Saturday, 15 December 2012

Killer Arguments Against LVT, Not (291)

Paragraphs 3.16 to 3.23 of the CPRE's report on "property taxation" of 2005 are all fairly positive about LVT, then we get into the "ah, buts"...

3.24 An LVT appears to have desirable incentive properties for using vacant sites close to existing amenities, and encouraging the upgrading of the existing stock.(1) One concern is that the land-value tax increases pressures to develop all land;(2) there may be added incentives to develop on greenfield sites(3) which would also be subject to a holding tax.(4) Also, the LVT may lead to “concrete jungles” in urban areas, since the holding costs mean fewer land-owners are willing to maintain open spaces.(5)

1) Correct.

2) Nope. What does he mean by "all"? For sake of argument, let's assume we stick with existing planning rules. As LVT is based on the annual site premium assuming optimum permitted use, LVT on land without planning would never be more than its agricultural value of peanuts.

3) Not true, in fact quite the opposite. Agreed, it is much easier to build houses on greenfield sites (no demolition costs, fewer neighbours to impeded things, but the costs of extending all the utilities connections and so on are higher).

However, the main driver for this is, in the absence of LVT, that the land value uplift is enormous. If you own farmland and are given planning permission, its value goes up a hundred-fold, the landowner/builder, taken together can earn an extra £50,000 - £100,000 for each house they build compared to...

... a builder who buys urban land for a price which already includes the value of the planning permission. He can only earn money by actually building houses, which is difficult, risky, expensive and so on, there is no windfall.

So the town spreads outwards while the centre rots. See this fine article by an Lib Dems ALTER member in the Daily Mail.

With LVT in place, the incentives would be entirely the other way round. There would be no windfall gain on rezoning greenfield, and there would be pressure on owners of empty or derelict buildings in urban areas to bring them back into use ASAP, or, in extremes, knock them down and start again.

Would things automatically be perfect? Nope. Would they better than now? Yup.

4) Who says? What "holding tax"? Does he mean LVT? In his footnotes, he says "This problem could be reduced if agricultural land were exempted from the LVT." Surely he knows that if agricultural land subsidies were scrapped, the rental value of UK farmland would be so close to zero as to be barely worth taxing (under a full-on, fiscally neutral LVT only system, the tax would be about £16/acre per year, about one-tenth the average value of food produced per acre).

5) This is a town planning issue rather than a tax issue, but realistically, how many privately owned "open spaces" (which I take to mean public parks etc) are there, which have actual planning permission for development (and are not subject to a restrictive covenant etc) but where the owner generously lays some paths and benches and flower beds for the general public instead?

Answer, pretty much none*. So the problem is non-existent.

Under LVT, there is a trade-off, if a private owner (like the original owner of Leicester Square) says that he is happy for his land to be used as an "open space", then what is the rental value of that plot? More or less nothing, might even be negative. So what's the LVT? Nothing.

And as we know, open spaces in urban areas vastly add to the rental value of surrounding plots, so there is an overall net increase in rental values if some land is left "open". So given a reasonably sane council which wants to maximise LVT receipts, they would make sure that ten or twenty per cent of land is set aside as public parks, bowling greens, five-a-side pitches etc.

* Developers are not totally stupid either, one of the reasons why the original owner of Leicester Square [might have] placed the restrictive covenant on it was because he also owned the surrounding plots, so he gained £2 in extra rental value from those for every £1 he "lost" by not building on the square itself. It is unfortunately only larger developers who can take this wider view, if you only have one plot, you've no incentive to turn it into a park, in which case it is the planning authority which has to take the wider view.


Lola said...

There remains huge and uninformed resistance to LVT. But, I have noticed there is much more discussion about it everywhere nowadays. This can only be good.

Mark Wadsworth said...

L, I think we largely have Vince Cable to thank for that. I'm not sure if he understands it properly, but at least he talks about it.

Lola said...

I am with you on Wince promoting it but not understanding it. He wants it as an extra tax. Witless.

Robin Smith said...

I'm not with you on him talking about it. Where it really matters, he is conspicuously quiet. Worse he says many more other things that totally discount it. He is a crowd pleaser. Or witless. Either way he is no different to the rest.

There is no resistance to LVT. All KLN's are accidental straw men. By those who should know better, who have not thought about it very carefully. So just do not get it, but think they do.

"People do not dispute the ideas of George, they just do not know it"

We are being led by the feckless. Rome was destroyed when the senate became much like our. I'm not joking.

Lola said...

RS. 'I'm not joking'. That's good because I'm not laughing.

Bayard said...

"Either way he is no different to the rest."

It strikes me that there are certain things that people in positions of power are Not Allowed To Say Publicly, even if they believe them. How this rule is enforced, I have no idea, but time and again some politician or mandarin comes out with some quite radical statements very shortly after they have left office for good, often completely contrary to what they said and did when they were in office.

"There is no resistance to LVT"

Oh yes there is. There are a few very rich and very influential individuals who are the tiny minority who would lose out greatly by the introduction of LVT and they have been successfully resisting LVT since Churchill brought up the idea at the start of the C20th.

Mark Wadsworth said...

RS, we'll have to agree to disagree on Vince.

L, me neither.

B: "time and again some politician or mandarin comes out with some quite radical statements very shortly after they have left office for good"

Far worse are those who start off life talking sense and then go very quiet when they get into office/power. See also Cameron and cannabis legalisation.

Kj said...

At least those who have left office may still have some clout. We have a couple of ex prime ministers that get all the airtime/newspaper columns it wants for things they thought about while reading the newspaper or working in the garden.

Bayard said...

Mark, I'd like to go all conspiracy theorist and say that MI6 are instructed always to dig up some dirt on people in power which is then used to make sure they toe the line. Then I could stop wondering about this phenomenon.

Mark Wadsworth said...

Kj, yes, but in the UK, ex-Prime Ministers are paid millions of pounds a year by banks to keep very quiet about tax reform and stuff.

B, how many people really have hidden secrets with which MI6 could black mail them? A couple of per cent? And in turn, who is blackmailing MI6 into doing this?

Bayard said...

"in the UK, ex-Prime Ministers are paid millions of pounds a year by banks to keep very quiet about tax reform and stuff."

I used to think that ex-PMs getting nice conslutancy jobs with banks was in return for services rendered when in office. This makes much more sense.

"And in turn, who is blackmailing MI6 into doing this?"

No-one. Surely you know that finding this sort of stuff out is one of the prime duties of MI6.

Mark Wadsworth said...

B, so why does MI6 (as a large body of people) go along with it? Surely they have pro rata just as many young, underpaid civil servants working for them who'd love to buy a house as any other organisation?