From The Telegraph:
House prices would be hit and many older people forced to sell family homes (1) by an increase in council tax to "fix the broken housing market", as proposed by an influential think tank today.
Many homeowners might question in what sense the housing market is "broken", when property is one of the few assets that has delivered decent returns (2) in a dismal decade or more for stock markets, pensions and other stores of value.(3)
Alternatively, rising numbers of younger people excluded from homeownership and trapped in ‘generation rent’, may feel that anything which tends to cause house prices to fall must be a good thing.(4)
1) So? Poor Widow sells family home and buys a flat; young family sells their flat and buys a family home. By and large and for many people, this might be just a straight swap with their own children or grandchildren (so the "family home" can "stay in the family", if that's what makes them happy). Why is that so terrible?
2) Typical Home-Owner-Ist circular logic. Yes, houses are a good hedge against inflation. But what they don't mention is that it's Home-Owner-Ism which is the PRIMARY CAUSE of inflation in the first place (and something which I hardly mentioned before):
- Home-Owner-Ism needs credit bubbles to prop up land prices, some of this money spills out into productive economy without increasing output capacity, so this leads to price inflation. For example, a semi-retired person MEWs and buys a new car. This increases demand for cars without increasing amount of work done.
- When Homey bubbles pop, the government quite deliberately and maliciously tries to create inflation in order to mask real house price falls. This trick worked fine in the 1970s when we still had currency controls, it doesn't actually work without them, e.g. Japan over last twenty years, the UK today.
- Homeys just luuurv those ultra-low interest rates, which of necessity trigger speculative bubbles in commodities which tend to push up price inflation.
- If you can't tax the rental value of land, you have to tax production and output instead, these taxes tend to push up prices (at least, relative to net incomes) and reduce output.
So what these shits really are saying is "Home-Owner-Ism causes inflation. Inflation is bad unless it's in house prices. So we need even more Home-Owner-Ism."
3) Other "stores of value"* have done so badly precisely because of Home-Owner-Ism.
If we'd got it over with and shifted from taxing production and output to taxing the rental value of land ten or fifteen years ago, the dust would have settled by now. Houses would have performed badly, viewed as a speculative investment, but shares would have doubled, interest rates and hence annuity rates would be much higher, price inflation would be more or less non-existent (sure, food is getting more expensive but electronics are getting cheaper, it would cancel out to nothing), fewer unemployed, far milder recession etc.
Once LVT has bedded in (i.e. once all the Poor Widows In Mansions, of whom there are several thousand in the UK have down-sized), everybody will have got used to the idea that land is useless as a speculative investment; that debts will not be eroded away by inflation; that share prices tend to go up; sticking cash in the bank is a good way of saving; and that it's worth saving up for an annuity, because you'll get 10% a year.
When we tell our children and grandchildren that people used to believe that you could become rich without working, just by buying a bit of land and keeping your fingers crossed (and that a lot of people did become rich this way) they will think you are mad.
"Yes, but how did you pay the tax on the land if you were not working?" they will ask.
"There wasn't any tax on land in those days," you reply.
"Wot? So where did the government get money from?"
"Ah... they used to tax people who went to work instead, and give the money to the people who owned land... Jesus, this sounds really stupid now I say it."
* We can make an exception for gold, the gold price has done very well because a lot of the measures which governments are taking to subsidise land owners stimulate the economy spill over into higher gold prices.
4) Well, at least he admits that Home-Owner-Ism is inter-generational warfare. Remember: the person who starts the war doesn't necessarily win it.
Tuesday, 11 September 2012
Killer Arguments Against LVT, Not (236)
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20 comments:
On a tangent, it strikes me that Council Tax (aka LVT-lite) is actually passed on by the landlord to renters, so they actually end up paying about 110% of the nominal annual rent for the privilege of living in the house.
What is it about LVT do you think that would make it less likely to be passed on in such a fashion - the amount? or that it's related to the number and occupation of the occupants rather than the owners?
H, as a matter of FACT, Council Tax is not passed on. The higher the council tax, the lower the rent which the landlord gets; or the higher the council tax, the lower the selling price of the house.
Please Google 'elasticity of supply and demand determine who pays a tax' or 'tax indicidence' or something. This is all perfectly mainstream economics and easily observable in real life.
