There's an interesting article on Next Big Future about a whizz-bang new kind of public transport known as SkyWires. The author muses on how this might be funded and then considers the merits of using LVT to fund it:
... when I was younger when I found their arguments appealing. Basically Henry George read Ricardo’s Law of Rent and postulated that rents would grow ever higher in the future, siphoning off wealth... Productive power is increasing in all developing countries -- but wages and interest do not follow. Rather, they are controlled by how rent is affected. Wages and interest can increase only when land values do not increase as quickly as productivity.
All of this is demonstrated in actual fact. [But there is] one contrary opinion opposing Single Tax theory (by Murray Rothbard) (1).
I personally find Georgist theory unconvincing for the reasons given by Rothbard (and others). I also do not regard high real estate prices as a sign of true national wealth.(2)
This is just to introduce the ideas involved, the question being, suppose you can move buildings around? Would people ‘rent’ slots for their buildings from the tax authorities? What happens to Single Tax theory then? (3)
1) This article is much-loved by Faux Libertarians because it's the usually mix of half-truths, half-lies and one-sided economics, I'm sure I have demolished various bits of it which the FL's have quoted at me, they seem to think that this is Gospel and The Beginning And End Of The Matter.
2) Well yes and no. Rental values are much higher in a well-organised society with a successful economy (the rental value of land in Greater London is a multiple of the rental value of all the land in Scotland, for example), so rental values are an indication of 'national' wealth. But privately collected rents (or land values) are merely a measure of the wealth which is being transferred from the productive economy to land 'owners'; they are no more private 'wealth' than are cash welfare payments funded out of general taxation, as one private individual's gain is another private individual's loss. That's a Georgist argument!
3) There's no need to "suppose". We know exactly what would happen in real life, because some buildings are in fact portable and this does not affect the site-only rental value one iota.
Robin Smith provided us with a good example recently:
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Box Park Retail Centre [in Shoreditch, east central London] opened Friday, all units made up from freight containers. The world's first "pop up mall". Amazing.
1 acre of land
61 units, all freight containers
£30,000 annual rental per unit *
£1.83 million total annual rental **
@5% capitalised, selling price =
•£37 million entire development
•£600,000 per unit
The containers (the "buildings") are close to zero cost. In fact they are probably "repairing leases" so the tenant will pay for all improvements to the structure anyhow!
IT'S THE LAND STUPID!
* They will be paying 40% on top of this in business rates (publicly collected rent, aka LVT). So the annual rental value is truly £50,000 per unit.
** "Annual rental" is what the landlord gets for both building and location. "Annual rental value" is the value of the location only.
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In practice, it does not make one jot of difference to the people renting those containers whether the freehold title is held by the local council or a private entity, the location is exactly the same, and people are obviously happy to pay £40,000-odd a year in rent, service charge and Business Rates to trade from a container (costing a few hundred pounds) in that particular location.
And yes, many business do "rent... their buildings from the tax authorities"! The government-owned Crown Estates is one of the largest commercial landlords in the UK, and all commercial land and buildings is subject to Business Rates, which is so close to LVT as makes no difference (in a full-on LVT world, LVT would work out at about twice as much as Business Rates, and this would be the only tax payable by businesses, in other words, their tax bill would go down by eighty or ninety per cent).
The same logic applies with portable residential units, such as beach huts, static caravans or house boats; there are good sites and not so good sites; many of these sites belong to one branch of government or another. There are huge differences in the rents which people are happy to pay to have exclusive possession of some locations rather than others and these differences cannot be competed away, regardless of who collects the rent.
Monday 12 December 2011
Killer Arguments Against LVT, Not (183)
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18 comments:
"Land improvements aren't portable" is literally the only possible argument against LVT. That is to say if I'm planning an investment in land improvements, I'll be discouraged by the risk that someone will move in and build a train station next to me, making my investment sub-optimal before it's amortised. So in a world where that isn't true, Single-Tax theory gets even stronger.
Also I wrote a rebuttal to that Rothbard article but now I can't find it. Really all that is necessary is to point out that the landowner doesn't have to do a damn thing to get the ground rent, just auction off the land to the highest bidder. Rothbard himself even acknowledges that the function of "land-use decider" can be provided competitively, and thus we would expect the price of the service to approach marginal cost, leaving more for the ground rent.
