Killer Arguments Against LVT, Not (220)

Here's a prime example of the hysterical "LVT is a tax on gardens" meme, from The Scotsman:

I WONDER who are these Marxists in green clothing who wish to introduce a tax on gardens? The Green Party claims to care for the environment. Gardens are important as consumers of carbon dioxide and producers of oxygen. This is even more essential in urban areas. Apart from that, urban gardens have become a sanctuary for the residues of urban wildlife. What do the Greens wish to create? A sanctuary for developers, a concrete jungle? Are the profits of the building trade more important than clean air?"

Dr Paul Millar, Edinburgh

1. The preceding letter by a Scottish Green Party MSP is an excellent pre-buttal of that, even though the newspaper stymied him by cleverly missing out the £ sign: "the most recent figures for Scotland's land values show that the best arable land is worth around 82p per square yard. By contrast, the average price of urban land with permission for housing development is 179 per square yard."

2. Land/Location Value Tax is a tax on the rental value of land, and not just a blanket tax on "land" as it is wrongly portrayed by the Home-Owner-Ists. By analogy: LVT is a progressive income tax; what the Homeys imagine they are attacking is more like a Poll Tax, and as anybody who knows anything about land values, the value is in the location, location, location. The location and the permitted use is twenty-thousand times as important as anything else (using the MSP's figures).

3. Which leads us on to another interesting observation. If you are looking at house prices in any area, you will notice that flats cost about half as much as houses, which makes sense. Flats are half as big, cost half as much to build and use half as much land. So why is it, if you look at the BBC's figures for the UK, do flats appear to cost more than semi-detached houses?

4. This is because more people want to live in or near 'the centre', so it makes sense to build to a higher density there, i.e. blocks of flats instead of houses. And of course land values are higher where more people want to live; and people use more expensive land more intensively etc. So the average price of flats is pushed up by the fact that most flats are in expensive areas (and the average price of semi-detached houses is depressed for the equal and opposite reason).

5. Let's take the 76 inhabited postcode districts in Birmingham as an example. The graph of prices shows exactly the same shape as they would for the whole of the country, a long flat middle, a sharp drop at the bottom end and a larger upwards curve towards 'the centre': 6. I cross referenced Rightmove and Zoopla's sold prices statistics. Ignoring terraced houses and detached houses, in the ten median districts, 76% of homes are semi-detached houses (average price £157,000) and 24% are flats (average price £98,000). In the ten most expensive districts, only 40% of homes are semi-detached houses (average price £266,000) and 60% are flats (average price £166,000). We observe two things:
- A flat costs 62% as much as a semi-detached house in the median districts and in the expensive districts.
- A flat in 'the centre' costs 6% more than a semi-detached house in a median area.

7. We can express those figures another way using the same small sample: 25% of semi-detached houses are in the most expensive districts and 62% of flats are in the most expensive districts, so if we do a weighted average, we find that the average price of all flats (concentrated in 'the centre') is £141,000, which is 76% of the average price of all semi-detached houses (concentrated at the periphery) of £185,000.

8. 76% is of course a lot more that 62%. So if we look at an even larger area, with a larger range between the cheapest and most expensive areas, the average price of flats will creep up relative to the price of semi-detached houses; and across the UK as a whole, the average price of flats exceeds the average price of semi-detached houses because in the hyper-expensive areas in central London, it's nearly all flats.

9. So, assuming that sold prices are a reasonable guide to LVT bills, it's not a tax on gardens, is it? At present, for a given budget, people have to make a trade off between occupying a small amount of land near the centre or a larger amount of land at the periphery, and this is exactly what dictates land values and hence what would dictate the level of LVT - to put it bluntly, the LVT on a flat in the most expensive parts of Birmingham would be slightly higher than the LVT on a median house. So it is not a tax on gardens, is it?

[I do wonder how the smug and delusional Homey who wrote that letter would set the tax so that his beloved garden stays "green"? If he shifts all the tax from periphery to centre to try and untax gardens, then the centre will become unviable and people will try to move to the periphery, resulting in 'garden grabbing' so he has defeated his own object, hasn't he? If he really wanted to make sure his neighbours' gardens stay ungrabbed and nothing new gets built in his corner of town, he should be demanding that LVT in his area be pushed up beyond the level where it would still make commercial sense to build anything.]

10. Market prices show us people's indifference curves and the value they place on convenience-versus-comfort etc. It's an equilibrium. If the cost were any higher in the centre (or lower at the periphery) then people would leave the centre for the periphery, and vice versa. LVT does not disturb that equilibrium by one scintilla. How could it? All it does is turn privately collected tax into publicly collected tax; and turn notional costs into actual costs.