Monday, 3 March 2014

Killer Arguments Against LVT, Not (318)

Those who pretend that only the real economy (and all its advances in technology) exists and who have a massive blind spot where the Land Monopoly Black Hole is concerned argue thusly:

We are no longer an agrarian economy. Agriculture is but a small part of our economy and with improvements in communications and transport, land/location and land/location values are no longer so important.

Exhibit A:

With growing numbers of people going online to perform tasks ranging from work to grocery shopping and streaming entertainment, good broadband has become critical. Homes without can lose 20 % of their value.

Or by implication, having good broadband (and presumably mobile phone reception) adds 25% to the 'unimproved' value of a home.

Exhibit B:

According to the real estate boffins at Knight Frank, suborbital space travel “presents the opportunity to radically shift global property markets”.

It seems an odd subject for the consultancy to tackle, but travelling outside Earth’s atmosphere will make getting around an altogether speedier affair (think London to Sydney in two hours) encouraging the world’s wealthiest to take second homes further afield.

Note that they are referring to "second homes", and by implication third and fourth homes, thus pushing up demand and hence prices/values. They are not suggesting that people will move their first home, which would free up their old home for more efficient use and/or tend to dissipate any upward pressure on prices/rents.


The Stigler said...

Many homes especially those in rural and remote locations are blighted by slow broadband speeds of 2Mbps (megabits per second) or less which can make sending emails or using the internet painfully slow.

Download speed has almost no effect on sending emails. It's the upload speed, which is far lower (generally either about 256k or 400k).

Even SD streaming is fine under 2mbps. It's HD streaming that doesn't work so good.

More demanding buyers now want fibre-optic superfast speeds for things like streaming entertainment and managing a host of equipment that relies on this.

Fibre-optic is a waste of money. If you can get 6mbps on your connection, I seriously doubt you'll be choking it.

Insider tip: a lot of web sites deliberately cap speeds to each user. So, while you might have a 50mpbs connection, they will only download at 1mpbs, to give everyone a reasonable service.

Ian B said...

There is a distinction though, Mark.

REmember, the Ricardian land value idea is based on its production in a physiocratic sense; literally the value of a plot of land is how much corn it grows. Income is thus strongly coupled to how much plottage of land you've got.

In a subjective value economy, this makes less sense. Income is not coupled to land value in the same way. If you're a web designer, you can work in a flat or a mansion, on a few square meters of land. So it makes the arguments somewhat different.

In practise, people buying palatial homes, second homes etc are purchasing land as a consumer good. For the Ricardian agrarian model, land is a production (investment) good. So there is a distinction.

Ian B said...

Anyway, it looks like by next week, land values are largely going to be set by fallout patterns.

Derek said...

Ricardian ideas still apply. Just remember that the farmers are now money farmers instead of corn farmers. So income is related to how close their plot is to a source of money. For the vast majority of people that source is an employer, so you'll tend to find high land prices in areas within commuting distance of well-paid jobs.

The palatial homes and second homes may well be consumer goods but the land on which primary homes, palatial or otherwise, sit is still basically an investment good.

Mark Wadsworth said...

TS, probably, but people aren't always 100% tech savvy or rational.

IanB, Ricardo only used farm land as an example to illustrate the general point. If you dig a bit deeper it is quite clear that he was talking about urban land, and he in turn was developing what Adam Smith said who made it quite clear that farm land should NOT be taxed - ONLY urban land.

From Wiki:

"Being a political economist, Ricardo was not simply referring to land in terms of soil. He was primarily interested in the economic rent and locational value associated with private appropriation of any natural factor of production.

The law of rent applies equally well to urban land and rural land, as it is a fundamental principle of economics."

And land values are still fairly directly related to incomes - whether you are looking at city centre sites (good for business) or rents in high wage areas.

Even if land values relate to "intangible" things like a nice view, so what, that still has a market value and still is a free gift of nature protected by planning laws etc.

D, ta for back up.

Mark Wadsworth said...

IanB: "In practise, people buying palatial homes, second homes etc are purchasing land as a consumer good."

Quite possibly, but so what? People who consume a scarce national resource are depriving their fellow citizens of it, regardless of the reason.

This also makes LVT a very good tax, because these people want to
a) show off how much money they've got and
b) moan about how much tax they are 'forced' to pay.

So these people will be able to moan that "My mansion on Sandbanks costs me £50,000 a year in LVT, boo hoo" when what they are really saying is "I am so fantastically rich that I can afford to pay £50,000 a year for somewhere I just use at weekends".

Bayard said...

"I am so fantastically rich that I can afford to pay £50,000 a year for somewhere I just use at weekends"

It's interesting that most expensive land is expensive because people want to live somewhere that has good employment prospects/transport links/sea views etc, but places like Sandbanks seem to be desirable simply because they are expensive and hence also vice versa. Sandbanks isn't a dump, by any means, but it's not so great that it warrants its land price.

Kj said...

I have a feeling the second home market would be quite different with LVT though. Large part of the allure is "investment". More rented, timeshare and so on, even for the upper middle class.

The Stigler said...


I don't think it's just that. The beach at Sandbanks is one of the loveliest in England, particularly within a reasonable journey to London. Plus it's very exclusive.

But the "top" thing in a market with limited supply gets a lot of extra Veblen value to it. People pay triple the price for 1st Cru Bordeaux than 2nd Cru Bordeaux even though on average critical reviews give them really similar scores.

Mark Wadsworth said...

B, yes, ultimately all value is "subjective" but it doesn't matter why and how the rental value (i.e. the price which the highest bidders are prepared to pay to occupy it).

Kj, quite probably. Second homers are bad for their 'host communities' (even the English uber-NIMBYS the CPRE say so), but if they are prepared to pay for it, no harm done.

TS, exactly, which is also great because that shifts the tax burden from the little people and more will be paid by people who purely want to show off.

There's nothing wrong with the desire to show off, that is the driving force behind most of what humans have achieved, but with LVT, we can harness its worst effects for the common good.

Robin Smith said...

What about light speed travel and teleportation? (Which already exist for those in the know (see the film K-PAX which has no special effects))

What will happen to location values then. Will they fall or rise?

The Stigler said...


What about light speed travel and teleportation? (Which already exist for those in the know (see the film K-PAX which has no special effects))

What will happen to location values then. Will they fall or rise?

1. Land values in cities would fall dramatically. No-one would have to live in or near them, so they would live somewhere they like living

2. Nice places to live, almost regardless of geography would rocket.

One thing I've observed is that London is leaking software people (which is a form of teleportation) . London prices mean companies have traded the convenience of having people on site with the savings of using someone in Wiltshire (like me).

Mark Wadsworth said...

RS, I'm not sure that it would make that much difference.

There have been loads of technological improvements (e.g. faster transport) over the years, and overall, it has led to the economy functioning better -> greater surplus to disappear into the LMBH.

And this is the sort of silly counter factual that the Faux Libs come up with anyway.

Bayard said...

TS, it's got to be much more the exclusivity and the "expensive because it's expensive" factor. I live within (longish) walking distance of a beach once voted the best in the UK and my house still isn't worth a fraction of what it would be if it was in Sandbanks.

Derek said...

Robin mentions K-PAX, which I'd never heard of, and within days it's on TV in Calgary. What are the odds?

Good film though.

Robin Smith said...

Stigler - are you certain of that?

And "would fall" compared to what?

There has never been a time in history where new technology has not INCREASED land values.

Maybe what you are saying is prophetic and new?