RA: "Land improvements aren't portable"
In the short run no, in the long run, yes.
But so what? You can still sell on the improvements for what they cost you, there's no personal risk in making improvements.
Clearly, it helps in decision making if you know what is going to be built in that area. Having a new railway station will make most sites worth more (and admittedly, some sites worth slightly less, e.g. along the HS2 route). And if your plot is adversely affected, then by and large you'd get an LVT reduction to compensate.
Ta for the link.
Rothbards sole purpose, just like the neo classical school and the Marx/Engels doctrine, left AND right, is to obscure this simple truth. The False Battle.
Their job was to make sure that the ones collecting the economic rent of the country was obscured.
This persists today, led by the money reformers. The austro libertarians(Faux Libertarians).
Its quite simple. We are quite dumb. Or insane.
They are making sure we all get fleeced for a nice little earner.
Its not the land stupid, its the planning permission.
If the next door neighbour could do exactly the same as the owners of this retail park without having to get permission from the State, what do you think the value of the retail park would be?
The vast majority of land value is the scarcity value of planning permission, not the underlying land, or its location (though a small percentage is both those things).
S: "If the next door neighbour could do exactly the same as the owners of this retail park without having to get permission from the State, what do you think the value of the retail park would be?"
Er, it would be the same as for this retail park, wouldn't it? No more and no less.
What's your problem anyway?
No planning permission = no rental value = no LVT.
Generous planning in tip-top area = very high rental value = very high LVT.
Generous planning in OK area = higher rental value than with none, but never as much as in tip-top area = some LVT.
LVT works perfectly well with or without planning restrictions*, and surely you don't imagine for one second that land in the Outer Hebrides would ever be worth as much as land in town centres, even with the most generous planning permission imaginable.
* Maybe a farmer doesn't want to cash in and sell his land for development, so never applies for planning. Good luck to him, that keeps his LVT down to a very low figure, if any.
"Er, it would be the same as for this retail park, wouldn't it? No more and no less."
Of course it wouldn't. Lets say I'm a pension fund and I fancy buying a retail park - nice source of income ad infinitum. As it stands I can buy the one that has planning only. Local authority aren't going to give planning for another one right next door, so thats it. One retail park, monopoly in that location, equals big capital value.
But if I (as a pension fund) could buy the field next door (for peanuts in comparison) and just erect my own retail park (which is pretty cheap as you have pointed out) why wouldn't I? And what effect would that have on the value of the existing park? It would reduce it to the value of the improvements, and the underlying land, thats what it would do. Which would be a fraction of the current value.
You constantly (correctly) point out that only a very small percentage of the land area of the UK is developed. If overnight we said we would double that area - ie make that amount of land available for development what would happen to house prices and commercial property values? They would plummet thats what. Why should this be? Their location is exactly the same. Same people live close by. Same streets, same shops, same stations. Why has the value halved (possibly)?
Because the vast amount of the value of property is not locational, or created by the existence of society, or the State guaranteeing legal title, but the scarcity of planning permission.
That's is what LVT is taxing, not the value created by the existence of society, instead the value created by State interference in the market place.
mises.org posted that rothbard-rant once again a few days ago, same 'ol "my property"-rationale in the comments.
S,
1. As per usual you are not addressing the issue - whether LVT is feasible in a world where buildings and structures are moveable, and it clearly is.
2. As to your out of town retail park issue, which is completely irrelevant to the topic in hand, I have already explained that LVT is based on "the site rental value assuming optimum permitted use", so no planning = no tax.
3. As it happens, on the facts and in the real world, the example I gave was of a container park in central London, most of which is hugely built up, planning is usually quite generous. The landowner next door would have little problem getting planning for a similar park if he wanted, but the existing buildings are worth more, so why would he?
4. And the rent for one container in central London is nearly £40,000 a year all in. Do you seriously claim that if you were allowed to station one in your back garden and rent it out, that you'd get more than a few hundred quid a year for it, or a few thousand if residential use allowed? Surely not?
