As background: this evening I attended the 'round table discussion' (the table was distinctly long and rectangular) which Priced Out had organised with Caroline Flint and Alison Seabeck.
The topic turned to subsidies aimed at 'helping first time buyers onto the ladder' and one attendee (Gary F) pointed out that this was futile - in Australia, they had introduced a $7,000 First Home Owner Grant, the result of which was merely to inflate the selling prices of homes to first time buyers by $7,000. We have observed exactly the same wherever this has been tried (and the reverse where it has been withdrawn), it's fairly basic economics.
Everybody seemed to agree with that.
I asked Ms Flint whether she'd heard from the Labour Land Campaign (and clearly she didn't know who they were) and explained that if we reduced other taxes (I mentioned VAT and Employer's NIC as the worst taxes and Council Tax because it is a poll tax) and replaced the shortfall with LVT, this would discourage land-hoarding, over-occupation, speculation etc. and hence lead to more efficient use of land and housing, everybody gets what they pay for, problem solved.
NIMBYism wouldn't really be an issue, because if the NIMBYs drove up the price of housing then they'd be shooting themselves in the foot because this would merely drive up their own LVT bills.
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So far so good, people seemed to agree with that as well, but Ms Seabeck then went for the old fallback: "If we had LVT, then surely landlords would just 'pass it on' to the tenant in higher rents?"
After the meeting ended I pointed out to her that Gary's example illustrated that subsidies to housing merely result in higher prices and do not help first time buyers; and seeing that a tax on something is the opposite of a subsidy, then quite clearly (as borne out by real life evidence) if a subsidy increases the price then a tax reduces the price, so tenants (or indeed first time buyers) would not be affected.*
* To be fair, scrapping Council Tax and reducing VAT and Employer's NIC would increases people's disposable incomes and some of this saving would result in a higher total amount being devoted to housing costs, so some of the LVT would be borne by tenants, but so what? It's only a small proportion of people who rent privately or who buy their first home every year and LVT would still function as an admirable rationing measure.
Also thanks to Dana C for the pint afterwards.
Are you all set?
4 hours ago
12 comments:
Well done, MW. Late night posting too. That's devotion to duty! Hopefully Alison Seabeck got the point about being impossible to pass on. It's one that I've found very difficult to get over. Even to renters, who seem to be scared of any change in the status quo that might put up their rent.
Still it's a bit scary that the Shadow Housing minister didn't know such a basic economic fact about housing.
D, I drafted it in my head on the train home so I had to get it posted before I forgot it all again.
It's good at least that she was prepared to listen and to try to get to grips with it. I think most people are inherently resistant to a major change such as LVT.
Was the booming population and demographic desire for more personal space discussed?
@MW
Still believe you you should stand in an election to Westminster as the "House prices/ rents too high" candidate, in some area where there is noticeable multi-occupation/ studenty feel to the place.Will split the deposit .Serious.
"If we had LVT, then surely landlords would just 'pass it on to the tenant in higher rents?" In other words ALL taxes get passed on as higher prices. She just made the small governemnt low tax argument!!
Steve Keen calls it the First Home Vendors' Grant.
BE, somebody at the other end of the room mentioned 'the population explosion' at which stage I interrupted and pointed out that the UK population had only gone up by a third since WW2, a compound growth rate of 0.5% a year. Nothing we can't handle.
And LVT is not a major change at all - it all depends on which taxes you replace it with (Council Tax, SDLT, IHT and the TV licence fee being the prime candidates).
DBC, thanks for vote of confidence.
L, that's the beauty of it. As Adam Smith pointed out, all taxes get 'passed on' except for taxes on the rental value of land (because supply is fixed etc).
As evidence in support of this, we know that the retail price of most goods is pretty much the same up and down the UK, even though rents and Business Rates on high streets up and down the country vary enormously. The selling price is fixed and the rent/Business Rates just soaks up the extra profits in the most suitable locations.
D, in which Steve Keen would be absolutely correct.
The folly of promoting the subsidy of an allready overpriced asset is clear. Even thoght the buyers are select it will still affect the expectation of all sellers. Also that expectation would be hard to undo if the subsidy was withrawn.
-subsidy of the purchase of- , that is
The credit crunch demonstrated that values are connected with the availabilaty of money.
"Nothing we can't handle."
But we seem to choose not to handle it :-(
Well done for getting out on the platform.
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