From Planet Property:
There must be some very happy landlords in [London]. We wondered a few months back whether rents could keep on rising in an environment in which incomes are being relentlessly squeezed. Thus far, the answer seems to be yes.
According to research by FindaProperty.com the average monthly rent in Britain rose by 1.6% in September, taking the typical asking price to £890 per month, the highest price ever recorded by the index. The increase means that a typical renting household can expect to spend almost half (46.2%) its monthly net earnings on accommodation.
But in London the situation is much worse. While the Capital has the country’s highest take-home earnings (at £2,721 per household, per month), the typical monthly rent has now passed the £2,000 mark (£2,075), which means the cost of renting now accounts for three-quarters of average monthly net earnings (76.3%).
OK, there's a handy table comparing average net income after tax and average rents in various regions of Great Britain, to which we can add a third column for net disposable income, after tax and rents (I've swapped the first two columns round and sorted them by increasing net wages):
Wales: £1,540 - £628 = £912
North East: £1,571 - £587 = £984
North West: £1,640 - £641 = £999
Yorks & Humber: £1,657 - £584 = £1,073
East Midlands: £1,663 - £629 = £1,034
West Midlands: £1,686 - £668 = £1,018
South West: £1,748 - £855 = £893
Scotland: £1,816 - £670 = £1,146
East Anglia: £2,102 - £819 = £1,283
South East: £2,343 - £1,163 = £1,180
London: £2,721 - £2,075 = £646
London is off the bloody scale, as usual, but for the rest of them, we observe that net incomes after tax and rents are more or less flat, i.e. net wages are £803 higher in the South East than in Wales, but a Welsh person can't improve his income by £803 by getting a job in the South East because he'll end up paying £535 (two-thirds) of that extra income in higher rent; and no doubt other living costs are higher as well, so it all more-or-less cancels out.
UPDATE: here are the same numbers presented as a table, excl. London:
The coefficient of correlation is 90% and the formula for the line of best fit is [[wages x 65.7%] minus £444]; we can assume £444 per household to be the modern equivalent of 'bare subsistence'.
We can go one further and compare post-rent, post-tax income with post-tax income, which illustrates the same point:
There are no particular outliers, from left to right, the two above the line are South West and South East; the two below the line are Scotland and East Anglia, make of that what you will.
Grand theft Labour
2 hours ago
19 comments:
I'd been thinking about that comparison - so thanks. Isn't it just so wonderfully elegant in proving the (appalling) way in which land rents suck up all the wealth creation?
But will LVT/Citizens income cure this, or do we need to nationalse 'land'? (BTW Land is the only thing I'd ever nationalise, or rather it'd take a helluvalot to persuade me to nationalise anything else.
L, no need for nationalising the actual land*, a tax on the rental value does a far more elegant job; people can then get on with producing real wealth (not taxed at all) instead of speculating in land values.
The CI is there because
a) it's better handing money back to people than letting the government spend it,
b) to level the playing field, we'd all be mini-landlords with a few thousand quid a year 'rental income' and
c) to act as a 'personal allowance' against your LVT bill.
* In terms of actual day-to-day control, land use is more or less nationalised, i.e. you need planning permission to stick on a porch, special permission to change from a hair dressers to a cafe etc. This is all very bad as well.
The point I was getting at (badly) is would LVT get us bigger post rent incomes? That is will this system secure the privatised tax element in rent for the rest of us? I 'spose the net sum rent paid less CI received does that.
L: "would LVT get us bigger post rent incomes?"
Yes of course, there are slightly different issues:
a) The Laffer effect of taxes on income are approx. equal to the tax rate squared. The overall average rate of tax on earned income in the UK is 50%, so our economy is depressed by 50% x 50% to only three-quarters of what it would be. So scrapping taxes on incomes and production = GDP rises by a third, less unemployment etc.
b) There won't be large parts of the population living off land rents (directly or indirectly - so include bankers), so they'll all have to get a proper job as well. And no more credit bubbles/financial crises.
c) Disparities in net incomes after tax and housing costs will be reduced slightly, leading to overall higher levels of 'general well being' and social cohesion.
d) With LVT, the govt. will be incentivised to only spend money on stuff that improves rental values.
"So it more or less cancels out".
Well, on your figures, after-rent income in Eastern England seems to be 44 per cent higher than in the South West and 41 per cent higher than Wales, which makes quite a difference, whereas the South West is only 38 per cent higher than London which is "off the scale", ie an outlier that can be ignored.
The South East is 31 per cent higher than the South West and 29 per cent higher than Wales. Quite a big difference for a family. Other costs, such as petrol and water, tend to be higher in the South West. So I am not sure your point is made.
