This is based on Bryan Kavanagh's chart, which relates to Australia. Rather unsurprisingly, we see that rents have increased from 10% to 18% of GDP and net earned income has fallen from 60% to 46% of GDP over the last sixty years as a result of GDP increasing.
Taxes have also gone up, from 30% to 36% of GDP.
Sources:
Nominal GDP and total taxes from the Public Sector Finances Databank.
Total rents derived by multiplying average house price x 5% x number of dwellings plus one-fifth for commercial and farm rents.
Average house price as published by the Nationwide.
Number of dwellings as published by the DCLG.
When science is irrelevant
48 minutes ago
33 comments:
I bet that some of that rent increase is due to increased costs of regulation. Gas safety inspections, electrical inspections, energy performance certificate, furniture fire regs etc.
W42, regulatory costs ARE rent, if above a certain sensible limit. i.e. if you have solicitor do a local search (which is not obligatory) = £30 well spent.
But having to pay for an 'energy performance certificate' for £200 if you want to sell your house = waste of money = pure income for the energy inspector = rental income. The government could make every homeowner have an EPC done every year if they wanted (like MOT for cars) and this would be yet more rent.
Oh well. I was hoping you were going to surprise us all and prove the theory wrong. That way we could take it all as a terrible mistake and get on with our lives.
Excellent work. I'll put it up on my side bar. Send a link to Mr Kavanagh he will be delighted I'm sure.
RS, ta. The increase on my chart is not as much as on Bryan's (he covered the last century and I just did the last 60 years), but my chart is just land rents, it doesn't include copyright and royalty income or income from North Sea Oil. And so on.
Working for a living has long since gone out of fashion...
Working for a living has long since gone out of fashion...
So deduct half or less from rent, for bricks and mortar, add 2/3 from taxes, so potential land rents from land only is 30-35%?
QP yup, hence the popularity of TV shows like Celebrity Big Brother and Downton.
Kj, yes, about a third. It's a circular calculation of course as to some extent it depends on what you do with the tax.
1. If you spend it on stuff which makes the UK more desirable to live in or do business, then rents go up by more than the spending - but we don't know which would be bigger - rental growth or GDP growth.
2. If you dish out the tax as Citizen's Dividend then to some extent the CD pushes up rents. To put it crudely, if my wife gave each of our kids £100 a week pocket money, I'd be able to charge each of them £100 a week rent.
3. The net transfer of LVT minus CT is a smallish net transfer of about a tenth of GDP. See Georgist Flag at point 5. The area underneath the blue line is one-third of GDP and the area under the red line is one-third of GDP. But the only net transfer is from the small area between the two lines on the right to the small area between the two lines on the left.
4. If they take the LVT receipts and spend it on crap and make work schemes, send it abroad to foreign tyrants, then this might well depress GDP. Again, the question is, what would fall faster - GDP or rents/LVT receipts? (we don't know).
MW Pt. 2. Yes, that's what worries me. Perhaps I am lazy (or busy doing something else) but I haven't yet sorted out in my mind how LVT / CD 'captures' the privatised tax component of rents. I am sure you've covered this, but I cannot remember where.
L, imagine that parents have four kids who all attend the same university elsewhere in the country. The parents decide to buy a house for the four kids to share equally as a present and have no intention of charging them rent.
We know that the bedrooms in the house are not as nice as each other - some are big and light, others are small and dark, The ones upstairs are quieter than downstairs. Each kids has his own relative preference on which room he likes.
The Home-Owner-Ist way would be for all four kids to charge into the house and lay dibs on the room they want, so for the rest of the year, some will gain more than others purely on random events which happened in the space of five minutes and even though parents really wanted them to benefit equally.
The Georgist way is to rent the rooms to the kids at their market value (i.e. whoever offers most for a room can keep it) and then to take the total rent and divide it by four and dish it out again.
So kid in nicest room worth £50 a week ends up paying net £10 into the pot (i.e. he pays £50 rent and gets £40 in CI), and kid in smallest room ends up getting net £10 a week out of the pot (i.e. he pays £30 rent and gets £40 in CI as well). The other two are maybe plus/minus a fiver each way.