5. If we doubled the surface area on which we are allowed to build, then the amount actually developed would not double, there would be no point, towns would expand outwards until they hit the marginal area and then development would stop.
6. Instead of setting up these bizarre hypotheticals which prove nothing, why not look at towns and states with no planning restrictions, e.g. Houston. Land in the middle of town is worth hundreds or thousands times as much as on the very fringe, because there's always new land at the fringe and a limited amount in the centre of town.
And even if your claim were true, which it isn't, then so what? The total rental value of UK land would probably go up slightly, so the tax base for LVT would still be there, so what? 27 miliion households and x million businesses would still be paying a similar amount of LVT.
7. "That's is what LVT is taxing, not the value created by the existence of society, instead the value created by State interference in the market place."
Well, even if that were true, so what? No planning = no tax. You get what you pay for and pay for what you get.
And as you explain, under current rules, if your pension fund wants to own a shopping centre, it has to pay far more for the land than for the field next door. So the future owners have to pay for the planning, why is it so terrible if the current owner pays for planning as well?
And the statement isn't true anyway. You of all people know perfectly well that in 99.9% of the country, you wouldn't be able to rent out a container for £40,000 a year. The fact that you can't do so is nothing to do with planning restrictions but the simple fact that the location value of your back garden is not as much as the location value of Shoreditch, London.
Sobers: I'm really curious about this fairy-tale of a place where there is no rent without planning. Do you actually still believe that suddenly everyone including the City dispersed to a field somewhere in the absense of planning?
-Kj
Anon, these Faux Lib's are even more infuriating in their twisted logic than yer common or garden Home-Owner-Ist.
Kj, Homey's don't answer direct questions, instead they keep coming back with wild new claims, which often cancel out their previous claims.
But as I've said before, Sobers is good value, he does actually know perfectly well about what drives land values and stuff, he just pretends he doesn't to annoy me. And him leaving comments here saves me the bother of scratting round the internet for raw material for the KLN series.
You haven't answered my question? What is the effect on property prices of liberalising planning laws? Would they go up or down?
And assuming you admit they go down (which they would) then it follows that the 'unearned' value you constantly bang on about is not created by society at all, but State dictat. It is no more 'moral' to tax value created by purely by State decree than it is to tax income or any other measure of wealth.
If land values were dictated purely by location, with no artificial restrictions on usage then LVT would have some merit, as ALL the unimproved value would be the result of society. As it is, the vast majority of the unimproved value is planning related.
You really should get out of Greater London too. There's a whole world out there outside the M25 you know. You might get quite a different perspective on things.
Someone needs to get on my case so I actually get around to finishing my Rothbard rebuttal. I get so sick of people posting it like it's some sort of final word on the subject. It's almost as if they haven't actually read the thing...
Sobers: You constantly (correctly) point out that only a very small percentage of the land area of the UK is developed. If overnight we said we would double that area - ie make that amount of land available for development what would happen to house prices and commercial property values? They would plummet thats what. Why should this be? Their location is exactly the same. Same people live close by. Same streets, same shops, same stations. Why has the value halved (possibly)?
Their location, by definition, cannot be the same. This is not a trivial point. If you double the land available to build at a town, unless half the land within the existing town boundaries doesn't have planning permission (which sounds kind of odd to me), the additional land must be outside the current boundaries. This land is further away from the rest of the town than the existing land and tends to be lower value because of it.
You have this strange idea that planning permission is somehow separate from a location, but planning permission applies *to* a location. Also, it is not the grant of planning permission that boosts land value, but the denial of permission that potentially suppresses it. There are plenty of sites that granting planning permission will not make a blind bit of difference, because noone wants to use it anyway. There must be pre-existing value in the site before planning permission is worth considering.
However, the value that is suppressed does not vanish, it transfers to the sites that have permission. Hence, liberalising planning laws would leave total land value untouched (the demand is exactly the same as before), it is merely the distribution that changes. Plots with existing permission decrease in value as plots with new permission gain (assuming that the plot is actually desirable in the first place), until the new plots are developed at which points the existing plots will generally gain because they tended to be in better locations than the new sites.
