Jim (who I believe also calls himself 'Sobers') trotted out one of his favourite KLN's at the IEA blog: "So unless you free planning up to such an extent that you can build pretty much whatever you like where you like, then LVT will always predominantly be a tax on planning permission, not the locational value" which Traktion picked up on at the HPC Forum, comment #15:
I have other criticisms of a LVT, but this is an angle which I'd not thought of: The land value will totally depend on whether there is planning permission on it. It would also depend on what type of planning permission has been given (1 floor bungalow, 100 floor block, factory space etc).
Therefore, it isn't only a tax on location (which is in itself flawed*), but also a tax on usage. As said usage is defined by the council/state, they will inevitably have a big impact on the market value of the location...
I'd be interested in hearing some discussion about the above, as I've never previously read/heard this (very good) point raised here.
* If your actions improve the value of the land, you will be lining yourself up for paying more tax. If you build a big office that attracts people to live near it, the LVT will increase for the [office block], as the surrounding land gains a premium (by virtue of being close to the office). It isn't true that only public services increase the LVT potential at all (as was suggested in the linked article).
I'm bloody sure I've explained this before, but anyway: LVT is a tax on the net rental value of land assuming optimum permitted use, i.e. a tax on the best kind of building you can build on that site (within legal and practical constraints) minus the actual cost of providing and maintaining the building (or whatever structure is best).
So if planning laws are restrictive, LVT works just fine, because the lucky ones who get planning pay the tax and those who are prevented from putting their land to its optimum use pay little or nothing.
Towns and cities only expand so far, even in the complete absence of planning laws. So whether that outer limit is set by the markets, by natural features (such as a cliff, a marsh etc) or by the stroke of a bureacrat's pen (i.e. lobbying by insiders) across a map makes no difference. If you own land on the right side of the line, you are quids in and pay LVT accordingly, if you own it on the wrong side of the line, you get nothing and pay nothing.
And if planning laws are very liberal to non-existent, LVT works just fine (neither Jim/Sobers nor Traktion disputed that). And if planning laws are somewhere-in-between the two extremes (i.e. zoning type laws, which is what any sensible person would favour), LVT works fine.
* His footnote betrays a grave misunderstanding. The idea is that the benefit of land value uplifts will be shared around, as equally as possible instead of being creamed off by a random group of insiders. Furthermore, people will keep all the reward from their own productive work or activity (no taxes on that any more). It must be pretty obvious that on the whole, most people and businesses will be better off; what we have now is like being forced to play the Lottery and allowing Camelot to decide the winning numbers ("Oh look! My lucky numbers have come up again!")
Remember: an owner-occupier business plays two quite separate rôles - they are a landowner and they run a business - and it's easiest if we just divorce these two rôles completely.
Let's take an example to illustrate this: some reasonably benevolent multi-national manufacturer is looking for somewhere in Europe or the UK to site his super new factory, which will bring with it 1,000s of jobs. He might say to a local council in a high-unemployment area, "I like your location, and I like the fact you have no VAT, corporation tax or income tax and everything, but I don't want to go to all the trouble of building a factory if you are just going to f- me over in future by bumping up my LVT."
To which the council replies, "Not a problem. Give us your specifications and we'll find the land and build the factory for you, those big metal sheds only cost a couple of million quid, you can just rent it from us (for an LVT-inclusive price) with no risk to you that we tax away your investment."
Lo and behold, the manufacturer signs a long-term tenancy agreement. The factory is a success, more jobs means more schools, more housing, more local night-life, shops, other businesses open up providing yet more jobs and everything until local land values, including the rental value of the factory site itself, increase.
When the tenancy is up for renewal, the corporation and the council have each other over a barrel: the manufacturer has sunk a lot of money into installing all his equipment and training up a good local workforce; but he still has a reasonably credible threat that he will shut everything down and up sticks to somewhere else offering him a juicy relocation grant. The council can, in the short term, demand whatever higher rent it likes; but would be fearful of the manufacturer then shutting down this cornerstone of local employment and wealth.
So by and large, the new rent they agree will be 'about right', it really doesn't matter too much. The manufacturer can get on with manufacturing stuff and all the workers and local businesses will be paying their normal LVT. The multi-national gets to keep every penny of the value he added and gains (or loses) nothing from any changes in the rental value. For sure, he will probably negotiate a below-market rent as long as he is the biggest employer in the area, but he cannot speculate on or sell this privilege. It is conditional on him continuing to provide employment opportunities, he can't cash in by sub-letting or anything etc.
Friday, 7 September 2012
Killer Arguments Against LVT, Not (234)
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10 comments:
HurraH! You finally agree I am right (yes I am both Jim and Sobers,depending on where I comment).