That's how LVT-CI would work, only on a national scale. Most people/households would only make small net payments in or receive small net payments out.
MW - OK so in other words however high landlords try and force up rents to capture the profits made by wealth creation from the exploitation of labour and capital the 'excess' gets passed back to the 'tenants' (i.e. either leaseholders or owner occupiers). And even though the excess gets passed back as CD, which increases the income of the tenant, the landlord cannot push up his rent as it simply gets passed back.
I suppose that for commercial tenants/landlords this will still apply as the total rent would be rent plus LVT. But I am not quite sure how.
L: "... I am not quite sure how"
You just need to look at the margins. With my student house example, superficially you could say that the rent is £160 a week and the CD is £160 a week. Actually there are just two small net transfers, of £10 and of £5.
Each recipient of the £40 CD also has his earned income from cleaning glasses in a pub etc, and has a total income of £x, which he can choose to spend on rent or anything else.
Maybe all the four kids want to minimise their rental expense, in which case they all rent grottier rooms elsewhere for £25 and rent out the house whole to somebody else for £160 a week. The fact that £40 of their weekly income is unearned makes no difference to their mix of what they want to spend it on.
i.e. some of the CD will leak through into higher rents, but there comes a point at which people will say "No, I'd rather spend it on beer or motor racing or save it up" and that is then the upper limit - similarly, all CD that has leaked into higher rents goes out as CD again.
It will all find its own equilibrium, and markets being what they are, it will find this equilibrium within a year or two. If, using my other example, my wife gives my kids £100 a week pocket money and I try to charge them £1,000 a week rent, then they will leave home.
MW, on building costs you might be interested in the excellent table here among other interesting stats
lib-161.lse.ac.uk/archives/fabian_tracts/030.pdf
It shows that buildings represented less then 20% of the rental value generally. I've always guesstimated it to be 30%
I don't see why that would have changed in any way worth worrying about today?
RS, 20%, 30%, 50%, it doesn't really matter.
There is a grey area between location rent and buildings rent anyway*. What is very easy to establish is relative differences, i.e. rent for semi-detached in cheap/grotty area of town = £4,000 a year, rent for physically identical semi in nicest area of same town = £9,000 a year. The difference of £5,000 is location rent.
As it happens, in the UK, the rent for the cheapest semi's is so low as to be practically £nil (maybe it's £3,000 or £4,000 a year) so all rent above that is location rent.
* If we assume that all sites are developed to their optimum permitted use**, then there is no mathematical difference between site rental value, i.e. potential rental value, and actual buildings rental value minus maintenance costs.
** Which can be achieved overnight by granting current owner planning permission for exactly what is on the site or what he has actually applied to have planning for, no more and no less.
Re the EPC right at the beginning of the comments, I beg to differ. Having information that tells you what the total cost of occupation is can help you decide between houses. If the rent on A is £1000pm and B (very similar house) one is £1010, you'd go for A. An EPC though could tell you that your energy bill for A is £30 higher than B, making it the better choice. The more information that people have, the better decisions they can make. The hidden 'application fees' and highly inflated 'credit report' fees that rental agents charge now are a case in point when regulation could benefit consumers enormously. If the government was interested in renters, they'd sort this out simply by outlawing any extra fees on top of rent. You could compare two simple figures and be done. In the example above, you could have the EPC info and end up getting the worse deal on B if the fees from the agent B are more than £240 in excess of those for A
mombers: if I were to take on my right-wing libertarian hat, I'd say both EPCs and rental agents fees are subject to market competition if voluntary. Landlords will order EPCs if there's a demand for it, and use a rental agent instead of advertising and managing the rental unit themselves if they see a benefit from it. In both examples it most likely will come out of rent, but I don't really see a reason of either to be mandatory or be banned. I've used a service to check a car before I bought it, I paid some 30£ to find out if there were going to be any surprises, but that was because I may be in for 3-4K in repairs if there were any such surprises. However when I look at an apartment, I wouldn't bother with hiring an EPC guy to go through a potential apartment if the range of costs I would incur extra if the difference between what the landlord told me(or my own estimates) would only be a couple of hundred £ a year. If the price of electricity were high, maybe I would, but I don't really see a reason for it to be mandatory.
