Thursday, 15 May 2014

Killer Arguments Against LVT, Not (326)

Sobers, who actually understands this all too well, is going on about how to calculate the "site premium" of unsual homes, his example is a £10 million mansion set in fifty acres of countryside:

[Me} "It is the rental value of the DEVELOPED LAND which matters."

[Sobers] Well it's not site only value you are taxing then is it?

The location value of just the plot of a stately home in the middle of nowhere is the same as an adjoining piece of farmland, because that is its location, in farmland.(1)

The entire value of the property is in the improvements - the grand house, the formal gardens, the outbuildings, the avenue of trees up the drive. The value of the property is entirely in the quality of the improvements.(2)

50 acres with a prefab post war bungalow in the middle of them is worth considerably less than the same acres, in the same location with a stately home on it.(3) Ergo the location value is just that of the surrounding land not what is on it.(4)

1) He knows this is not true. If the local council came along and said to stately home owner, we're awfully sorry but we're building a motorway here and have to knock down your house, we'll offer you £5,000 an acre for the agricultural value of your land, then I doubt whether the owner would happily accept; if the council offered to pay for the rebuild cost of the home on top, then the owner still would not accept. We know this from all the people whining about HS2 going anywhere near their houses.

2) That element of the total rental value of such a stately home which relates purely to the location might be trickier to establish than for a house or flat in an urban area, but it still clearly has one.

We could, for example, compare like with like. There are stately homes in the wilds of Scotland or Wales (Area A) and stately homes in the Home Counties (Area B). If you take a home/building in each area of similar size, you will find that the ones in Area B sell or rent for considerably more than in Area A.

That difference can only be down to the site premium; the upkeep and maintenance costs are much the same in either case, and the costs of keeping the garden looking nice is irrelevant, that is an entirely voluntary hobby/pastime and has little to do with the site premium.

We know from reading the property porn pages that stately homes near London are worth a lot more than stately homes a bit further away (Oxfordshire). There are even stately homes in areas which are so uninteresting that they sell for scrap value or have long been abandoned. The site premium of those homes is to all intents and purposes £zero.

3) Correct.

The site premium depends on "optimum permitted use". Whether that is dictated by planning controls, local democratic votes or free markets is neither here nor there. We shall have to assume for the time being that most plots are actually being put to their optimum use.

Again, if the local council came along and said to the owner of a stately home, awfully sorry old chap, but actually your building does not comply with the new building reg's, you're going to have to knock it down and replace it with a prefab bungalow, then clearly, that is a restriction on use and the site premium comes down accordingly, probably to a few thousand pounds a year.

4) What is worth more - a home with views over 'unspoiled' countryside with a massive garden, a few miles from a motorway junction or railway station half an hour from London, or an identical home with the same sized garden in the Scottish Highlands, miles from anywhere? The former, and that higher value relates to the site premium, not to the physical building.

Or as a thought experiment, what all the farmland/forests in the UK (50 million acres) were split up into one million plots of 50 acres each, and a lovely big house were built in the middle of each.

Would those million houses all be worth the same? Of course not. Some would be worth less than what they cost to build, some would be worth £millions.



ThomasBHall said...

Don't forget that for the very rich, the price paid will reflect a number of other things above site premium and cost of improvements- so the % of selling price (I accept is only given as a rough guide) breaks down. At this point, the price is made up of "art value" too, and should not be taxed beyond the site premium itself.

Anonymous said...

"The location value of just the plot of a stately home in the middle of nowhere is the same as an adjoining piece of farmland, because that is its location, in farmland"

Presumably, the value of such a plot would rather more logically be the same an 'an adjoining piece of farmland' were that farmland to be granted planning permission for a residential building.

Sobers said...

The trouble is that the thing you wish to tax (site only rental value) doesn't really exist in reality, only as a theoretical construct. No-one rents empty land, and then builds houses on it, or shops or factories. They buy the plot and do that, or they rent the house/shop/factory thats already there. So there are no market arrived at site only rental values to use as comparisons, beyond the rental market for farmland.

If you wished to tax the pure rental value, that would make more sense, because every property has a reasonably easily calculated rent, and if you wished to tax the sale/purchase value, again thats relatively easily worked out. But this insistence that LVT is levied on the 'site only rental value' is absurd, because such a thing doesn't actually exist, and thus for any given property is purely arbitrary.

Ben Jamin' said...

@ Sobers
Ok don't call it the site rental value.

Call it the "location only value if that property were rented out instead of owner occupied."

Which for 99% of all UK domestic property is an afternoons work on a PC.

For the other 1%, I'm sure that's not too tricky either, but might require an individual survey to get the ball rolling.

Any discrepancies regarding valuation are capitalised into selling prices anyway. So once a LVT system has bedded in and a property has been sold, it doesn't matter.

MW's simplified LVT, i.e 24 bands, let's everyone know where they stand, when they comes to buy/sell their home.

Remember, we already have LVT. Only it's all privately collected.

Bayard said...

"Which for 99% of all UK domestic property is an afternoons work on a PC."

Regardless of how unusual your house was, if you went to a letting agent and asked him to rent it out from you, it is extremely unlikely that he would say "No, sorry, it's too complicated to set a rental value" and send you away.

Mark Wadsworth said...

BJ, I said 26, A to Z.

B, thanks for back up.

Ben Jamin' said...

MW, are you sure there's 26 letters in the alphabet? Sounds like more Commie nonsense to me.

Mark Wadsworth said...

BJ, yes positive, I put them on rows on a spreadsheet and the whole alphabet covered 26 lines.

The point being that 1.2^26=100.

26 LVT bands, each 20% "wide" means that the top homes pay 100 times as much as the bottom ones, which seems about right to me.