Hopper, the "passed on" concept is one of those ideas which is not as black and white as the general public normally thinks. And in the case of land, as Mark says, it is more false than true.
The real-life example I generally quote to show that raising or lowering Council tax does not necessarily change the price of occupancy for a tenant is the "Enterprise Zones" scheme of the 1980s in which the government abolished the property tax in designated parts of the UK with the aim of making it cheaper for small businesses to rent premises. Sadly it failed because the landlords raised the rent by just as much as the government lowered the tax. Not only that but the increased rents so boosted the price of buying property in an Enterprise Zone that no small business could afford to buy premises there.
The lesson to be learned from that is that it would be much better for small businesses if the government increased property taxes since their landlords would be forced to lower their rents and thus the price of property would drop to the point where a small business might be able to afford the risk of buying some and hence becoming landlord-free.
D, it is of course bollocks and usual Homey DoubleThink.
1. It's crocodile tears anyway, Homeys don't give a shit about tenants.
2. a. It is broadly agreed by Homeys and Georgists alike that shifting taxes from income to land will push down the purchase price of houses.
b. It is also easily observable the in the short or medium term (ignoring capital gains and losses), for a new entrant to the housing market, the cost of renting and the cost of a mortgage are much the same each month.
c. This applies whatever happens to interest rates or council tax or SDLT or the economy. House prices will adjust up or down so that the cost of buying and the cost of renting are roughly in line.
d. The Homeys then argue that rents will go up* by the amount of the tax.
e. So what the Homeys are saying is that there would be a HUGE IMBALANCE between the cost of buying (very cheap) and renting (very expensive) but we know that market forces will bring the two back into line. They will end up much the same. They always do. That's market forces for you.
f. Homeys don't like free markets, and they don't even understand them.
* Actually rents (inclusive of LVT) would go up, because people's disposable incomes would double if there were no income tax etc and a Citizen's Dividend and a growing economy, that's another topic.
but I need to rent land from the government by dint of tax obligation I never own any really. What happens when the government decides to raise taxes by 100%.
Taxes always go up, they go up alo, forever, as politicians know the answer to getting votes is spending other peoples money.
By taxing land you have created the ultimate, never-ending, tax raising machine.
Poverty for all.
CU, do you actually seriously believe a word of what you just said? Do you have any grasp of 'real life' or 'free markets' or 'human behaviour' or 'facts'?
"House prices would be hit and many older people forced to sell family homes"
Cue Sir Bufton Tufton, impoverished squire, explaining that he will have to sell Tufton Manor, where the Tuftons have lived since Alain de Tufton came over with William the Conquerer. It's all fantasy. The number of such "family homes" owned by more than three generations in a row is vanishingly small, and most are tied up in trusts etc. anyway. What they actually mean is "the house that mum and dad bought in the 70's", which is not quite the same thing.
jees...the old widow must have some income. Even now she has to pay income tax and the coucil tax. Is it allowable to imagine a sceme where LVT rates rebate according to age? NO. TOTALLY UNIMAGINABLE
They rebate according to age? Excellent! I'm selling all my land to an elderly aunt for a penny on condition that she leaves it me in her will and in the meantime rents it back to me at just enough to cover her LVT, the maintenance and tuppence a month for her trouble.
Naturally my sole motive is my love for her and my determination to see that she is well provided for in her old age. Because I'm a caring nephew, I want her to live for a very, very long time.
MW - not saying you're not correct, merely that it would be interesting to see something approaching an experiment. E.g. suppose Govt removed the exemption for full-time students (say, just in Scotland or Wales); we should expect to see a change in rents in the following year in student-oriented housing in the major cities - it would be useful data to see to what proportion that delta reflected the rise in council tax payable, and over what timescale.
We'd also expect to see students rioting and burning government buildings, but hey ho...
B, Sir Bufton and his ilk are far less deserving of public sympathy than people who bought a house in the 70s.
G, exactly, it's relatively easy to do something like that. Or even better, just collect the tax from them and use the money to increase old age pensions.
D, clearly, the rebate would only apply to pensioners' main residences, and if they want to claim it on land and building they acquire after LVT is introduced, then the matter will be looked into quite closely to see if it is really their main residence.
H, if they scrapped the student council tax exemption then rents for student houses would go down by the amount of the tax*. There have been loads of such changes in real life (in particular with Business Rates/Enterprise Zones) and it is that simple.