No doubt these 5 are all "exceptions" and only the other 6 regions are "representative".
Outsider, now you are picking and choosing outliers*.
I'll stick the data on a spreadsheet and do a chart with a line of best fit, you will see that broadly speaking, higher rents = two-thirds of additional net incomes, I'll tell you the correlation coefficient as well, if you like.
* EE has higher wages than SW because a lot work in London or Cambridge (pushes up EE rents); but in EE the landscape is a bit dull and in SW you get lots of lovely scenery (pushes up SW rents) and these two effects seem to cancel out.
You can do the same exercise for rents in Wales, they are slightly higher than in NE even though wages are slightly lower, because Wales has got hills and valleys and beaches and stuff, and the sea is a bit warmer down there.
Re (a) I didn't know that. And wow!
50% x 50% = 75%,
But,
20% x 20% = 96%.
And my 'tithes' arguemnt (the wisdom of the ancients),
10% x 10% = 99%.
Cooo.
On the other hand, the North West, Yorkshire & Humberside, West Midlands and East Midlands all have very similar gross income and very similar average rents, so I am not sure what useful conclusion you can reach from the amazing statistical result that their after-rent incomes are similar.
L, yes, once income tax is less than 20% or so (or 16%, like in Hong Kong), the Laffer effect can be more or less ignored.
But it is always better to collect land rents than income tax, because that helps prevent bubbles and still adds a couple of per cent to GDP, faced with the choice of depressing it by 4$ or boosting it by 4%, I know which I prefer.
O: "all have very similar gross income and very similar average rents"
Well of course they do. That still proves my point (or certainly doesn't disprove it).
So where's the most economical place to be in the UK right now?
Outsider, I've inserted the chart etc.
JH, clearly, East Anglia (known as East of England in NewSpeak) is best, as average net income after taxes and rent is highest.
I imagine distribution of wages and rents may look different between regions. Hence I would also repeat using median values, this may improve convergence.
QP, i don't have enough info, but there's another chart I did of house prices vs wages for each local authority, it looks much the same, see here.
You will agree, of course, that whatever policy proposals you draw from this should definitely not be applied in London.
"L, no need for nationalising the actual land*"
because it already belongs to the state. All "landowners" are tenants who pay no rent.
Outsider, I'm a One-Nation-Libertarian, any policy proposals apply to everybody, rich or poor, wherever they live in the UK, including London. But you can't make policy by looking at extremes, you start in the middle and work outwards - the poor and the rich then have to fall into line.
B, good point.
Regarding Lola's question, correct me if im wrong; we would get more post-rent income in LVT+CI because of increased gdp and wages equals more purchasing power, even if the wages/rent ratio stays the same? I would assume that middle class londoners would throw most of the CI into increased rents anyway. Increased development would also maybe lower the rents a bit according to theory right?
By the way, I came across this article recently. It's about a gated community in Brooklyn, which like similar HOAs pays for its own amenities/infrastructure through an assesment on total capital value. Check out the LVT on this baby!
What gives some buyers pause is that homeowners must pay annual dues to the Sea Gate Association to cover security, street maintenance and park upkeep, which are 13percent of assessed home value and comparable to one’s property tax bill.
But that “double tax” should be weighed against prices, which are lower than in comparable areas like Mill Basin, said Natalia Tandler, a broker with Fillmore Real Estate. Indeed, from January through June, 21 homes sold there for an average of $761,047, the listing data shows, which makes Sea Gate about 25 percent cheaper.
13%, and the sky isn't falling down... Typo maybe? I can't find any reference to it elsewhere, but that has to be wrong, with the prices suggested. Even so, if it is actually 1,3 %, and that cuts away 25% of the compared location, that's pretty dead on regarding the depression of capital values equal the tax as an interest rate.
Kj
Kj: "Regarding Lola's question, correct me if im wrong; we would get more post-rent income in LVT+CI because of increased gdp and wages equals more purchasing power, even if the wages/rent ratio stays the same?"
You're not wrong, you are spot on correct. The wages/rent ratio is fixed, of course, but it doesn't matter how much of that rent (privately collected tax) is then taken as LVT (publicly collected tax) and recycled as spending on public goods, merit goods or CI.
But we have to be careful with "assessed home values", these might be some official and outdated assessments, like rateable values in the UK or Einheitswert in Germany, which were or are a small fraction of current rental or market values.
I once had a long, tedious and inconclusive argument with a German local councillor who swore blind that German Grundsteuer is 10% of capital value, when actually it's 10% of rental value as at forty years ago, and quite proveably raises about a third as much as Council Tax in the UK.
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