If you attend an event without any fixed seating, for example an open air rock festivals, but the same general rule applies to anything really, you'll observe that the first few people go and stand near the stage to get the best view/best sound.
As more and more people arrive, there comes a time at which the inconvenience of being jammed solid into a crowd with no possibility of being able to nip to the loo, get a beer etc and return to your friends makes it a more sensible option to stand further back; then the middle of the area fills up and it's a more sensible option to go even further back where you can spread out your blanket and have a nice sit down during the boring bits and so on.
You can sometimes misjudge this, maybe you arrive and think that you can spread out your blanket nearer the front, but as the more packed part of the crowd extends backwards, you'll find more and more people trampling on your blanket, blocking your view etc, so you then have to make a decision whether to roll up the blanket and shove a bit further forwards, or to make a tactical retreat further back.
So in the end, everybody makes their personal trade off between 'being at the centre of the action' and 'having a bit of spacef' and we end up with a fair, i.e. optimal, utilisation of the physical space. There are no privileges involved; everybody pays the same for his ticket (those who turn up extra early to be in the front row have effectively paid 'extra' because they have to 'spend' several hours of their time just standing there before the concert starts) and everybody gets much the same value.
Here's my simplified sketch of the relative densities: 
Regular readers will no doubt have guessed what I am driving at here:
i. I'd consider this to be the free market base case scenario, and in the absence of planning restrictions, this is also how cities grow; smaller buildings on larger plots in the centre, which have been there since the city was a hamlet, are knocked down and replaced with skyscrapers, and the houses with big gardens are found further out.
ii. Now, if a ticket to this concert costs £50 and we consider the stage to be 'the centre' then we could say that the people crammed in at the front are paying for half a sq yard each, so the rent is £100/sq yard; the people in the middle occupy one or two sq yards each, so the rent is £25 - £50/sq yard and the people at the crowd sitting on blankets are occupying two or three sq yards each, so the rent is £17 - £25/sq yard.
iii. But because everybody makes his or her own trade-off and has his or her own marginal preferences, everybody ends up getting the same value, and there is no concept of 'freehold', you can only claim the space you can physically occupy; if you're sharing a blanket with friends, they can save your space for the ten or fifteen minutes it takes you to nip to the loo or to the bar, but if you stay away for too long, somebody else will encroach on your space.
iv. Exactly the same logic applies with towns and cities. Rents at 'the centre', whatever that happens to be - the literal town centre, or anything else which draws people to an area, primarily higher wages, a train station, a good state school, a nice view - will be highest and they will fall away the further a location is from that centre.
UPDATE: Sobers in the comments gives another good example of a "centre": a "nice area" which means an area where "nice people" live, even if this is just a formerly run down area which has become gentrified.
v. Now, isn't it fair to say that the people in the front rows of the concert are placing a burden on those further behind? Surely yes, because everybody else behind them would probably rather be a bit further forward. And isn't it also fair to say that those directly behind them are placing a burden on those at the front because they are squashing them forward? And they are also placing a burden on those behind them, because if they weren't standing up, then the people further back wouldn't need to stand up to see the stage, and so on?
vi. Even those spread out on blankets at the back are placing a [smaller] burden on those in the middle, because if the people on blankets at the back weren't there, the people in the middle wouldn't have had to roll up their blankets and stand up. And so on.
vii. Now, imagine we are looking at a town or city; there is no concert and no stage. All it is a lot of people, and a large part of the rents that people are paying is because they want to be near other people (higher population density = higher wages, more train stations, more good schools, probably more impressive parks and museums etc).
viii. So there is no identifiable band or concert promoter ('land lord') who can makes the area desirable (however temporarily) who can legitimately charge for the entry ticket (or 'rent'), it is the population itself (who are thus simultaneously 'land lords' and 'tenants'). Allowing land lords or land owners (in the traditional sense) to collect land rent (or sell their land for more than £negligible) is like allowing people to turn up early at the concert, put down some blankets near the stage and then for these early arrivers to charge other people money for the privilege of standing on them, i.e. drive a wedge between the total amount that people will pay to stay in the front row and the value which the band or concert promoter receives.
ix. If everybody paid rent to the rest of the population (the 'land lords') for the land from which they wish to exclude others, i.e. occupy or 'own' (instead of paying income tax), then surely this would lead to the optimum use of land (the same as at our rock festival).
x. Finally, it seems stupid to tax incomes because the people who add the most value, run the most successful businesses etc are also the ones which make the town a more attractive place to live - the incremental extra income that they can earn by living there rather than anywhere else is already being paid in rent - and these are the ones who should be encouraged to move to the town. So why do we have a tax system which discourages people from working and encourages people to merely try and own as much land as possible and collect the rents which others are generating from those people themselves? The only point of working seems to be to try and get enough money together to buy enough land to be able to pack in working and become a landlord instead.
Local Council Efficiency
3 hours ago
12 comments:
You see the same effect on the beach where the bit nearest the car park and other facilities is the most densely populated - ie most in demand.
AKH, that's another example, but you can see it anywhere that there is a 'centre' and free movement of people be it towns, concerts, beaches, groups of people in or outside a pub, places with natural resource, even on blogs (people comment on posts that already have the most comments), the whole thing tends to be self-reinforcing. It's called 'agglomeration'.
