Monday, 6 April 2015

Killer Arguments Against LVT, Not (358)

At the end of an otherwise supportive article in The Economist:

Some categories of land (private golf courses and urban car dealerships, for example) are likely to be hit especially hard.

That all depends where they are and whether this is the optimum permitted use. A golf course out in the countryside is not depriving anybody of anything or causing any inconvenience, so the LVT would be minimal. A golf course in the middle of town is in the wrong place.

So too are urban homeowners with gardens: the tax will encourage them to build on them, which is good for the housing stock but bad for the environment.

Jesus! At present, land value uplifts from change of use are lightly taxed, if at all, so homeowners with large gardens have every incentive to replace their single house with a block of flats or a couple of smaller houses. I live in an area where this happens every year or two.

What's stopping them? Planning laws, zoning restrictions etc. Nobody said that we'd get rid of those. And overall, small areas with denser housing are better for the environment overall.

If anything, that is an argument FOR LVT - if somebody applies for change of use for more dense construction, then the annual LVT bill goes up accordingly, and that of his neighbours goes down slightly. You get what you pay for; you are compensated for what is taken away from you.

Some pensioners may own a valuable and much-loved house but not have the means to pay the levy.

Poor Widow Bogey.

The temptation to tweak the tax to soften these problems is great. Even fiscally purist Estonia, which adopted a land tax after it regained independence in 1991, now has multiple bands, including an exemption for homeowners.

True, actually. The simpler the system is and the fewer the exemptions the better, but there is a difference between a personal exemption and one attaching to the land. If a council says, OK, pensioners and short term unemployed get a discount or an exemption, that all sorts itself out in time, everybody else has to pay a bit more while they are working and gets relief when they are not. Which is what National Insurance was supposed to be for.

A third problem is that valuation of the high-priced urban land (rarely sold as vacant plots) may be tricky—and controversial. Wealthy commercial landlords could tie the assessment process up in costly legal knots.

The theoretical selling price of bare land has very little to do with it. You calculate the annual rental value of a building at any "location, location, location" by subtracting the total rental value of a a similar one in the most marginal area with zero location, it's child's play.

Total rent in Area A = Location rent + Building rent = £10,000
Total rent in marginal area = Building rent = £4,000.

Hence location rent in Area A = £6,000.

8 comments:

Random said...

Instead of LVT we should call it "land value fees" as it is more a charge on user benefits.

Mark Wadsworth said...

R, we can call it what we like, the Homeys will always go mental about it. They cannot even distinguish between 20% LVT (council tax) and 100% LVT. Their response is Pavlovian rage and hatred.

The Stigler said...

Are there any left in towns? I think Royal Lytham St Annes might still be, but didn't most of the town courses get sold for development in the 80s?

Mark Wadsworth said...

TS, rather surprisingly, there are three or four within a few miles of where I live, but they are quite small and close to rivers, where they shouldn't be building houses anyway. So good place for a golf course, site rental value = not much.

James Higham said...

So what's the road map, Mark for LVT?

Random said...

JH, look at the YPP manifesto.

mombers said...

"Wealthy commercial landlords could tie the assessment process up in costly legal knots."
Fewer legal knots than the current UBR system surely? Not that UBR comes close to the legal knots, criminal behaviour and other damaging effects of other, worse taxes.

Mark Wadsworth said...

JH, it's a war on several fronts.

Explain to the lefties that taxing personal income and wealth is a terrible way of doing things, and that the government should be smaller than they want.

Explain to the right wingers that taxing land values is a very good way of doing things and the government should be larger than they want.

And so on.

M, yes of course, BR is as close as dammit to LVT.