It's exactly the same as the observation that when interest rates go up, house prices go down.
* The effect will be muted if there are lots of non-students willing to rent those houses.
"B, Sir Bufton and his ilk are far less deserving of public sympathy than people who bought a house in the 70s"
That's not the point. Like the PWB, it is a largely illusory stereotype, which deserving or not, gets public sympathy. It's also reflects the Miss Marplisation of our recent history and the FBRI.
Mark, suppose HMG decided that 1 million extra houses in Surrey was worth £10Bn/year, should LVT across the UK as a whole be raised by say £555/year (10Bn/20 million say) - in which case most vote OK do it, we don't care - or the Surrey LVT by £20,000/year (10Bn/0.5million say). In which case Surrey residents vote their MP's out of office and stage an
interminable legal challenge. Post-building 1 million extra, Surrey LVT becomes £6666/year (10Bn/1.5 million), a bit more than current Council Tax - so other taxes must reduce I suppose.
I accept the basic logic of LVT but it does not get round the whining over new building plots and the demand for houses in places people actually want to live and can find work. Only seems to work if some way is found to eliminate planning restrictions or that land is plentiful - where people want to live.
I do agree the rise in house prices since the '70s is a stinking scandal but it has been brought about largely by the impossibly tight planning rules dictated by MP's desperation for votes. In short one of the weaknesses of a democracy.
Roger, LVT does not mean a vote on how much each house in Surrey is worth, you vote over a commonly agreed method of assessment, and the tax rate applied to it.
I accept the basic logic of LVT but it does not get round the whining over new building plots and the demand for houses in places people actually want to live and can find work. Only seems to work if some way is found to eliminate planning restrictions or that land is plentiful - where people want to live.
Taxing land according to value encourages land to be used, especially in areas where people want to live, as landowners will want to maximise the use of their property, or sell up to someone who will. Loosening planning restriction is fine, but it's not necessary for LVT to work, as planning restrictions will be reflected in the market value of land.
Rog, Kj has pretty much answered that. It is not up to the "government to decide what houses are worth", the markets say what the extra rental value of plots are over and above the bare minimum is, and that is what is taxed.
And as Kj says, LVT works perfectly well with or without planning restrictions, it's more or less two separate topics.
If, for example, it were announced that to keep the Greenies and NIMBYs happy no new houses may be built anywhere for ten years and that no new roads or anything were to be built, then the LVT would ensure that existing land and buildings are put to optimum use, i.e. occupied by those people prepared to pay the most for the best plots etc.
It's always cheaper and better putting existing assets to optimum use than to keep building new stuff while existing stuff is under-utilised.
As a separate issue, rejigging the tax system and ending the massive wealth transferes to London/South East will tend to rebalance things across the country, so there'll be less pressure to build new houses in South East and all the empty and underoccupied houses in the rest of the country will be occupied.
The UK is quite unusual among large European countries in having only one large city which is twice as expensive as everywhere else, this is not in any way normal or natural.
B, yes, agreed to all that, but it's a democracy and it is my gamble that there are enough people who ignore (or indeed despise) this sort of propaganda to be able to tip the balance a bit in favour of the productive economy.
Its very simple.
Familly no longer exists enough for it to be fruitful.
Its a choice each familly has made, freely, within functioning democracy.
If we cared a bit more for each other, a bit less for our selves, imagine how quickly things would improve, lvt or not.
RS: "If we cared a bit more for each other, a bit less for our selves, imagine how quickly things would improve, lvt or not."
a) If we cared for each other we'd have LVT.
b) At least half the population would be hugely, massively better, off more or less overnight, if we shifted to full-on LVT etc.
Re the Surrey point, one of the (many) things that I like about LVT+CI is that it does away with the need for the Barnett formula. Rather than some committee having to decide how much to dole out to various parts of the UK, it will happen more or less automatically through people's tax returns.
And for the government spending portion it should be enough to ensure that the ratio of government expenditure to CI payout is roughly constant throughout the UK.
D, the mix between national govt spending, local govt spending and CI rebates is a different topic.
I prefer some sort of mix, like allowing local councils to keep (or not collect in the first place) a certain proportion of local LVT (say one fifth) and then giving them £x per capita for people living there.
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