All very nice in theory, but if you actually look at land values in reality you will find that prices near the centre are often lower than ones further out. So much of property value is not where it is relative to services, but who is living next door. I could pick areas in my home town that are the same distance from the centre (and services) but are vastly differing in the prices for identical houses.
Hence why house prices rise when a run down area become gentrified. It hasn't changed location - the station is exactly where it was, as are the shops etc. All thats changed in the type of people living there. Neighbours who don't want to rob you, mug you or sell you drugs equals higher house prices.
S, yup, that's another illustration of the general rule that you pay to be near people - in your example, nice/wealthy people pay more to be near other nice people (who also tend to be higher earners).
'Centre' is not (always) to be taken literally - the houses with the nicest views over The Hallowed Green Belt are clearly not in the geographic centre - and the 'centre' in your example is 'where the other nice people are'.
But houses near a big town with such a view are still worth more than houses near a small town with such a view.
And clearly, if there are 'nice' people, you will get nicer shops and so on, thus attracting other 'nice' people, so this is also self-reinforcing.
Now, if a ticket to this concert costs £50 and we consider the stage to be 'the centre' then we could say that the people crammed in at the front are paying for half a sq yard each, so the rent is £100/sq yard ...
Now you sorted this out in your head ON the blanket or OFF the blanket?
So lets take a run down area, and slowly over time 'nice' people move in, invest their money in doing up the housing stock, invest in businesses that serve upmarket customers, and generally move the area from a sh*thole to a decent place to live. House prices rise in step with the improvements.
So who should get the benefit of these improvements? The people who have created it, or the rest of society, who did nothing to create it?
Your concept of LVT assumes there is some intrinsic value to a physical location, based on its physical surroundings. Which is obviously true, particularly when taking about commercial property. A business located where lots of people are has considerably more chance of profit than one where few people are. And on a broad brush scale the same is true for houses - the further out of London you go the more house prices fall from London ones.
But on a smaller scale (at town or even city level) there is far less correlation between physical location and value, due to the 'good/bad neighbourhood' effect. And that extra value (or destruction of value) is not created by society as a whole, but the relatively small groups of people who live there.
So why should the people who destroy value (by acting in anti-social manners, and creating low value property) be given wealth created by people do the opposite and create high value property?
@Sobers
Don't often comment here, but this is so crass...
'So why should the people who destroy value (by acting in anti-social manners, and creating low value property) be given wealth created by people do the opposite and create high value property?'
And why, pray should 'people who destroy value' be given part of the income I generate from owning, running and investing in my own business and creating 45 jobs?
S, we've done that 'home improvers' before.
They all buy £80k houses in a few particular streets in a run down area, they all spend £40k on doing up their houses, and hey presto, by the end, their houses are worth £150k each, an increase of £70k.
£40k of the increase is down to their own efforts (the improvements) and £30k of the increase is down to
a) everybody else's efforts and
b) the fact that the state protects their right to own land in the first place.
It's easy to spot that the £30k is unearned windfall gain, because there will be some people who own a house on those streets who don't spend a penny on improvements. The value of their houses will go up to £110k. That £30k is entirely unearned by the non-improvers and is equally unearned by the improvers.
Shiney, thanks for back up.
@shiney: I'm against all taxation, not just LVT, for precisely the reasons you give.
As for your figures MW, you've pulled them out of your hat. How is there any 'unearned' element anyway? The 'extra' value created above any cash investment is entirely down to the new people who have moved there. Nothing else has changed. So why should they not get that value? AFAICS the only people in such a scenario who have unearned value is anyone who stays put and whose house goes up in value as the area gets better around them. By definition an area isn't going to be gentrified unless a large amount of the old inhabitants have moved out and new ones moved in, so the number of people who end up staying put throughout the whole process will be small. Good luck to them I say. As for the incomers, I say they have earned all the value created. People across town did nothing to improve the area, so I repeat, why should they benefit?
S, it's quite simple.
The new purchaser pays £40k to a builder or architect who do work, that money is 'earned' from the builder or architect's point of view and so should not be taxed (no VAT, no income tax etc).
The additional £30k is unearned, that is monopoly gains which accrue to land owners merely because they are land owners.
"AFAICS the only people in such a scenario who have unearned value is anyone who stays put and whose house goes up in value as the area gets better around them."
You are looking at form over substance. That unearned element is the same for everybody, it does not change its nature depending on whether you've had your house done up or not.
Finally, scrapping tax on the £40k means that there will be a lot more home improving going on
a) The cost of the builder or architect will fall quite markedly, to maybe £30k. And people will have much more disposable income to spend on such things.
b) The land value uplift has a rental value of (say) £1.5k a year which is liable to extra LVT of (say) £1.2k a year, so the stick- in-the-muds will be encouraged to do the home improvements themselves as well - remember the estate agents' adage: "It is better to buy the worst house in the best street that the best house in the worst street".
"The only point of working seems to be to try and get enough money together to buy enough land to be able to pack in working and become a landlord instead."
This has been the aim of Englishmen since the industrial revolution. You make your money in industry, then you buy a country estate and join the landed gentry.
B, that's true, I suppose. Personally, I think we ought to tweak things that it is more rewarding trying to make a success of your job, career, business.
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