Sobers keeps digging in the comments to #326:
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, (1) 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.(2)
1) OK, fair enough. In which case the tax base for LVT (the site premium) can be defined as:
"The total rental value of the land and buildings, less a round sum deduction for:
- notional interest on cost/value of buildings element;
- amortisation of cost/value of buildings element;
- typical average annual maintenance and insurance costs for a building of that type in that area."
Or as:
The total rental value of the land and buildings, less an amount equivalent to the rental value of the cheapest comparable buildings anywhere in the UK"
We can simplify this further for most housing by working out a flat rate deduction from the total annual rental value to arrive at the site premium, for example £5,000 for a medium-sized three-bed semi-detached house; £3,000 for a small flat; £8,000 for a large detached house etc.
That's no different to taxing people's earnings with a flat rate exemption of £10,000 personal allowance to reflect the basic minimum cost of actually staying alive. That's no different to the old Industrial Buildings Allowances: the owner could claim 4% of the original construction cost as a tax deduction each year for twenty five years, so the real capital was not taxed.
2) Of course it exists! That's like saying you can apply income tax to somebody's entire earnings because that is "real", but only applying income tax to the amount which exceeds the personal allowance is aburd because it is "arbitrary".
Or saying that Industrial Buildings Allowances were absurd. IBAs were quasi-LVT by the back door; if somebody had a factory built for £1 million and rented it out for £70,000 a year, he only paid tax on £30,000; the £40,000 return on capital invested/created was exempt from tax (and rightly so). The £30,000 taxable related to the "site premium" and could be taxed at a much higher rate without destroying the incentive to build new factories (assuming that 4% is a fair annual return on capital invested).
Yes, the personal allowance is somewhat arbitrary, as was the 4% IBA rate (it changed occasionally), but so is the rate of income tax/corporation tax. Those taxes still "work" roughly as they are intended to.
Forbidden Bible Verses — Genesis 42:1-17
8 hours ago
19 comments:
Maybe arbitrary was the wrong word - nebulous would be better. You can define the site only rental value as anything you like really, and because there's no real life example of it, we have no way of deciding if your definition has any basis in reality.
One's income is a known and fixed amount, the amount one can earn tax free is an arbitrary amount yes, but its pretty simple, applies to everyone the same.
You still haven't answered why a plot of land in the middle of nowhere has a site only rental value than an identical plot of land in the middle of nowhere with no house on it. One is 'improved' the other not, the location is identical. Why is the Site rental value not the same?
S, all right then, how about this:
"LVT will be a tax on the total rental value/potential of existing land and buildings minus a flat rate IBA-style deduction of 5% of the amortised replacement cost of any buildings thereon"?
That's is less arbitrary than the tax free personal allowance and no more arbitrary than IBAs. And it applies the same to all land and buildings.
"You still haven't answered why a plot of land in the middle of nowhere has a site only rental value than an identical plot of land in the middle of nowhere with no house on it. "
The question answers itself. It is a fact. Because they do.
You might as well ask "How can one people working in an office get £100,000 a year and somebody else sitting a few desks away only gets £15,000". They just do.
You try renting out your 50 acres of bare farmland to a farmer for agricultural use, you will get £5,000 - £10,000 a year rent.
You try renting out your stately home set in 50 acres of garden to somebody who wants to show off and you will get £50,000 - £500,000 a year in rent, depending on where it is in the country.
Here's a splendid article from The Telegraph showing ten stately homes for sale dotted around the country, the one in Oxfordshire costs £30 million, the one in Scotland costs £3 million.
The amortised rebuild cost/value is maybe £2 million (to pluck a figure out of the air), so deduct £100,000 and the LVT bill is between £zero and £400,000.
End of discussion, no backchat.
There are a few reasons why the site of a castle or "big house" of an estate might have a higher value than surrounding farmland. It might have nicer views, be closer to water or roads, etc. It might be in a sunnier spot or a more sheltered one; it might have been best situated for defence or for administration of its supporting estate.
All these items have a real value which will be reflected in the monetary value of the ground rent. Granted, the values of different items may have changed considerably since the "big house" was originally built -- defence and administration may not be worth what they once were and views may be much more valuable -- so a site value will still exist and may well be higher than that of the surrounding farmland.
