the road.
Summary: it's 'unfair' because people in the cheaper parts of a postcode sector would pay the same rate as people in the nicer parts.
b) LVT would also be 'unfair' because:
I know plenty of housing estates that are close to amenities, the centre of towns, but are low value areas because of the nature of the inhabitants. Similarly, very high value property is often not located near any amenities at all. In the UK you pay more to avoid certain types of people as neighbours than to get proximity to amenities...
A house in a 'nice' area of town will be worth considerably more than one in a 'rough' area, even though they are otherwise identical, and share identical services. So do you intent to tax that social value with LVT? Or just the pure locational value of a plot of land, x miles from the station, y miles from the motorway junction etc etc?
Summary: it's 'unfair' because people in the nicer areas would have the pay more than people in the cheaper areas, despite there being little difference in access to amenities.
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Ho hum, the arguments cancel out (a) low income people in nicer areas will complain because they have to pay as much in tax as their better off immediate neighbours; and (b) people in nicer areas will complain because they pay more than their distant neighbours in cheaper areas.
But let's not worry about the exceptions, let's remember the basic rule, which is (c) lower income people tend to live in cheaper areas and higher income people tend to live in nicer areas, so LVT is by and large a straight swap for the existing tax system (which is fairly flat relative to incomes or wealth).
The fun part is of course, that both arguments were put forward by Sobers.
1. Argument (a) is nonsense, because this is the whole point of LVT. If anything, the differences in disposable income would increase once income tax is scrapped. Argument (b) is nonsense because this is the whole point - you pays your money and you takes your choice. it's a tax on consumption without being a tax on production (like VAT).
2. These are all false comparisons anyway, the real choice is: would you be better off with income tax, National Insurance, VAT, corporation tax, Council Tax, Stamp Duty Land Tax etc etc, or would you be better off with just LVT (the corresponding boost to GDP growth is difficult for people to factor in)? Clearly, some will gain more than others, and a few people will lose out.
3. On the facts, there are very few postcode sectors (a circle about ten minutes walk from edge-to-edge) which are split into distinctly 'rough' and 'nice' areas. Even if there are, the houses in the 'rough' areas tend to have smaller gardens or are flats rather than houses, so the tax on a home in the 'rough' area will automatically be lower.
4. If all the houses are identical, but there are still 'nice' and 'rough' areas, then as a matter of practicality, the valuers have to apply commonsense, such as splitting it into two areas for valuation purposes, or reducing the assessed plot sizes in the 'rough' areas.
5. For example, there is a long residential road in my village which runs not-quite-parallel to the railway line, and there are semi-detached houses on the railway side (the other side is woods) so the back gardens at one end are 50 ft long and the gardens at the other end are 100 ft long, so the total plot sizes at one end are (say) fifty per cent bigger than the total plot sizes at the other, but they all sell for much the same price. So for valuation and assessment purposes, a sensible valuer would simply disregard the part of the back garden that extends more than 70 ft from the back of the house (or something).
6. Or maybe the owners of the long gardens could simply abandon the bit that they don't want to pay tax on. As it happens, at the fatter end of the triangle, there's a small car park for the station and some allotments, so if the owners of the long gardens gave those extra bits to the council (or London Transport or whomever) , we could extend the car park or turn them into allotments, which are both a far more intensive and hence efficient uses of land than simply having an incredibly long lawn.
Was it all worth it?
4 hours ago
20 comments:
Hang on a second - the second statement wasn't related to the first, it was the set up to the question at the end. You often use the example that land costs more the closer you get to amenities (urban areas etc) and I was pointing out that in the UK (which is small) pretty much all land has the use of amenities (utilities, road, railways, shops etc) and a large proportion of the value of houses is not their pure amenity value, but their social value. So I was asking if that's what you planned to tax.
