Friday 21 June 2013

Not Red Ed nearly gets it; government misses the point

From The BBC:

Labour leader Ed Miliband is to accuse some property developers of hoarding land and failing to build the homes that the country needs.(1)

In a speech on Saturday, he will say too many firms with planning permission for projects are "sitting on land" as it gains value,(2) instead of using it. Labour is considering giving councils more powers to penalise firms which do not proceed with building projects.(3)

The government said confiscating land "will not help build a single house".(4)


1) Clearly, it is hotly disputed how many homes "the country needs". The Homeys claim that there are quite enough homes (because they've all got one - which raises the question of whether they actually need them) and that if more were built, "they will all go to immigrants"  and "the countryside will be concreted over" and so on. Let's put that to one side for now.

2) Correct.

The land bankers are among the biggest beneficiaries of Home-Owner-Ism, which is a bundle of government economic policies which have the single aim of driving up the selling price of developed or developable land. They make far more money by sitting on land as it rises in value than they do from the tricky and risky work of actually getting houses built.

Obviously, it was Not Red Ed's own party which took Home-Owner-Ism to extremes in the 1997-2010 period, even Thatcher looks moderate in comparison, but there you go, bygones.

3) Here's where he goes off piste.

Like all politicians, he wants to invent a new clumsy mechanism instead of using an existing tried and tested one - which would simply be to slap all sites with planning permission with some form of annual Land Value Tax, which in practice means Council Tax or Business Rates.

They could just put each plot with planning permission for a house into Band H and charge them £3,000 a year Council Tax for it (or corresponding lower amounts for flats) or they could apply Business Rates to the plots, which VoA can estimate as 5% of the current cost/value (easily ascertainable). This is what the VoA does do for other improvements to existing buildings if the actual rental value of that improvement is difficult to establish (I know that because I had to ring them on behalf of a client and ask).

4) Maybe, maybe not.

Nobody says that actually confiscating land in itself (or allowing planning to lapse after three years) will increase house building (even though the Homeys would see that as A Good Thing). It is the THREAT of confiscation that will lead to more house building.

And even if a council confiscates land, i.e. lets the planning lapse and then does a Compulsory Purchase Order for the new lower value, what is the council going to do with it?

The chances are it will re-grant the planning and then sell it on again. For sure, if it sells on a plot of land with planning subject to a £3,000 annual Band H charge, the upfront price will be adjusted down by the amount of the future tax, but the total amount a developer is willing to pay and which the council receives will be much the same either way.

Sorted.

Whatever the "problem" is, the first question to ask is "Will LVT-Man fix this for us?" and it is surprising how often the answer is "Yes".

5 comments:

Bayard said...

Clearly, it is hotly disputed how many homes "the country needs".
Well, mainly because need is confused with demand. It is quite obvious how many houses the country needs, which is the number of potential households who are currently homeless. Even that is a bit of an overestimate, since most of the homeless aren't actually on the streets and a certain amount of accommodation would be freed up by rehousing them which could be converted into more housing. Demand however, is a different kettle of fish, and it is also quite obvious that satisfying demand, or attempting to, will leave a large amount of accommodation empty.

"Like all politicians, he wants to invent a new clumsy mechanism instead of using an existing tried and tested one"

I think that is an example of the "not invented here" syndrome. Politicians want to gain fame by being the one who came up with a radical new solution to an old problem, a solution that in future will be referred to as "X's solution", not simply apply someone else's solution to a different problem.

Mark Wadsworth said...

B, like I said in para (1), "Let's put that aside for now".

"Politicians want to gain fame by being the one who came up with a radical new solution to an old problem"

If he wants to call this tax the "Ed Miliband National Fund for Apprenticeships Levy" rather than "Council Tax Band H" then that's fine by me.

Bayard said...

"B, like I said in para (1), "Let's put that aside for now".

No, go on, let's have an argument about it.

"If he wants to call this tax the "Ed Miliband National Fund for Apprenticeships Levy"

That's the easy bit, the difficult bit is persuading everyone else to call it that. You can call a poll tax a "community charge", but everyone will still refer to it as a poll tax.

Bob E said...

Interestingly, in his piece about this published by LabourList (http://labourlist.org/2013/06/housing-is-now-at-the-heart-of-labours-agenda-for-2015/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+LabourListLatestPosts+%28LabourList%29) Jack Dromey uses the phrase "affordable housing" and makes no mention of "social housing"

"Nobody should be in any doubt about the Labour Party’s determination to rebuild this country, get our construction industry working again and give families a chance of owning a decent home for their children just like their parents did before them".

"When Ed Miliband appointed me as Shadow Housing Minister I said my first priority was to put housing centre stage in British politics in a way in which it has not been for a generation. Not just because housing is in the soul of the Labour Party. Not just because from our recovery post-war, to every recession since, housebuilding has been a key part of sustainable economic recovery. But because a decent home at a price people can afford is so essential to leading a healthy, happy life – and right now, too many people have to struggle too hard and too long to achieve that or it is simply out of reach.

That’s why housing is now at the heart of Labour’s agenda for 2015."

Mark Wadsworth said...

B, the Community Charge/Poll Tax illustrates the point, as do NNDR/Business Rates, the Tobin Tax/Robin Hood Tax, the Pastie Tax, the Spare Bedroom Tax.

The everyday name for a tax is not necessarily the same as the official name.

BE, i have it on good authority that Dromey has paid lip service to LVT, if that's at all relevant.