Killer Arguments Against LVT, Not (402)

Emailed in by Ben Jamin', from The Guardian:

"Loatheallpoliticians: Your idea for LVT is shi*t. No one will go near it and it hasn't a hope due to the myriad of [sic] problems it would bring, most noticeably it's [sic] complete detachment from ability to pay.

Poor Widow Bogey yet again. Roll up and defer. Apart from that, most working households could afford to rent their own homes, by definition, and the LVT will always be less than the full market rent, especially if their other tax bills (income tax, NIC, VAT) were halved as a quid pro quo.

Ben countered with this: "The compensation (prices) we pay for other goods and services aren't set by ability to pay, incomes or profits."

If we are looking at an individual deciding what to spend his money on, this is quite clearly true, most suppliers don't give discounts for low income people, although where the price includes a large amount of rent/super profit and the goods or services supplied can't be re-sold, there is such a thing as price discrimination.

The moral being, why should LVT/rent be any different? The landlord/vendor rents/sells to the highest bidder and is indifferent where the tenant/purchaser gets his money from or whether he will have to live off baked beans to afford it. The same with LVT, you get what you pay for, even if you have to live off baked beans. The other point being that for once, higher earners, who will occupy the higher-LVT homes will be getting something specific in return for their tax payments, there will be no excuse for moaning about tax bills - just trade down if you don't like it.

LAP hits back with this nonsense:

"In reality they are, as without the ability to pay we don't purchase (or try to purchase). As the amount of people trying to purchase (demand) impacts upon the cost of a product and hence supply, how many people can afford a product is a major impact on price."

With freely traded goods and services, this is back to front. People will invent and produce new stuff if it is cheaper and/or better than what it supersedes (radio - black and white TV - colour TV - flat screens - HD TV etc). Production costs can be predicted in advance, it is up to the producer to work out whether the likely price (i.e. the price of similar but inferior products) is sufficient to cover production costs plus reasonable profit margin. If a reasonable profit margin is unlikely, those things don't get produced, this is a binary thing, yes/no.

So LAP has now gone round the clock and contradicted himself. The only thing where price is set solely by ability to pay is in fact rent, rent is set by the ability/willingness of the highest bidder to pay. There is no real 'cost', the landlord's price is the tenant's cost. Whether to build a new home is a binary decision, yes/no, but the land does not need to be produced and output is fixed.*

Most homes in most areas are fairly homogeneous and the average rent is set by average incomes in that area. Any surplus over the cost of bricks and mortar goes to rent. Average incomes are dictated by how well the economy is doing generally and landowners - in their capacity as landowners - contribute nothing to the economy.

So the LVT in any area is set entirely by ability to pay, it is not "completely detached" from ability to pay, it is 100% dictated by ability to pay. What it means is that lower income people will end up in smaller/cheaper homes and higher earners will end up in nicer homes - which is exactly what we have anyway, a few Poor Widows aside.

* This touches on another twattish KLN, "The supply of useable land is not fixed. We can get house prices/rents down by building more homes." Firstly, LVT is not just about the narrow issue of getting rents down, it is about untaxing production. Secondly, you can't. Thirdly, even if you could, the total amount going to land rent stays the same i.e. larger number of units each worth a smaller amount of rent.