On the issue of rental agents in general, I'm convinced that the mere presence of them at all is that there is so much rent going around that there's room for it, that landlords are in it for capital gains anyway, and can't really be bothered with doing the one little piece of actual labour that goes into landlordism; showing up in front of prospective tenants... I've never used one, and I've rented a lot of flats, but I notice that now that rents are exploding in certain areas, so is the presence of rental agents.
Mom, I don't like this 'making tenants pay for credit reports' nonsense either, but all in all, if you are a good credit risk, you probably end up paying lower rents overall.
As to EPC, I tend to agree with Kj. By and large, you can guess what the heating bills are going to be like, and if you really want to know, you are entitled to ask. And if the landlord is keen on renting a place out, he is perfectly entitled to point out that the place is well insulated etc.
Kj, when I was a BTL landlord, I did up the flats nicely and then handed over the keys to a letting agent, that was the end of that unless there was a major repair needed or I started selling them again. All things considered, I'm very happy with their service, sure they took 10% of the gross rent, but they're a lot better at dealing with tenants than me, so everybody wins.
Kj, competition works best when there's accurate market information. I can think of no reason for agent fees to be excluded from the headline rental price except to deliberately mislead the consumer. The exclusion of council tax from the rent is an even bigger stuff up. Shouldn't even be paid by the tenant of course, but that is another substantial piece of information that is missing from a price. You can't even look it up on voa.gov.uk in many cases as the full address isn't on the listing.
Imagine if petrol stations were allowed to advertise their prices excluding 'pump fees' and 'forecourt shade surcharges'! The UK private rental sector is under regulated and the quality is poor. By all means, regulation can be harmful, but without smart regulation, it's very hard to run a successful economy.
MW: Good to hear, and I'm sure it's a place for it, and it's voluntary isn't it. Still, more a high-rent phenomenon than not.
Kj, competition works best when there's accurate market information. I can think of no reason for agent fees to be excluded from the headline rental price except to deliberately mislead the consumer.
If it's like that, that's a problem, I agree. Regulations that require full disclosure of known costs is probably more beneficial than the extra "cost" of having the letting agents actually publishing their fees, obviously...
MW, a thought experiment. Say the world became a much better place and LVT was implemented. Would you support a regulation saying that any advertised rent must not exclude the LVT?
M, I'm not sure what you mean. Legally, the LVT would be payable by freeholder/long leaseholders. A landlord is free to advertise an all-inclusive rent, or he can advertise a much lower rent and say that LVT is in addition. If he does this, he can either disclose the current LVT bill for that home or not.
By and large, the landlords who ask for all-inclusive rents will get the highest rents, those who make tenant pay will get lower rents and those who don't even disclose how much it is will get the lowest of all*.
* Consider, a landlord can ask for any old rent he likes, he could say it's a low net rent, but tenant has to pay the landlord's income tax bill, or all repair costs, or an extra £10 for every away goal his team concedes. The more certain the amount, the less risk the tenant takes and the more risk the landlord takes, and he who bears the risks will be rewarded for it.
Mombers: although I'm not totally opposed to advertising regulations considering disclosure, the most important thing is that under most legal regimens, you can't be billed costs that are revealed after you made a contract/purchase that the seller can reasonably inform you of, and you'd be able to contest it afterwards if so. Although it's a problem that total rents aren't advertised, someone going into a rental agreement will need to be informed before signing anything that the rental agent (as an example) will also bill you a certain sum of money. Economically, the landlord is paying the rental agents fees, as MW illustrated. As for the gas-station example of yours, sure, maybe it's no biggie demanding that their billboards tell the full costs per gallon/litre, but in the end, any sane person should be able to review the price, fill up, go in and pay, and I'd find it very hard to believe that some attendant could then go on telling you that you've incurred court-fees in addition to whatever you've filled up, and survive as a business...
