Regular commenter Kj posted a link to Justin Keith's Twenty FAQs about Geo-Libertarianism, in which he refutes twenty Frequently Raised Objections. He covers some of the same ground as I have done but from a philosophical/moral standpoint rather than just cold facts, logic, maths and economics, presumably because he is addressing Faux Libertarians rather than Home-Owner-Ists
It really is pathetic that the Faux Lib's come up with entirely contradictory arguments, so our hero has to deal with the KLN2. Wouldn't LVT increase the price of land? (nope) as well as batting away Faux Lib fave Murray Rothbard's objection in KLN 6. A 100% tax on rent would cause the capital value of all land to fall promptly to zero (correct) Since owners could not obtain any net rent, the sites would become valueless on the market (bollocks)".
The first statement is incorrect, the second statement is correct. But the assumption that land would become valueless is idiocy, how can this man be considered an economist?
i. Imagine, if you will, a fairly real life example: the council or some other government body decides to sell off an average semi-detached house which is superfluous to their requirements for its market value of £180,000. We know that the rebuild cost/value of the building is about £80,000, so the land is worth £100,000 (by subtraction).
ii. In this example, a bank is offering a twenty-five years interest-only mortgages, fixed at 6% for (say) ten years on a non-recourse basis and it so happens that the purchaser has £80,000 in cash to pay as a deposit. The purchaser pays his cash and takes out the mortgage. The purchaser is now clearly the legal owner of the house, and will benefit if he keeps it in good repair, or decorates it to his personal liking (or to the liking of his tenants), keeps the garden looking nice etc.
iii. And for the next ten years, he is paying over £500 cash every month which is +/- the same as the rental value of the site. Although he is the legal owner of the house burdened with a mortgage (the land and buildings are part-owned by the bank in economic terms), you might as well say that he is the 100% owner of the building itself but the bank owns the land, or at least collects rent on the land.
iv. So our hero is perfectly happy with this arrangement. It is a perfectly normal, every day arrangement, he is confident that he can meet the interest every month and being a cautious cove, he builds up a sinking fund of other investments so that he can one day pay off the mortgage in full, or to cover him for a few months if he loses his job, or to buy a pension annuity when he is too old to work etc (OK, in this day and age, this part of the example is rather fanciful, but I'm sure there are a few sensible people left in the UK).
v. A few years later, he is going through the small print and it turns out that the bank is in fact owned by HM Treasury, and every penny of the interest/rent he pays is going straight into government coffers. Does this make the slightest bit of difference to anything? Surely not.
vi. So why would it make the slightest bit of difference to the substance or the reality if, in fact, on Day One he hadn't taken out an interest-only non-recourse mortgage to buy the house, but had in fact paid £80,000 cash for the bricks and mortar and bought the site for a zero premium, subject to an monthly ground rent/LVT payment of £500 fixed for ten years and then subject to review?
vii. As long as the mechanism for the ten-yearly review is agreed at the onset, i.e. it will be based on rental values and selling prices of other similar houses in the area, he will be able to budget for any changes as he goes along. This is no riskier than having a variable rate mortgage, is it?
viii. And he can still build up a sinking fund using the money that he would otherwise have to hand over if it were a repayment and not an interest-only mortgage, and with a bit of luck, after twenty-five years he has built up a fund which will generate enough interest/dividends to pay the LVT/ground rent for the rest of his life. You can't take it with you, you know.
ix. To round off the picture, we can throw the Citizen's Income into the mix as well, he knows from the onset that he and others he shares the house with from time to time (family, friends, lodgers) will be receiving rather more than £6,000 in Citizen's Income or Citizen's Pension payments each year (unless he wants to live there on his own). As the CI payments will be funded out of the LVT which people are paying, he can just ignore both sides of the equation and work on the basis that he received the site for free, pays no ground rent and receives no CI. But the benefit that he gets from owning his own house, or the rent he can collect from tenants is exactly the same as in the example above.
Tuesday, 13 December 2011
Killer Arguments Against LVT, Not (184)
Subscribe to:
Post Comments (Atom)
9 comments:
Great stuff Mark, how many times can you keep reinventing the wheel?
"... would it make the slightest bit of difference to the substance or the reality if, in fact, on Day One he hadn't taken out an interest-only non-recourse mortgage to buy the house, but had in fact paid £80,000 cash for the bricks and mortar and bought the site for a zero premium, subject to an monthly ground rent/LVT payment of £500 fixed for ten years and then subject to review?"
Of course it would make a difference, in fact it would make two massive differences.
First, at the end of the ten-year period the rate of interest he pays on the loan might change but the sum borrowed will not. During that period inflation will have reduced the real value of the capital sum so he will be paying less in real terms each year of the fixed-term arrangement. When the variable rate kicks-in it might be more or less than the fixed rate but the real cost is (in all but the most improbable circumstances) going to be substantially lower than when he bought the hovel. Were he to rent/pay LVT on part the overwhelming likelihood is that the end of the ten-year period will result in a massive increase in cash terms just to maintain the real value to the recipient.