In pure economic terms a 3 bed semi in a council estate (in good order) is 'worth' the same as a 3 bed semi (in good order) in a 'nice' estate half a mile down the road. But their prices differ wildly. I was asking if you were planning to tax the intrinsic economic worth, or the social worth. Its obvious that people will pay more LVT in 'nice' areas if the tax is purely based on selling prices.
But the first statement stands - you even give an example in your own village that makes it for me - the people with larger gardens won't be very happy to pay more for their otherwise identical houses than their neighbours. That anomaly will be repeated in a thousand different ways around the country under an average price based system.
And as for saying they can disavow their gardens, well that makes a mockery of LVT really then doesn't it? If people can just fence off their garden and say 'I don't want that bit' and pay 50% less LVT they'll do it in droves. If its the difference between paying £15K in LVT and ££7.5K, I know what I'd do.
S: "In pure economic terms a 3 bed semi in a council estate (in good order) is 'worth' the same as a 3 bed semi (in good order) in a 'nice' estate half a mile down the road."
Well that's clearly not true.
'In economic terms' means 'how much will people pay for it' and if people will pay more for the nice area than the rough area, then 'in economic terms' the nice area is worth more.
Thus 'in economic terms' Wayne Rooney is worth as much as X hundred nurses.
As to 'abandoning' you have to 'abandon' it to somebody else prepared to pick up the tab. The back of a back garden with no access from anywhere is worth nothing to anybody else, so you are stuck with it. In the instance I give, those bits at the end would be accessible.
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If you think about the maths, you'll know that the valuer is perfectly happy to ignore as much excess garden space as you want.
i.e. a sector only has two houses (clearly they don't, but let's keep the maths simple), both worth +/- £200k, one is 500 sq yd plot, one is 300.
a) He could decide average 'total built value' (TBV) £500/sq yd x 8% = £40/sq yd tax.
£40/sq yd x 800 sq yds = total revenues £32,000. One house pays £20,000 and the other £12,000. Bloke with large garden whines and moans.
b) Or he might ignore the 'excess' of the larger plot and treat both as being 300 sq yds. TBV now jumps to £667/sq yd and tax is now £53/sq yd.
£53/sq yd x 600 sq yds assessed = total revenues £32,000. Each house now pays £16,000. Bloke with small garden whines and moans because he pays the same tax and has a smaller garden.
c) Valuer says, OK, we'll treat the 300 as 300 and reduce the 500 to 350, total assessed area 650, TBV £400,000, TBV per sq yd £615, tax £49/sq yd. One house pays £14,800 and the other £17,200. Total tax still £32,000. The must come a stage where bloke with bigger garden says "Ah f- this for a game of soldiers, I'm paying £2,400 more than the other bloke, but to be fair, I have a really nice back garden".
It all comes to the same thing. It's a battle between different land 'owners' not a battle between land 'owners' and valuers. It's like the waiter putting the bill on the table and watching people squabble over how to share it.
.. or to continue my waiter analogy, I'm saying whoever ordered the most food pays the most towards the bill; you are sticking with the old, failed tax system whereby the diner with the highest income pays the highest share of the total bill.
You then hit back with 'Ah, but one diner is on a diet and only ate the veg, half the meat and none of the potatoes, she should pay less then the diner next to her who ate it all up' to which I reply 'Tough, pay for what you ordered. The food she leaves on her plate is of no value to anybody else. Next time she can order a child's portion (i.e. trade down to a smaller house)'.
I hear a lot about LVT being bad if valuations are done badly, but the more I think about it, the more I conclude that even a badly run LVT scheme is better than what we have now.
The idea that, in particular, things like Income Tax and VAT are better because they are 'easier' to assess (which I don't think is even true), is irrelevant. An accurate weapon is the last thing you want when you're targeting a friendly.
What's the worst thing that can happen with a bad valuation? I would submit that we already live in the world of worst LVT valuation, that of zero for everything.
