Friday, 7 April 2017

Killer Arguments Against LVT, Not (410)

Another rebuttal of the tried and tested "But I contribute to the location value of my home, because I am a good neighbour, shop in the local shops, am a valued member of Neighbourhood Watch etc" occurred to me just now.

It is quite true, for example, that people pay extra to live in 'safe' neighbourhoods, so you are paying extra to live next to nice people, and assuming you are nice yourself, other purchasers or tenants are paying extra to live near you. Similarly, Waitrose set up where there are enough people with spare cash; in turn, being near a Waitrose bumps up local rents and prices (allegedly).

A sensible LVT is based on observed rents and selling prices. These are by definition not influenced by the ongoing efforts of the landlord/vendor because the landlord (probably) does not live in close proximity and the vendor has (probably) moved elsewhere.

So observed market rents and selling prices are not influenced by the ongoing efforts of the landlord/vendor, they have already discounted them.

(The only counter-counter argument is the one advanced by Steven_L a while back of the "superstar" neighbour, people will pay a bit extra to bathe in the reflected glory of living near somebody famous. Well, perhaps they do, but I'm sure the effect is immeasurably small, it is only if you get lots of famous people living on a particular area that it makes much difference).
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A friend and fairly enthusiastic LVT supporter on a high-ish salary recently bought himself a house in the south east which was of course eye-wateringly expensive.

His new argument was that LVT would push him into negative equity, so either it would have to be phased in very, very gradually or there would have to be some relieving measure for people like him, so that they don't end up paying the ground rent twice: once to the bank (mortgage interest) and again to the government (LVT).

Fair enough, phasing in is always a good idea, but the obvious counter-arguments are:

1. He would more than break even on a shift from taxing income to taxing location values. If the LVT is deducted from his salary like PAYE, his net pay (more LVT, less income tax) will increase over time. Even if it goes down a bit, so what, people adjust.

2. Negative equity is largely a psychological problem. What matters is the monthly payments, which we are assume are fixed. So the bank can just write down the nominal value of the mortgage debt and charge correspondingly higher interest rates on the lower balance so that the monthly payments stay the same, the banks total income in cash terms remains the same, and the negative equity thing is fixed.

3 comments:

Steven_L said...

The only counter-counter argument is the one advanced by Steven_L a while back of the "superstar" neighbour, people will pay a bit extra to bathe in the reflected glory of living near somebody famous.

And this is not an argument against LVT. I can see no good reason that any spillover from super-stardom into land rents should not be taxed. It is simply an observation that:

1) People who salivate about property tend to salivate about living in the same neighborhoods as celebrities.
2) When celebrities move into an area it becomes cool - see Primrose Hill in the 1990's.
3) It's very expensive up near Balmoral / around Royal Deeside compared to other parts of Aberdeenshire and people cite the fact the Queen lives there as a reason for this.

Ben Jamin' said...

Causation isn't creation. Only the latter confers a moral property right.

Mark Wadsworth said...

SL, thanks for clarifying.

BJ, yes, but my opinion is that they haven't even caused it, or least, whatever part they might have contributed in the past ceases to apply and is not reflected in selling price.