Secondly, once he has paid-off his mortgage he need pay nothing more. All other bills will continue, including maintenance, but he will be several hundred pounds a months better off for ever. Were he to rent / pay LVT for 10 18ths of the original price during the whole period of his occupation he would pay substantially more.
And before you are tempted to say he would be better off because he won't pay other taxes, don't. That it not the point you made. The point you made stands alone and is wrong.
"Secondly, once he has paid-off his mortgage he need pay nothing more."
This example is for an interest-only mortgage, so it's a case of if, not when. "If" makes it a different example. Agreed on your point about inflation, though inflation is not a given, there have been long periods in our history when inflation has been zero. There is always the possibility, too, of deflation.
CD, ta, I'm not reinventing anything, I get the raw material from idiots on the internet and I debunk it.
TFB, so what about inflation? It cancels out on each side of the equation, house prices, rents, wages and Citizens Income.
Of course, you use the emotive term "massive increase" in LVT after ten years. So? Rents are by definition always affordable, the LVT will be no more and no less than people living in that area can afford/are willing to pay to live in that area - if it were more expensive than that, they wouldn't live there.
Or are you admitting that you expect - and indeed want - housing to be less affordable in ten years' time, and even less affordable in twenty years, and so on?
"Were he to rent / pay LVT for 10 18ths of the original price during the whole period of his occupation he would pay substantially more."
No, he won't pay "more". Everybody will pay the same. It's the current system - Ponzi scheme - where some people pay nothing and other people pay huge amounts which is wildly unfair, and incumbents constantly push up the price for next generations etc where some people can be said to be paying "more"
And our beloved inflation which gets rid of your mortgage for you is just robbing from other people with cash savings, isn't it? So your approach is like a burglar complaining that the police are ruining his livelihood.
"And before you are tempted to say he would be better off because he won't pay other taxes, don't. That it not the point you made. The point you made stands alone and is wrong."
Nope. Rothbard said that with LVT "sites would be become valueless on the market". That is clearly wrong. And you have said nothing which supports his contention.
Feel free to point out that people like the idea of getting windfall capital gains, like having inflation wash away their debts for them etc, that is merely a system for taking money from other people (future generations and cash savers respectively).
B, inflation is theft or stealth taxation. Don't pander to him on that point.
Good one. Isn't the question:
Why are we paying banks for public services?
Why not just pay government directly?
Much cheaper and more efficient to cut banks.
BTW when a bank creates a loan it is using common property in "the money". The money does not belong to the bank. Nor does it belong to the home owner.
"TFB, so what about inflation? It cancels out on each side of the equation, house prices, rents, wages and Citizens Income."
You are, no doubt quite deliberately, missing my point. You argued that makes no difference whether someone buys land or rents it. My point is that inflation (which I neither invented, proposed nor encourage) means the cost of buying is (in all but the rarest and most unlikely of circumstances) considerably lower than paying rent until the trump of doom. It is a plain and simple fact.
Arguing that inflation robs savers is also to assert a plain and simple fact but is neither here nor there, inflation is a fact.
Your case throughout the 184 times you have highlighted the flaws in LVT is that LVT will lead to stable land prices. If that is so (and I don't believe it is) the real value of land will remain roughly constant, hence it will rise in cash terms roughly alongside general inflation as will LVT. The £100,000 paid at the start will be worth, say, £70,000 or £80,000 after ten years whereas rents (on your argument of stability) will remain payable on £100,000.
Using my amazing powers of telepathy I predict a response along the lines of "so the landowner gets a windfall, all the more reason for LVT". I am not addressing that point, all I am doing is pointing out that your assertion of their being no substantive difference to the wallet of the house-holder between renting and buying land in the example you gave is simply not so.
TFB, shall we stick to the actual topic, which was Rothbard's idiotic claim that "sites would have no value in the market"?
You say, correctly, that rental values, prices are likely to increase in future, as would the LVT. Somebody who comes along in ten years' time would also face higher rent, purchase price, mortgage, LVT, whatever.
Fine.
So what you are saying is that the site value will be even higher in future. So you are in fact AGREEING with my observation that under LVT, sites would NOT "have no value in the market". So the original KLN was bollocks.
As to whether there is a BIG difference (or a small difference) is an entirely separate issue.
I agree with your Homey observation that land ownership, large mortgages and inflation are a way of channelling wealth from productive economy/younger people to banks/older people. But that is hardly an argument against LVT either, is it (as you yourself tacitly admit)?
If we want to channel wealth to older people, then by all means, let's do it, but let's channel it to ALL older people by the simple expedient of increasing the Citizen's Pension and reducting the Citizen's Income (all funded out of LVT).
"B, inflation is theft or stealth taxation."
That rather suggests that inflation is a deliberate policy whereas to my recollection, every government has tried to keep inflation down as far as possible, with a greater or lesser degree of success. Or has it all been posturing?
B, it is to some extent deliberate, the current lot have learned the lessons of the 73-74 house price crash, where a 30% real price fall was masked by 30% inflation over the same period, so nominal price falls were negligible. And as TFB points out, the Homey's love it because it erodes the value of their mortgages.
Post a Comment