I was pointing out that in the UK (which is small) pretty much all land has the use of amenities (utilities, road, railways, shops etc)
As someone who lives in a home counties village and has in the past lived in cities, I can state with personal knowledge that there is an absolute difference between having amenities within 30 mins and within 5 mins, especially as where I am not all the amenities I'm after are all *together* within 30 mins. Public transport is also rubbish here. You can't do anything without a car.
But you're missing the point. It's not even vaguely important what the specific reason is that a certain region is more desirable than another. What's important is that all the reasons together create a price signal. People compete to be in those areas, and it is nothing less than fairness and justice that the proceeds of that competition go to all.
If we don't yet know how to perfectly assess it (and MW's plan is I think quite good in terms of simplicity without a huge sacrifice in accuracy), it is nevertheless better to try and miss slightly at doing the right thing, then be exact in doing the wrong thing.
F, that's music to my ears, to quote a recent publication by The Institute for Fiscal Studies
"It is worth noting that since we are looking at taxing a rent, the figure for land value does not have to be exact—or even approximate—for the LVT to be efficient. The value of each plot of land falls by the present value of the tax imposed on it; in principle, each plot could be taxed at an arbitrarily different rate without compromising the efficiency of the tax."
"We already live in the world of worst LVT valuation, that of zero for everything."
Not quite true. As I explained yesterday, the UK already has something very similar to LVT on commercial premises (i.e. Business Rates, which is conceptually worse but in practice much the same) and commercial buildings still get built and sold or rented out; banks are still happy to accept them as security for loans; the bubble in commercial property prices was not as large as that in residential (in absolute terms) etc etc.
None of the doomsayer's predictions vis a vis LVT for residential land are borne out in practice with quasi-LVT for commercially used land (and I personally find there is a huge grey area - what about Buy To Lets, bed and breakfasts, care homes, is that commercial or residential? Why does a tenant of a BTL flat only pay Council Tax when a person in a B&B pays VAT and the hotel owner pays Business Rates?)
And in practice, Council Tax, SDLT, Inheritance Tax, TV licence fee, Insurance Premium Tax etc do add up to a modest LVT on residential land (heavily disguised). What I'm proposing is smoothing the valuations and collecting ten times as much from residential land and nothing from other economic activity.
Well now you're introducing an entirely different valuation system that involves fiddling with the size of each individual house/plot of land, meaning excessive bureaucracy again, appeals, tribunals etc etc. If you're going down that route you might as well value every house individually and be done with it. Then everyone pays exactly in proportion to the value of their property, not the size of their garden.
I repeat my comment from before, that you are using plot size as a proxy for value, when you have admitted in your own street it is not. A house with 20% extra garden is not 20% higher in price. Ergo there are going to be big differences in LVT within a street, which will be in no way related to affordability. The distribution of large/small gardens is not income related. If anything single people with no kids probabaly don't want gardens, and will have more money to spare to pay the LVT, whereas families with kids will want a bigger garden, will have less disposable income, and will be disproportionately hit by LVT.
You don't have to invoke the Widow Bogey to find plenty of below average income people who live in slightly larger than average homes. Given there are 60m people in this country its not unlikely that there will be significant numbers of people in such a position. And they will not be happy. And we all know from the Poll Tax, its not those who win from a system change who make the most noise.
Oh and regarding 'value' vs 'price', I do not believe they are interchangeable. An item has an intrinsic value IMO (the cost of replacement for example, or the value arrived at by the money you can make by using it) and a price which is a figure that someone is prepared to pay for it. They are not necessarily the same.
The pure economic value of a house is the cost of rebuild, the size of the plot, and its amenities. A 3 bed semi 1 mile from the station and shops, with all utilities, in a good state of repair, is objectively worth the same as another across town. The difference in what people are prepared to pay for otherwise identical houses is the social value.
For example what is a car 'worth'? Is a BMW worth more than a Ford Focus? Objectively they do exactly the same job, they get you from A to B quickly, and safely. Possibly even cheaper in the Ford than the BMW. But the BMW is higher in price because its social status is higher. But I would argue its worth is the same.