But does it really matter if the LVT on a house like this is peanuts? There are so few of these houses that it hardly seems worth bothering about from a revenue point of view.
"You still haven't answered why a plot of land in the middle of nowhere has a (?) site only rental value than an identical plot of land in the middle of nowhere with no house on it. "
On the assumption that the missing word is "higher", I would expect that the answer is that it doesn't, so long as the plot of land with no house has permission for a house to be built on it. (Yes, of course no-one rents land and builds a house on it, but since rental value and selling price are proportional to each other, then one can be taken as a proxy for the other.)
D, don't fall into his trap. You are explaining why one place might be a better place for a grand house than another place.
B, exactly, whether you take total rental value, site only, total selling price or site only selling price all comes to much the same thing if you start with the required tax take and work backwards.
"The question answers itself. It is a fact. Because they do."
No they don't in reality. In your universe you've decided they do, but back in the real world people actually live in, no-one (as Bayard admits) rents land to build houses on it. Ergo, no such thing as a site only rental value exists. You can compute them, calculate them using all manner of formulae but they are all constructs that do not mirror anything that people actually do.
You keep bring in planning permission which is irrelevant to the location value. Yes a site having planning permission will increase its sale value (but crucially NOT its rental value) because you can build a house on it, and the rental value goes up once the house is built. But for the purposes of LVT we are told to specifically ignore the extra rental value created by improvements. So the fact you can build a house has zero effect on the site only rental value.
You can't have it both ways. If you ignore the extra value created by improvements, the fact that the land has permission for improvements has zero effect on the rental value. If you increase the site only rental value because of planning permission you are then including in your rental value some of the value of the house once built, so you are including improvements.
You are assuming that if the sale value goes up the rental value goes up too, that the two are always linked. As I have repeatedly pointed out they aren't, as no-one rents bare land to improve, only buys it.
I suspect Sober knows very well that he is trying to win with a purely semantic point here. Developers all around the world, in places as far apart as NZ to Hong-Kong to Copenhagen, do rent/lease land to improve, arguably mostly in commercial property settings. They calculate how much rent they can get for what they can develop on a site, and comes up with a residual figure they can lease the land for, in the same way they would if they had purchased the land freehold. The only difference being capitalisation of the rental amount and a little tacked on for speculative reasons. If you were right, this whole process would not be possible, because by your logic, the developer would consider the lease a rent on the buildings they themselves were going to build, and thus unfair/unviable, but perfectly acceptable if the property was bought outright. Nonsensical, but you coming back to go scrape further down the barrel of KLNs is a matter of habit I guess.
Sobers, are you actually clinically insane?
Do you really believe that identical buildings have the same total rental value, regardless of where they are situated?
(In the real world, as an observable matter of fact, identical three-bed semi's around the UK rent for £5,000 in the cheapest areas and £30,000 in the most expensive areas.)
This is such a fundamental point, if you answer that simple question with "yes" then that is the end of the matter and I will just delete your comments in future.
Kj, Sobers knows exactly what I am talking about, but he makes a sport out of playing to the Home-Owner-Ist gallery.
Or possibly he is clinically insane.
"You keep bring in planning permission which is irrelevant to the location value. Yes a site having planning permission will increase its sale value (but crucially NOT its rental value)"
S, are you a lawyer as your day job?
You must know that planning restrictions don't increase the price of building land, they decrease the price of agricultural land. So an acre of agricultural land has its rental value artificially decreased by planning restrictions not allowing any building on it. What you are saying, in effect, is that you cannot determine the location value of agricultural land because of the removal of the location value element of its rental value by planning restrictions. Which, I would have thought, is self-evidently false: all you have to do is calculate what it is worth as building land, work out the notional rental value from the selling price, subtract its rental value as agricultural land from it and thus derive a value for its location value.
But people do rent land and build on it- they just have an agreed rental period of longer than the normal 1 month. It's called a lease.
Almost all of London was built by leaseholders, who would have had the site premium factored into the price they paid for the elase in the first place...
