Here's a nice chart from the September Halifax house price report:
What this boils down to is that rents act exactly the same as income tax; when wages go up, rental values go up accordingly. So we could save ourselves the faff of taxing earned income and just tax rental values instead, it would be a far less economically damaging way of collecting exactly the same revenue.
Here we go
15 minutes ago
12 comments:
So what happens next? Do you see rents coming down to match pay?
AKH, the basic rule is that rents rise in line with 'disposable income', being net income after tax minus costs of 'basic minimum'.
'Basic minimum' is a moving target of course, people's standards of living tend to increase gradually, but the cost of those things tends to come down over time (in particular with electronics, but also with most freely traded goods and services).
And taxes on earned income are whatever the government says they are.
All these effects net off to the observation that rents as a % of GDP tend to increase gradually over time.
Am I reading the chart incorrectly in that the relationship has broken down of late? From 2011 wages have been stagnating but rents have marched relentlessly up. Is this because of the council tax freeze maybe?
M, clearly, the long term relationship is easy to observe and generalise about, as is the relationship between rents in high wage and low wage areas, but it won't show up on a six-monthly basis.
For example, the recent rise in rents faster than wages might be down to council tax freeze (pushing up rents) or because it is nigh impossible for potential FTBs to get a mortgage (pushing up rents) etc. But then again, the mooted Housing Benefit cap will tend to push down rents slightly.
Not only economically less damaging, but also far simpler and cheaper to assess and collect, with minimal possibilities to evade or avoid.
H, ears my to music.
Umm, if income and rents are correlated so closely, why does it matter which you tax?
BE
BE, because!
It's just a question of doing a fair like-for-like comparison (i.e. let's not contrast Widow In Mansion with High Earner In Council Flat). If everybody were an owner-occupier, incomes are roughly proportional to rental value of houses and house prices were completely flat or fixed, then no, it doesn't make much difference.
But more realistically, and slightly exaggeratedly, let's imagine owner-occupier in house 1 also owns house 2 as a BTL, and both are working in similar jobs.
The tenant can only pay the rent out of his earned income, so if wages go up, then owner-occupier gets double the benefit and tenant gets little or none of the benefit.
Under LVT, they both get the same benefit (higher earned income) if wages go up.
Even more to the point, average BTL owns (say) four homes and doens't go to work at all; if wages go up, he gets four times the benefit and each of his four tenants gets none.
The question here is, who should benefit from increases in wages - the people who actually drag themselves out of bed every day, or have sleepless nights worrying about their business, or exclusively the owner-occupiers and the BTLs?
@BE,
Why have two sets of taxes/rents when you can have just the one? Without the associated depressive effect on the economy?
@MW
The whole rationale behind housing benefits seems illogical. Surely they realised that without strict caps in place, all they would do is push up rents, drawing ever more people into needing the benefit?
It seems nuts. I'm sure it's not, could you please explain?
BJ, no, Housing Benefit is completely insane, full stop.
Even worse, HB cost next to nothing until the Tories started selling off council housing, so of course poor people couldn't find a home any more, so the Tories said we'll start paying out HB, the oriny being, half the sold-off council houses are now being rented to HB claimants, so the apparent welfare bill has sky rocketed without poor people actually ending up better off (apart from people who used to be pooor, snaffled a council house and are now living off the rental income) and the taxpayer in general being massively worse off.
Do the maths - sell off council house in 1980s for £10,000 and now rent it back for £5,000 Housing Benefit. That's a sore misuse of taxpayers' money by any stretch.
Correct. Tax on production, comes out of rent. At very great cost.
Long term this is so observable. History! But we live in a world of sound bite social media. Blinded by noise.
Its really that simple. So simple no one will believe it. Professors of intellect reinforce the myopia.
BE. Its far simpler than Mr Wadsworth says.
Rent is 'unearned'. 'grows on trees'
Wages taxed are 'earned'. Evidently.
Not only is the practicality of it obvious to a reasonable person. It is monstrously unjust otherwise.
I guess it depends on how one sees progress. By robbery or by doing work.
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