S, I am a man of practicalities. I work in tax, and I know the hundreds of millions of man hours that are wasted each year in public and private sectors collecting all these different and overlapping taxes, and these hundreds of million of man hours are wasted each year, year in year out.
Valuations is a piece of cake compared to this. The state valuer can get the ball rolling and say "OK, I've done the valuations for this postcode sector and the answer is £42."
If lots of people want to put in similar appeals, then he says "OK, houses on streets backing onto railway get a ten per cent deduction in plot size. The maximum size of a plot for assessment purposes is 500 sq yards (unless it is over 1,000 sq yards, in which case you could squeeze an extra house on it)"
Then he re-works the figures and sends everybody their pre-final assessment, then the people in medium sized gardens appeal back and say "Hang on, my garden is 499 sq yards, why should I pay much the same as the people with 800 sq yards" and then he rejigs it all again.
As I'm saying, there are 10,000 postcode sectors. Even if 10,000 bureacrats spent a whole year each finalising the valuations for 3,000 plots, it's a one-off expense of a hundred thousand man hours (a tiny fraction of the man hours wasted on all the other taxes). And then in future the team doing the valuations could be reduced to about 2,000 for the whole country.
"If anything single people with no kids probabaly don't want gardens, and will have more money to spare to pay the LVT, whereas families with kids will want a bigger garden, will have less disposable income, and will be disproportionately hit by LVT."
That's the clever bit. A family with two kids gets £11,000 a year in Citizen's Income, a single person no kids gets £3,500. If these two parties want to arrange a mutually beneficial trade whereby the single person moves into the small house or flat and the family get the house with the garden, what's not to like? The difference in CI received may well be soaked up by the difference in LVT paid, but it's all good.
"And we all know from the Poll Tax, its not those who win from a system change who make the most noise."
Yes I know. Tough. A political party does not even need half the popular vote to win a general election.
S: " Is a BMW worth more than a Ford Focus?"
To the people who buy a BMW, clearly yes. To you or me, possibly not. And many Ford Focus drivers couldn't afford a BMW anyway. Would you say that BMW are charging for the higher 'social value' of their cars? Possibly yes, but that is their perfectly good right.
So if that is OK, then it is OK for the taxman to charge people more for the higher 'social value' of living in a nice area, end of discussion.
PS, in that previous comment, it should read "It is a one off waste of ten million man hours" not "a hundred thousand".
I mean, what's 10,000 people for one year compared to 200,000 working at HMRC year in, year out?
Sobers, tax is not "fair", never has been, never will be, in fact cannot be. The harder a state tries to make a tax "fair", the more complicated it becomes and the costlier it becomes to collect, so the more tax needs to be collect it. If someone gave me the choice of paying £10,000 a year tax when my next door neighbour was paying £8,000 a year (same house, car, income, etc etc) or us both paying £12,000 a year, I know that I'd go for the £10,000.
@Bayard: that's where my reading of human nature differs from yours then. I reckon people would rather pay the same as their neighbours,even if its more. Initially the thought would be 'Great I'm saving £X per year' But over time the saving falls from their mind, and all they can see is the 'unfairness' of their neighbour paying less than them. Its basic psychology that people discount what they already have. I have personally witnessed it in people - if you do a favour for people for long enough, they soon forget any gratitude they had initially for you helping them. If you then stop, they get very annoyed, and think you are doing something awful to them, when all you've done is stop doing something you didn't need to do in the first place.
@MW: I really don't think square footage of the entire plot is a fair way to value. There's too much variance thats not related to the value of the overall property. An extra 100 sq feet of garden (10' x 10') equals £2500 of LVT for goodness sake! A valuation based on internal sq footage would be a bit better. At least you can say a 1000sq foot house is worth considerably more than a 500 sq foot one, if not double, probably nearly that.