We can simplify this further for most housing by working out a flat rate deduction from the total annual rental value to arrive at the site premium, for example £5,000 for a medium-sized three-bed semi-detached house; £3,000 for a small flat; £8,000 for a large detached house etc.
That´s actually a pretty good idea, and as you say, lots of tax arrangements are shaped in a thus an "arbitrary" way, like depreciation allowances. If additionally the rental value is averaged out per area, it automatically exempts individual improvements that create higher rents/purchase prices.
"Do you really believe that identical buildings have the same total rental value, regardless of where they are situated?"
What has that got to do with anything? I never said they did.
My point is very simple. Take two plots of land in the middle of nowhere. Same site only rental value, pretty much agricultural rental value.
Then one plot gets permission for a house. The sale value of the plot for sale goes up massively. But its location hasn't altered one jot. So why has its site only rental value changed?
TBH, Kj, ta for back up.
S, you're still being really daft and you know this stuff.
Bayard explained that already.
"planning restrictions don't increase the price of building land, they decrease the price of agricultural land.
"So an acre of agricultural land has its rental value artificially decreased by planning restrictions not allowing any building on it."
I know that the general system of planning permission depresses the value of agricultural land, but it also increases the price of land with permission. In a totally free non planning market the market price for land would be somewhere between the current agricultural value and the current development value. The exact amount dependent on location. However the rental value would still be the agricultural rental value. This can be seen from the fact that quite often in large urban developments the land is developed in stages, and despite having planning permission, it gets rented out for farm use until its needed for houses. And they pay farm rents.
However you're avoiding the question. One extra planning permit doesn't affect the value of land around it one jot. So why does the granting of planning permission on plot A increase its site only rental value, vs the next door plot with no planning permission, when planning permission is merely the right to make improvements, the value of which are irrelevant to site only rental value? I've asked about 3 times now and each time you've avoided giving any sort of answer other than to abuse me.
S, I asked you if you were a lawyer, because you argue like a lawyer, making unfounded statements and basing your arguments on them as if they were accepted truths.
"but it also increases the price of land with permission"
and your justification for this statement is?
"This can be seen from the fact that quite often in large urban developments the land is developed in stages, and despite having planning permission, it gets rented out for farm use until its needed for houses. And they pay farm rents."
No it can't. All the developers have done is replace one sort of restriction preventing building with another. They have removed the planning restriction and replaced by a restriction that the rental agreement must be of short duration, because the landlord reserves the right to take the land back and develop it .
"So why does the granting of planning permission on plot A increase its site only rental value, vs the next door plot with no planning permission?"
It doesn't. As I said before, but you chose to ignore me, the site-only location rental value, given the site's optimum use, is the same before and after. The point is, that the landlord is prevented from collecting it by a restriction on use, in this case one imposed by the planning authority, but it could be, as in your instance above, a restriction imposed by the landlord himself.
"when planning permission is merely the right to make improvements, the value of which are irrelevant to site only rental value?"
Because planning permission isn't merely the right to make improvements. Planning permission is a lifting of the restrictions on the use to which the land may be put, hence increasing its rental value.
As an example, you have a field, owned by a householder in a village. He wants to rent it to a nearby farmer, but he doesn't want it ploughed and he doesn't want cattle or horses in it. Thus he restricts its use and so reduces its rental value to almost nothing. Finding no takers, and seeing the field filling up with weeds, he removes the restrictions and finds he can get a reasonable rent for it. How is this removal of restrictions any different to the removal of the restrictions of the planning authorities?
B, if I were you i would just ignore him.
It doesn't really matter how and why site premiums arise, fact is they do and they are a suitable subject for taxation.
M, he's only three billy goats gruff short of being a troll, but answering him helps me to get my thoughts in order and you never know, one day he might agree with us.
I think Sobers is also confusing location value and site value. Location value depends on the position of the site only and may be affected by what your neighbours do whereas site value includes location value and also includes features such as soil fertility, nice views, defensibilty, planning and any other features which affect the usefulness of the site.
B, of course he won't agree, he's the Homey elite (large landowner, makes money by getting planning).
D, don't pander to him. I don't think it's possible - or even necessary - to distinguish between location value and site value, or to subdivide them into their constituent parts, we can easily work out what the end result is.
Post a Comment