Things have been a bit quiet on the LVT front, so let's go back to a fine article in The Guardian and see what we find in the wreckage:
WheatFromChaff: ... hey, you want to propose a tax which takes no account of people's ability to pay (1). And this is, of course, the kicker. Taxes are paid in money, not bits of land, and that is why taxes have traditionally been levied at the point where money changes hands - whether they be income, sales, inheritance or capital taxes - not on deemed (but unrealised) values.(2)
The exception to this is rates/council tax, but they have traditionally been sufficiently low for that not to be a problem. This would change in the event of a major shift towards LVT.
@ Manningtreeimp. "LVT would only value the site your house is on...not the house itself, so extend away...." Just make sure that none of your neighbours do likewise, otherwise the value of the site will likewise go up.(3) LVT would, though, lead to a new phenomenon. Giving incentives to people to abandon areas when they start to become "gentrified" in favour of areas which are still run down (and to ensure that they stay run down).(4)
and a bit further down:
Peitha @manningtreeimp "Why would LVT penalise anyone who stays in their property for an extended period?" Because the rate of rise in land values historically outstrips the rate of rise in wages over an extended period, (5) so unless the % LVT is to fall to bring the two back into line the tax becomes increasingly onerous the longer you stay in the same property.(6)
And if you do reduce the % LVT to avoid that effect then you're just back to an excessively complicated version of income tax. Try running a few numbers ...(7)
1) LVT is not really a tax, it's a user charge, why should it take account of "ability to pay" on an individual level, the point is that it takes account of people in general's "willingness to pay", just like land rents do generally. There are plenty of houses in the UK which I couldn't possibly afford to rent or buy... so I don't. I live somewhere I can afford.
2) The rental value of an occupied home is being realised, it is being enjoyed/consumed by the people living there.
3) Fair point, but so what?.
4) This whole gentrification thing is a red herring. Most people choose somewhere to live within their budget and most areas stay pretty much as they are for long-ish periods. If all areas became more desirable at the same time, there would be precious little impact on rent levels (or LVT levels) because people's total budget for housing would remain unchanged. And doesn't the process of "gentrification" gradually squeeze out lower earners anyway? First lower earner tenants are replaced by higher earner tenants, and when lower earner owner-occupiers move away, they sell their houses to higher earners.
If his logic were correct, then no area would ever become gentrified, and in fact all areas would be equally mediocre, because if everybody and his dog wanted to minimise his housing costs at all times, the minute any area became the slightest bit more desirable than any other, rents in that area would increase, triggering a wave of people who would leave and move to a less desireable area.
5) Yes, correct, as predicted by Ricardo's Law of Rent. The Home-Owner-Ists love this effect because it means they gain twice over when the economy grows; once because their earnings grow and again because all the next generation's extra earnings are transferred to them as higher rents and prices.
6) In other words, f- the younger people, we Homeys don't mind if they end up paying proportionately higher rents and prices because that benefits us Homeys, but Heaven forfend that we be subject to the same market forces!
And why should the LVT rate be reduced to keep receipts constant? As the economy grows, rental values and hence LVT receipts grow and the Citizen's Dividend grows in line with LVT receipts, so by definition, the median household in the median home is always in a +/- nothing break-even position. This holds true in 2012 as much as it did in 1912 or will in 2112; the median family today has a much better standard of living than a century ago and would still be a net zero taxpayer; and hopefully it will have an even higher standard of living in a century's time and will still be a net zero taxpayer.
7) I just did. The answer is zero. For sure, it will become more expensive to remain in an above-average location but that's only because incomes tend to become more skewed over time as people become ever more specialised, so there'll be plenty of money to pay it. If you follow the logic from (6), then even if people are "forced to downsize" from an above average area (i.e. those people who are too feckless to build up their own retirement fund before they retire, which applies to the bulk of today's pensioners) then the new area they choose will be no less desirable or pleasant than the area they originally moved to before it went up-market.
Blow that whistle
1 hour ago
11 comments:
There is a word-for-word summary of the anti homey case in the middle of a confused Business leader in Observer Ist July.Article appears to have been written by two separate people only one of whom knowswhat they're talking about.
If we were being strict (instead of practical, by simply taking the average price of a neighborhood) wouldn't (3) be incorrect? If you are granted planning permission for X square metres of extension, then that location is worth more.
Personally I'd like to see LVT over an area calculated by volume. If you're granted permission for three floors of extension, then that's worth three times permission for one ground floor of extension.
The land registry records selling price for each plot, so we take that number, and work out the price per cubic metre of construction and per square metre of non-construction, and then apply that to all buildings in the post code.
Or am I just letting my desire to turn everything into an equation get the better of me?
The only justifications for charging for volume that I can see would be:
a) An incredibly scattershot way of taxing "eyesores".
b) If it were legal to build houses that extended over other people's land like in Rollercoaster Tycoon, then by not building upwards you would be excluding people from the air above your land, so could be charged for that.
Other than that I don't see the point.
DBC, have you a link?
OP, you can't beat a nice formula, but that one is heading in the wrong direction. When it comes to 'placing a burden on your neighbours' it's height which matters most, but this is probably better dealt with via planning permission, i.e. "in this village nothing higher than two storeys and a roof".
As it happens, most areas have some sort of guidelines as to maximum density and average density is a known-ish figure, so it is then quite easy to take a few sample plots of different sizes with buildings which happen to exactly match that average density, stick those on an X-Y scatter chart of "plot size" against "value" and there's your straight line indicating value/sq yard (plus or minus a constant).
RA, some things best left to planning restrictions.
RA, I remember reading a sci-fi story where you had to rent not only land, but the space above it, by the cubic yard. Obviously a cubic yard of space that had one side on the ground was much more expensive than a cubic yard of air space, but the air space still wasn't free.
The paragraphs of brilliance embedded in the dross are:
"However,an obsession with property as an investment is eating away at the British economy.Every 18 years or so we suffer a property bubble and crash.Each time the recession discourages investment in manufacturing and services,puts millions of people out of work and forces the government to borrow more.The booms are not much better.They raise the cost of housing and eat into living standards (unless consumers make ends meet by borrowing against the value of their home).
If you look at it this way,the banking crash was a symptom of the exuberance around property investment not the other way round."
Observer Business leader "Sale of property assets...." 1.vii.12
"However,an obsession with property as an investment"
More to the point, an obsession with property full stop (i.e. landowning) has always been the British vice. AFAICS, the national psyche recognises three classes of Britons: Rentiers (the class to which every true-born Briton aspires), working landowners or owner-occupiers and the landless (Britain's answer to the untouchables).
@Bayard
I suppose whoever it is is trying to differentiate owning land speculatively( hoping for price inflation) from just owning for use whilst not being bothered if its value goes up.
In my view theJS Mill form of LVT that only kicks in when land prices start rising is better because it recognises this distinction.
"In my view theJS Mill form of LVT that only kicks in when land prices start rising is better because it recognises this distinction"
Making all land (primary residence or not) subject to CGT would be a good start. That would dampen the enthusiasm of owner-occupiers for land price inflation.
@Bayard
There is more than one way to skin a cat.(What a weird saying)
But I'm not sure how levying CGT on land would differ all that much from LVT of the JS Mill/Land Tenure Reform Society type.
It wouldn't. My point was that it is much easier politically to make a small change to an existing tax than it is to introduce a whole new taxation system.
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