And assuming you admit they go down (which they would) then it follows that the 'unearned' value you constantly bang on about is not created by society at all, but State dictat. It is no more 'moral' to tax value created by purely by State decree than it is to tax income or any other measure of wealth.
The existence or otherwise of planning regulations has absolutely no bearing on the moral case for LVT. Whatever land is permitted to be used will be contested over. Someone *must* receive the proceeds of that competition. If not society, then who? and by what right?
More to the point though, if the purpose of LVT is to give the land value to the entity that creates it, then saying that value is created by State dictat means the value belongs to the State, no?
fraggle wrote:
Someone needs to get on my case so I actually get around to finishing my Rothbard rebuttal. I get so sick of people posting it like it's some sort of final word on the subject.
Problem is that for most libertarians, it will be your word against that of St Murray. And unfortunately logic doesn't count for too much when you are contradicting a Prophet. Even if you have written a model rebuttal, it stands a good chance of being discounted by the FLs as it will not be part of the Holy Writings.
Still, good luck with it! No doubt, it will still be useful to those who are searching for an answer but have not yet decided on The Answer.
uipS: "What is the effect on property prices of liberalising planning laws? Would they go up or down?"
Do you mean under current rules? At the margin, prices would go down a bit, in the centres they would be unchanged. But I think you'll find that I already answered that question with my Houston example.
I refer you to the comments of my noble friends Fraggles and Derek who have explained to you why you are missing the point, I would just add that LVT is on the RENTAL value of land, not the SELLING PRICE, so there is no need to answer your question anyway.
If we liberalised planning laws, the total rental value of all UK land would probably go up (however slightly), and that is all that matters. So instead of 2 million acres @ average rental value £30 per square yard, we'd have 2.5 million acres @ average rental value £26 per square yard.
Now in return, could you possibly answer Kj's question, and maybe Fraggles' question if you're feeling generous?
F, yes, finish your Rothbard rebuttal.
D, ta for back up.
Re planning permission, case in fact: I live in a small town (pop 25-30K). The difference in bare land prices are five-fold within a 3 mile distance. There is a lots of available bare land in the lower end, with planning permission, that has been for sale for years. Drive 2-3 miles further out of town from where the lower end land is, and land prices equals the fees for getting planning permission. Drive 80 miles to the capital and land costs is 10 times the higher end in my home town. Planning permission is not the issue!
Re Rothbard. There is one rebuttal here: http://sites.google.com/site/justindkeith/home/geolibertarian-faq#rothbard
-Kj
Kj, exactly. I also linked to an article a while back which said that property developers who owned marginal land with planning at the very edge of some US towns (those with fairly liberal planning laws) were in fact selling it back to farmers for its bare agricultural value of $10,000 an acre (or whatever).
And as we well know, planning laws didn't use to be so strict in the UK, but we still huge differences in the selling price or rental value between different areas. Sobers' whole argument completely fails on the facts.
Good rebuttal, I'd forgotten just how stupid that Rothbard article was, the man is clearly an idiot, or a compulisve liar.
I don't believe MR was an idiot, but the axioms of the austro-libertarian paradigm doers not allow for viewing land differently than any other property. Disregarding the fact that land has been a matter of dispute and special treatment by law (even their loved common law) since the advent of agriculture, probably before then as well, for good reason. I think this a thorn in the eye of their simplistic analysis, and he gets into all kinds of trouble, especially the economic arguments are so nonsensical, they easily lead one to believe that he thought noone would notice and did infact lie.
-Kj
Kj, I meant specifically the bit where he claims that a 100% tax on the rental value would push down selling price to £nil (correct), and that THEREFORE the rental value would also fall to £nil (bollocks).
LVT is no different to buying land with a 100% interest-only, non-repayable, non-recourse mortgage (and paying for the bricks and mortar out of your own pocket, or with a separate ordinary mortgage).
As LVT is a loan from the government, the extra upside is that part of the loan is waived if the land falls in value, but with the downside of a higher interest rate if it increases in value.
There are plenty of people who buy land AND buildings with 100% interst-only mortgages, and they still consider themselves to be the owners; they still use the land and buildings; and they still benefit if they make improvements to it.
If MR hadn't thought even this far ahead and grasped the analogy, then he he really is an idiot.
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