Thursday, 29 August 2013

Fucking idiots

From the Daily Telegraph via City AM:

Abolishing tax on empty shops could create 150,000 jobs, says property investor Andrew Perloff

Andrew Perloff, the chairman of property investment company Panther Securities, has accused the Government's practice of charging business rates on empty properties of preventing thousands of Britons from starting their own businesses.


How do they work that out?

1) Under current rules, vacant business premises are exempt from Business Rates for an initial period but not occupied ones, so there is a tax increase when a new business starts up in those premises. Taxes on economic activity discourage economic activity. The exemptions/reductions therefore clearly discourage landlords from finding new tenant and hence discourage new businesses from starting up.

2) Conversely, levying Business Rates on vacant premises encourages the landlord to find a new tenant ASAP, and thus encourages new businesses to start up. This is not idle theory - when Labour reduced the generosity of the exemptions for empty premises in 2009, occupancy rates went up.

3) So what the exemption does is encourage landlords to leave premises vacant (or rent them to a charity, which gives an 80% reduction in the rates) while speculating on rising land prices and/or holding out for a higher rent from a normal tenant.

4) There is a tipping point which leads to a downward spiral. Once enough shops are vacant or occupied by charities, then the area becomes less attractive to shoppers and hence to retailers; ultimately real businesses close, jobs are lost and rents go down.

5) But in the wacky, logic free world of Home-Owner-Ism, taxes on business activity encourage business activity and landlords are providing a useful service to the community by leaving buildings vacant.

14 comments:

Bayard said...

I think you have jumped to conclusions here. What Mr Perloff is calling for is a re-introduction of the "rates holiday" when a premises that was empty becomes occupied, i.e. "empty commercial properties were exempt from business rates for the first three months of occupation, and were then charged at 50pc." although it doesn't say for how long the 50% exemption lasted. He is not calling for a removal of business rates on properties that are empty, although the Torygraph is doing its damnedest to imply that he is.

Such a reduction seems sensible to me: if it only lasts a year or two, then it is impossible for the landlord to capture it - even the dimmest tenant is going to smell a rat if the landlord is offering a rent that falls after the first year.

Mark Wadsworth said...

B, no I haven't and he is still an idiot.

When Labour reduced the discounts, all of a sudden, occupancy rates went up, end of discussion.

So why would we want to go back to the even worse old system?

Lola said...

B. Anyway why the Hell are there discounts anyway? If BR were properly constructed it would be levied on the landlord as a %age of the rental value (which is what BR effectively is anyway). If then to get it let he'd has to reduce rental value his BR would reduce as well. Yes, he'd 'lose' capital value, but so what?

Bayard said...

"When Labour reduced the discounts, all of a sudden, occupancy rates went up, end of discussion."

Well no. Labour reduced the discounts on empty property. This article is talking about discounts on occupied property. There is a difference, you know.

Bill Quango MP said...

Bayard is correct. The 3 month free period is a tiny, tiny window. Landlords prefer

A. Rent/rates paying tenants.
B. charities
C. Rates only paying tenants on free rents

To an empty, and therefore costly unit.

Mark Wadsworth said...

L, exactly.

B, Labour shortened the period for which the premises which are or had been vacant were exempt.

The idea of having exemptions for the first x months in which a previously vacant building is occupied again is a recipe for churn and hence disaster, just like the silly schemes to subsidise the first y months wages for new members of staff who have been unemployed.

BQ, if landlords want to get tenants in, all they have to is drop the rents, to zero if necessary (option C). Hey presto, a new business can start up and landlord is no worse off.

But clearly plenty of them don't. The narrow self-interest of the few rent-seekers is to the collective costs of "everybody else" (including neighbouring landlords).

Bayard said...

"Labour shortened the period for which the premises which are or had been vacant were exempt."

So the article says, but that's not what caused occupancy rates to go up, nor is it what your "rebuttal" of this article is about.

"The idea of having exemptions for the first x months in which a previously vacant building is occupied again is a recipe for churn and hence disaster"

Quite possibly, but that's the landlord's problem, not the tenant's. Unlike the silly employment subsidy scheme, where the employer has every incentive to sack the employee after the subsidy runs out, in this case it's the tenant who has the incentive to up sticks and find a new subsidised property, which, I would have thought, is hardly worth the hassle, unless you are a "pound-shop" or other fly-by-night sort of retailer. The landlord is faced with the problem of finding a new tenant and so his incentive is to offer them some inducement to stay.

Mark Wadsworth said...

B: "that's not what caused occupancy rates to go up"

Well you explain it then (esp. bearing in mind onset of recession). That's the magic of LVT and similar taxes, they always "work" regardless of quite how or why.

Apart from that, and precise definitions aside, all of these Homeys rail against Business Rates as if it were
a) the biggest and
b) the most damaging tax on economic activity, which it clearly isn't (it's a tax on economic inactivity, if anything).

Bayard said...

"Well you explain it then"

It's fairly obvious, isn't it? By reducing the discount on rates on premises that are unoccupied (note the use of the present tense) they increased the cost to the landlord and therefore increased his incentive to get a tenant in by fair means or foul. However, by reducing the discount on rates on premises that are occupied, but were recently unoccupied (note the use of the past tense), they increased the cost to the incoming tenant, so this could hardly have done anything to increase occupancy rates. The article only refers to the latter discount, the discount to the tenant, though, as I pointed out above, they have written it in such a way as to infer that it is referring to the former discount.
Yes, all of this is special pleading:"please Mr Politician, can you offer potential tenants a rates holiday so I don't have to offer them such a big rent discount", but it is not such egregious special pleading as you make out, nor are the arguments so demonstrably wrong.

Lola said...

B. What landlords also do is knock down stuff. I think, but I am not sure, (help, anyone?) that BR on vacant sites is nil as well? Certainly a couple of buildings have been knocked down in my town and nothing done about the sites.

Bayard said...

Lola, this from a publication by Oldham Borough Council:
"Premises and dwellings that have been demolished are generally not liable for business
rates or council tax. However, if it is deemed that they have been demolished solely to
avoid payment of business rates or council tax, then the owner/occupier will be expected
to pay as normal. However, this is very difficult for a Local Authority to prove."
Indeed!
However this might be peculiar to Oldham, but I doubt it.

James Higham said...

All correct except the last one - the rents do not go down - the council maintains them in the vain hope of a turnaround in our town. Hence all the boarded up windows.

Bill Quango MP said...

Lola: A law was brought in specifically to prevent the previous loophole practice of demolition of sometimes almost new buildings, creating waste ground in exchange for no business rates.

If a landlord thought a site, say a light industrial, might be mostly empty for a year it was cheaper to knock it down and rebuild it later than to pay the rates.


Mark Wadsworth said...

L, ta for extra info.

JH, we can argue separately about how accurate the valuations are, whether they are updated often enough etc. By and large, I have no reason to assume that they are a million miles out - but as they are based on total rental values not site only, rates are "too high" in low rent areas and "not as high as they could be" in high rent areas.

BQ, sure, but once you invent silly loopholes, people will exploit them in silly ways and actually policing it is difficult, the same as insurance jobs.