Tuesday, 12 November 2013

Economic Myths: Burdens on society

The mainstream/Homey myth is that it is good if people buy their own homes, because that way they are not a burden on society in their old age.

This is also often used as a KLN: "If we had LVT then people would never really own their own homes and so would be a burden on the state in their old age."

It's never clear what they mean:

a) Old people get their pensions, free health care, a share of public services etc etc anyway, whether they own or rent, so it can't be that.

b) Do they mean a fair comparison between people devoting a chunk of their income to paying off a mortgage instead of putting it into savings/investments to be able to pay rent in retirement instead?

No of course not. Homeys only do diagonal comparisons where the alternatives are pay off a mortgage or waste it all on flat screens and holidays. Clearly, spending money on flat screens and holidays is good for the economy but paying off a mortgage isn't, but let's gloss over that.

c) Once they stop wriggling, they explain that what they mean is that because rents tend to go up, by and large over a lifetime, you pay out less if you take out a mortgage and pay it off.

So they rig the market to make rents and house prices go up and use that as an argument for subsidising rents and house prices, i.e. a vicious circle and self-fulfilling prophecy.

Therefore, on the irrelevant if not unfair assumption that tenants by definition will not have built up investments to see them through retirement (i.e. a larger pension fund), they conclude that tenants will all end up claiming Housing Benefit and/or living in council housing.

d) Housing Benefit is money down the drain of course. But they also claim that council housing costs the government money. Well not in cold cash terms, because the annual running costs for a flat or small home suitable for a pensioner household are only £40 - £60 a week, most of which they would be paying in rent anyway. So that's still not a big burden on society in general or the taxpayer in specific.

e) What they merrily overlook is that all occupation of land is a burden on the rest of society. There is a limited amount of areas where people want to live - if one person occupies one bit, he puts everybody else in a less favourable position. If they want to occupy some, they have to pay hard cash money in order to do so.

The price which the otherwise excluded person is prepared to pay is precisely equal to the rental value of the site in question.

It's like spaces in the lifeboat. The value to the person desperately treading water bears no relation to the cost of providing the lifeboat. The people in the lifeboat are placing a burden on those left behind who will drown.

Or slightly less melodramatically, it's like German tourists putting down towels on sun loungers. This is irritating, and we know in our hearts that it is "wrong", but why? Following Homey logic: that sun lounger didn't belong to you, so what have you lost, that tourist is just a "landowner"?

Let's extend this argument - the first German tourist to ever put down a towel on a sun lounger then has first dibs on it for ever, even if he is no longer staying at (and paying for) that hotel. Is it fair to say that the German tourist (i.e. landowner) is placing a burden on "everybody else" even though he is not consuming the physical lounger? It's a "yes" or "no" question by the way, not a rhetorical one.

f) So, returning to the original myth, the point is that somebody in a family home on a plot with a rental value of £15,000 is placing a larger burden on society as a whole than somebody else in a small council flat with a site-rental value of £5,000. If the person in the £5,000 council flat is paying nearly that much in rent, then he is paying most of his dues and is placing a net tiny burden on society (a fraction of the cost of his old age pension, free health care etc).

g) Now, returning to the KLN, if the household (of whatever age) on the £15,000 plot are paying £15,000 in LVT and the household on the £5,000 plot are paying £5,000 in rent/LVT, then honours are even and everybody has paid their dues and nobody is being a net burden on anybody else.

That's how perverted and arse-about-face Homey propaganda is. They actually claim that people who place a bigger burden on society are not placing a burden on society and vice versa.


TheFatBigot said...

I would have thought the position is pretty obvious.

Everyone needs somewhere to live. They either buy it or rent it.

If they buy it, a time comes when they have bought it and then they have no on-going costs of occupation other than maintenance (and council tax).

If they rent it they must pay rent (and council tax) until they are carried out in a wooden box.

In either case, if the person has enough money to pay for themselves their housing is no burden on society. But if they become dependent on society - which can only sensibly mean if tax has to finance some or all of their expenditure - the fact that one has no housing costs other than maintenance and the other pays rent every month means that the renter is highly likely to be more of a burden on society.

In your paragraph (e) you tried to justify your argument by describing the very occupation of land as a burden on society, an argument so absurd it hardly merits mention. If occupation of land is a burden, the burden is equal for a given plot of land whether you rent or buy, so you must look to something else to provide a substantive definition of "burden".

I am not a burden on society if I always pay my way, I am only a burden if I need others to pay for me.

I am not a burden if I have enough money to pay rent throughout my life. I am only a burden if I need to call on others to pay it for me.

Someone who has bought their home need never call on others to pay for their on-going housing costs because they don't have any (other than maintenance which has never been payable by the taxpayer in this country, as far as I am aware).

Someone who rents has a continuing obligation to pay that rent, and so becomes a burden when the taxpayer pays their rent when they are unable to pay it themselves.

Isn't that just obvious?

Mark Wadsworth said...

TFB: "an argument so absurd it hardly merits mention."

Yes, that's what the Homeys like to pretend.

Think about the lifeboat example. Are the people who scramble into the boat first imposing a cost or a burden on those left to drown?

What if somebody takes his bags and suitcase on board and takes up an extra seat? Is he not placing twice as much a burden as those who take no baggage?

Bayard said...

"when the taxpayer pays their rent"

TFB, don't you mean "if the taxpayer pays their rent", or are you indulging in the "all tenants are poor and likely to be scrounging off the state" meme?

Why should fine upstanding citizen A, who has paid interest most of his working life and bought a house worth £200,000 be better able to provide for himself in old age than second-class citizen B who has rented and put the money he would have paid for a house into a pension?

Mark Wadsworth said...

B, even if we make the slightly diagonal comparison between a homeowner in a large home which is paid for and a council tenant in a flat, the former is placing a far larger burden on society than the latter as he is consuming far more land rent (common wealth).

Let;s assume that the former's council tax bill is roughly the same as the latter's council tax bill plus rent payments, to remove that from the equation.