Sobers, your reading of human nature is quite accurate (depressingly enough).
But as to this: "people would rather pay the same as their neighbours" that is the whole point of LVT. Don't worry about the exceptions, worry about the general rule which is that 99% of people will pay exactly the same as their neighbours. 99% of housing in the UK is rows of terraces, rows of semi-detached, blocks of flats etc.
"A valuation based on internal sq footage would be a bit better. At least you can say a 1000sq foot house is worth considerably more than a 500 sq foot one, if not double, probably nearly that."
That is absolutely fine by me (seeing as LVT is really a tax on the value of planning permission, and the internal area is as good a measure of planning permission as the plot size).
Referring to real life, HMLR knows the internal area of residential buildings that are sold (heck knows how, but they do), and they even publish the figures for commercial premises, so in a very posh area, instead of paying 500 sq yards x £100 LVT per sq yard = £50,000 a year, you pay 200 sq yards internal x £250 per sq yard = £50,000 LVT.
And in a normal area, instead of paying 400 sq yards x £30 per sq yard = £12,000 LVT you pay 100 sq yards x £120 per sq yard = £12,000 LVT.
S, so using your method, for houses in Glevum Road, Swindon SN3 4AA (to stick with the Swindon theme) we take recent sales details from here and note down two numbers:
last selling price = £145,000
internal area = 100 sq yards
(NB - what mouseprice refer to as 'plot size' is nothing of the sort - that is the footprint of the building itself)
We then times £145,000 by [arbitrary figure] 8% = £11,600 and divide by 100 sq yards = £116/sq yard internal are in LVT every year. We are now on exactly the same basis as Business Rates.
We then average out all the figures for the last few thousand sales in SN3 4.. (this would have to be done with a bit of data mining and a big computer obviously, I'm not doing this by hand) and we then get a robust figure for the postcode sector SN3 4.
Or if we are going to automate it, we can have a smaller area including everything from like SN3 4AA to SN3 4AZ, and then do everything from SN3 4BA to SN3 4BZ and so on, i.e. doing approx 100 addresses at a time.
Are you happy with that?
Point 6: or people could simply be required to pay more for larger (and presumably nicer) gardens?
Mark, I think you are trying too hard. Life is unfair. The rich will always be with us and will always get a better deal. Someone will always take advantage. You cannot please 100% of the people any of the time. LVT is already a damn sight "fairer" than say, VAT. Go for efficiency and simplicity and resist the temptation to tinker.
Personally I would say useable floor space would be the most accurate proxy for value, more so than building footprint. Thus a two storey house pays more LVT than a bungalow with the same ground floor area. Otherwise you'll end up with 3 storey town houses paying a lot less than little bungalows.
Jill, that was my original plan. But I don't care whether your garden is nice or used to dump old sofas. The size of your garden imposes a small burden on the rest of society, ergo, a land tax is better than a property tax but it all comes to much the same thing, seeing as the value of residential land and the value of the physical house are both functions of how generous planning permission is (and planning restrictions are yet another burden on society).
B, see my next post. What makes you think I have something against 'rich' people? This is about helping wealth creators (whether shelf stackers or retail magnates) as against rent seekers (whether dole scroungers or large landlords).
S, OK, you win this round, but the "pay per internal area" is a personal and time limited option (which you choose if it gives you a lower tax bill than plot size x land value) that expires when the current owner moves or dies. See next post.
"What makes you think I have something against 'rich' people?"
Nothing, I don't think you have anything against rich people, unlike many of our compatriots, it seems. I could have said "the poor will always be with us and will always get a worse deal". It was just to illustrate that life is unfair.
B: "the poor will always be with us and will always get a worse deal"
That's a fair point. But once I am in charge there will be far fewer 'poor' people (as defined). I am on the side of poor people, not because there is any special nobility in poverty (there isn't), but because I am against the system that unnecessarily makes (most of) them poor in the first place.
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