MW, of course the LVT is the owner's liability, but bar any regulations, there is no restriction on him/her advertising a 'rent' of x but saying that afterwards that there is a 'surcharge' to cover their LVT bill. An advert for a nice house in Central London with a 'rent' of £100pw would obviously result in very few people wasting their time taking a look as if it's too good to be true, it probably is. But in a less valuable area, you could pitch a rent excluding the 'surcharge' to pay the landlord's liability that could plausibly sound like it is a total cost of occupation. And then people waste their precious time pursuing a misrepresentation. I can't see how such a regulation would impose any cost on the provider (they're printing a number anyway) and it would save anyone having to waste their time. Mortgage providers are legally obliged to quote an APR including all arrangement fees, etc - would society as a whole benefit from this regulation being repealed?
Mom, obviously, the advertisement would have to say whether the rent quoted is inclusive or exclusive of LVT, to save wasting people's time. That's a good regulation. e.g. when you see adverts for rooms in shared houses, they normally say whether the rent is inclusive or exclusive of bills and council tax and so on.
Kj, I value my time and would not be impressed if I drove into a garage or went to see a flat and then found out that information that could have been provided to me beforehand at no cost was not. Even having to telephone an agent to try to get them to disclose their fees is an unnecessary waste of time :-(
Mombers: I see your point, and if pricing disclosure is easily enforceable, why not. But there's a big difference between demanding full price disclosure and for example banning rental agent's fees (which wouldn't make sense), and mandating EPCs (for the reasons mentioned above.
There is one consumer issue that I do feel is important to regulate, that is that all transactions must be subject to arbitration by proper courts where there is a dispute. In North America you'll be subject to a mandatory arbitration clause in everything from cellphone purchases and rental agreements to employment contracts, and these specify that any disputes has to be arbitrated by a chosen arbitration agency(chosen by the seller), and can't be appealed. That's where I definetly part with the libertarian view on consumer issues.
Mombers, I am at a loss to understand your problem. Most potential tenants understand that the advertised rent is so unlikely to include the council tax that the landlord would be a fool not to advertise the fact if it did. I'd imagine it would be the same for LVT.
It really makes no difference who "pays" the council tax, it comes out of the landlord's pocket in the end, because if the tax was abolished and not replaced, an inclusive rent would not change and an exclusive rent would increase by the amount of the tax.
Mom, AFAIAA, it is against the law for letting agents to demand payments from potential tenants up front anyway, and yes, it does seem very sneaky for them to charge the tenant extra fees on top, but if in doubt, we would expect full disclosure beforehand.
Kj, agreed to all that.
B, steady on. Landlords quote net rents because the law says that council tax or Business Rates is legally due by the occupier. This is an administrative nonsense, it would improve collection rates even further if the freeholder/long leaseholder had the legal liability to pay, and then we'd probably find that most rents are quoted inclusive anyway.
There's nothing wrong with having a statutory default rule that says any quoted rent is deemed to be gross, inclusive of Council Tax or Business Rates or LVT unless it is written bold capitals underlined that the tax will be added on top of the headline rent.
I feel a full policy statement coming on re all this tenant protection stuff...
For those who rent, it's getting to a near impossible situation now. The street's the next step.
Mombers, I'm about to rent out a room to keep this daft campaign going for some reason. Yeah that makes me an even bigger hypocrite granted. I was thinking: I'll charge 450 for the room and bang on another 50 for losing the single occupancy discount. Then I thought, hang on, the 450 includes the council tax already. Because 450 is the maximum the tenant is already willing to pay. If I demanded any extra to cover the CT he would say "screw you then, I'll look elsewhere". Matters are reinforced if I were to whack in the extra 50 for the loss of subsidy. Tax comes out of rent. Subsidy adds to it. Same old.
JH, yup. That's the whole point of Home-Owner-Ism. It's the worst of traditional Toryism (protecting landowners at all costs and pushing up rents) and the worst of Socialism (high taxes and lots of regulations). They combine the two to have high taxes which are used to subsidise landowners/homeowners and banks.
The Baby Boomers kept 60% of their earned income until the early 1960s after snapping up cheap housing. They are now collecting or enjoying the 18% which goes to rents and living off the 36% collected in tax (corporatists, quangocrats, pensioners etc).
Today's younger people, landless and small businesses have to make do with only 46% of their earned income after taxes and rent. They've never had it so good, eh?
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