You have finally agreed that LVT in a densely populated, highly planning regulated country is NOT just a tax on the locational value of land created by 'everyone else' but predominantly a tax on the value created by the State through its planning laws, and I would argue that 'the State' is a completely different animal to 'everyone else'. We nominally live in a democracy, but in reality we live in a benign dictatorship. The State exists nowadays outside any democratic control - it decides what it want to do, and then does it (having pretended to ask the people what they think). Take the HS2 rail link. Does anyone think that the decision will finally be made by any form of democratic process? Of course not. Some civil servant somewhere will write a report in favour, and a here today gone tomorrow politician will set the wheels in progress, whatever the people affected say.
So all those people who according to LVT would have to pay extra because they are now within easy driving distance of a new railway station have zero input into whether they want to pay extra LVT in order to get a station, they just get given the station, and the extra LVT bill, whether they want it or not, or derive any benefit from the station.
Thus people have zero control over their taxation - the State controls planning and what goes where, and they have no input. The State can decide to put a nuclear power plant at the end of your street, or a station. One reduces your tax, the other raises it, but you have no say in either decision.
That is not a fair system of taxation in my view.
Sobers wrote:
Thus people have zero control over their taxation - the State controls planning and what goes where, and they have no input. The State can decide to put a nuclear power plant at the end of your street, or a station. One reduces your tax, the other raises it, but you have no say in either decision.
which in the absence of LVT could be rewritten as follow
Thus people have zero control over the value of their house - the State controls planning and what goes where, and they have no input. The State can decide to put a nuclear power plant at the end of your street, or a station. One reduces your house price, the other raises it, but you have no say in either decision.
Demonstrating that, regardless of how fair or unfair the planning system may be, it affects your financial well-being. Whether LVT is levied or not is a moot point.
S: "You have finally agreed that LVT in a densely populated, highly planning regulated country is NOT just a tax on the locational value of land created by 'everyone else' but predominantly a tax on the value created by the State through its planning laws"
I have never said anything other than that planning restrictions distort land values and redistribute from one group of landowners to another group of landowners.
And I have explained patiently before why LVT works perfectly well with or without planning e.g. hereand you couldn't think up a new argument since.
But it is 'the nation-state' and all its citizens which generate the rental/land values; planning restrictions merely divvy it up.
It's like the rain which falls from the sky and all the canals and earthworks and river dredging makes the water go in one direction or another; those water courses do not create the rain water any more than planning permission creates land values.
And it is not some evil 'state; which wants planning restrictions, it is NIMBYs and insiders. Cameron pays lip service to the idea of the state giving up some of these powers and the NIMBYs scream blue murder.
The HS2 thing is a shit idea, that's not an argument for or against anything.
In any event, with most roads, railways lines and most other stuff, overall, land values go up, FFS. Imagine we tore up ALL the railway lines and dug up ALL the roads and tore down ALL the dams and sea walls and BLOCKED all the drains and DEMOLISHED all the electricity pylons. What happens to land values then?
D, nice riposte.
But remember: the Homeys are complete hypocrites - if the local council builds a nice new park they want the value uplift tax free; if the local council builds a waste incinerator next door, they want compensation.
A sensible system is of course entirely symmetric. You get a park, your tax goes up. You get an incinerator, your tax goes down. overall, nobody wins or loses.
"So all those people who according to LVT would have to pay extra because they are now within easy driving distance of a new railway station have zero input into whether they want to pay extra LVT in order to get a station, they just get given the station, "
No they won't. There aren't going to be any new stations on HS2, except at the ends, in London and Birmingham, which are right by either an existing railway station or an airport. That's one of the daft things about it.
B, on the balance of evidence, HS2 is a bad idea.
In my rather radical opinion, we don't need any new roads or railways or houses or industrial sites at the moment. We've got plenty for now, it's just a question of using what we've got more efficiently, which LVT would help achieve, even if we completely froze all new development or change of use for ten years and didn't build a single new railway line.
What would happen is that the jobless and retired would move away from areas with jobs, people with cars would move away from the station, poor widows would move into flats and young couples would move into houses, people who hate the outdoors would move away from areas with nice parks, people whose children have finished school would move out of the catchment areas of good schools, derelict factories would be renovated, and so on and so forth.
Personally, I don't think HS2 will ever be built. It's just a vehicle for getting public money into private pockets, those of the engineers and other conslutants designing the thing. Gotta keep those donors happy!
B, probably. Do you think the Heathrow third runway flim flam is the same?
I haven't studied the justification for the third runway at Heathrow, so I don't know if it's as farcical as that for HS2.
"the Homeys are complete hypocrites - if the local council builds a nice new park they want the value uplift tax free; if the local council builds a waste incinerator next door, they want compensation."
True, but why should only large companies be able to play the "private profits, public liabilities game"? I wanna play too.
B, yes of course. But if everybody does it, the economy nose dives and we all end up worse off.
That's OK, I don't want everybody else doing it. Just meeeee!.
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