Tuesday, 7 July 2015

"Nobody move, or the puppy gets hurt!"

Landlords on fine form in The Times:

Landlords have threatened to raise their tenants’ rents if George Osborne uses the budget to end tax perks for buy-to-let borrowers.

1. We all know perfectly well that they can't, but if they could, why don't they do it now? Answer: because they are already charging as much as they can get.

2. They also know perfectly well that they can't - because if they could simply 'pass on' the higher tax bills then they wouldn't really care about the higher tax bills.

Compare them with the cigarette industry, they don't particularly like tobacco duty, but as supply is elastic and demand is price-insensitive they genuinely can pass on 99% of tobacco duty onto smokers, leaving their net profits pretty much untouched. Ditto petrol.

3. A tax is the opposite of a subsidy. How would landlords respond if Georgie Boy said "OK, keep your interest deduction, instead I will get that £5 billion a year back by halving the Housing Benefit you get". It's more or less exactly the same thing - but we know that if Housing Benefit were halved then rents would go down, however slightly.

4. They never say what non-leveraged landlords would do. Would they keep rents constant while leveraged landlords try to increase them? How's that going to work? Suffice to say, what would happen is that over-leveraged landlords, the highest cost operators, would sell up so we could argue that as a result, the average interest paid by landlords goes down so rents would go down (using their twisted and circular logic back at them).

5. In particular, it will be higher earning tenants who now buy the homes up for sale, meaning that remaining tenants have lower average incomes and so rents will come down to match.

6. If their logic were correct, they might as well call on the Chancellor to make all rental income entirely tax free.

In a letter to the chancellor, seen by The Times, the National Landlords Association warned that an assault on buy-to-let would damage the economy and work against first-time buyers.

Highly leveraged buy-to-let are a threat to the economy - even the Bank of England says so - not an assault thereon, we all know that as well, and how the f*** do they work out that squeezing a few buy-to-let landlords out of the market would not be interests of first-time buyers, i.e. the sitting tenants to whom the exiting landlords sell?

Landlords enjoy tax breaks that cost the exchequer about £5 billion a year, according to HM Revenue & Customs, the equivalent of more than a penny on the basic rate of income tax.

Yup. These greedy fuckers are 'investors' not businesses when it comes to grubby little taxes like National Insurance and VAT, so unlike proper businesses they don't pay those. But unlike proper investors who invest in shares, they can deduct their interest expense from taxable income... just like proper businesses. Best of both worlds, that is called. And then there's the 10% wear and tear allowance/giveaway.

Buy-to-let borrowers are allowed to deduct the cost of mortgage interest payments from their tax bill, a perk that makes buying property cheaper for landlords than for first-time buyers.

No, false comparison. Owner-occupiers pay less tax on their homes than landlords; strictly speaking, owner-occupation gets the most tax breaks. But at least an owner-occupier is only getting it on one home.

The fair comparison is with people who invest in shares (who can't claim a deduction for interest paid, see above). A perfectly sensibly policy, because it discourages credit-fuelled speculation in shares, which is what caused the 1930s Depression.

The letter from the NLA states: “...Landlords would be left with no other option than to recoup their increased costs through higher rents.”

Option 1 - accept lower net returns, option 2 - sell up. And that is the more likely one.

As a counter-point to all this, there are some interesting facts and figures in This Is Money:

* Average interest rate paid on BTL mortgages down from 5.77% to 4.69% over the last three years - so if tax relief for interest were withdrawn, the effective interest rate paid would be the same as three years ago (i.e. 5.77% less 20% tax relief = 4.69% without tax relief). Did landlords reduce their rents to 'pass on' the interest saving..?

* Nope. Average rents up from £660 to £734 over the last three years. If their logic were correct, then rents would have fallen to about £600.


Rich Tee said...

Thanks Mark for your diligent pursuit of this topic. Their attitude just confirms in my mind what a stitch-up the whole BTL thing is.

It is quite reassuring that Osborne may be considering doing something about it although I won't be holding my breath.

Mark Wadsworth said...

RT, my pleasure and I won't be holding my breath either.

Random said...

Read this article - explains what is going on. The UK received the most. Whooope!

Random said...

KLN Alert!
A faux lib:
"Property is under supplied because the state controls the building land market through the planning system, ergo the state is the reason we don’t have enough houses.

Highly paid civil servants do a census every 10 years to allow them to plan the infrastructure we need to support the population, but the result is what we have now. We clearly need to build several more cities to provide the necessary homes for the people who want one. Milton Keynes writ large, if you will. There’s also a heap of land in London which could be recycled into housing, so why isn’t the planning system making it easy for owners of that land to turn it into homes?

It wouldn’t be beyond the wit of man to require that those owning homes in areas of severe shortage, such as London, have a UK National Insurance number before their name goes on the deeds. That’ll sort out a few overseas investors who must be laughing all the way to the bank, whilst we humbly sell off the world’s greatest city in parcels to them for their apartment blocks.

The state apparatus in this area is disgusting and immoral. Few object to a planning framework, but when the results are this poor and the market is so distorted as a direct result, the response is to call for taxes on anyone with the temerity to have bought a house.

That’s called treating the symptoms."

Random said...

Comment at Flip Chart Rick. The twat. There is no "market" in land you idiot. What about the "temerity to earn an income." These people make my blood boil. Blame-shifters

Mark Wadsworth said...

R, it's not just the Faux Libs, people across the political spectrum subscribe to this "it's all down to lack of supply".

The Faux Libs blame the government, the young blame the NIMBYs, the NIMBYs blame the immigrants and the lefties blame the evil land bankers.

But either way it is not an argument against LVT; that's like saying "We only need income tax because the government prevents job creation/established workers don't want their bosses to take on more employees/the immigrants are nicking all the jobs/evil employers aren't paying high enough wages".

LVT works just as well with a strict planning system or with a totally liberal planning system. The planning system is a peripheral issue, the point is that land values are entirely unearned.

Random said...

OK. But still:
"the response is to call for taxes on anyone with the temerity to have bought a house."
Get the point though.

Random said...

Private Property is inherently aggressive.
Such rights are created, defined & legitimated by government, enforced & defended by means of violence.
Private Property & tax collection both involve the same government violence & intervention.

All Systems of Property Rights are created, defined & enforced by government (whatever form it may take)
Private ownership of land/resources/means of production (as currently defined) is not universal among property rights systems. Such “rights” are, in fact, a historically recent invention, entirely non-existent for the ~90%+ of human history spent living in hunter/gather societies.

What you consider a right, others may not. It is a subjective value judgement of what “should be” not an objective description of nature.

Without government, why should anyone acknowledge your “right” over a piece of land as opposed to the competing claims, the “rights” of others?

Why wouldn’t an individual or a group simply claim it by right of arms?