Friday, 16 June 2017

Killer Arguments Against LVT, Not (416)

I haven't done a KLN for a while and a couple of LVT supporters have said to me recently that we really have to address the 'negative equity' issue and have our answers ready.

So let's dip into a recent article in the Daily Express. The comments section is a hoot, our BenJamin' goes into bat and is roundly derided as a Marxist. Plenty of disappearing homes etc.

(It also includes the ultimate distillation of all KLNs: "I don't like LVT because I am scared of hard work". This is paraphrased by May Jam thusly: "There are two kinds of people in society. Those who want to be left alone (independence) and those who won't leave them alone (the Left). Land ownership is just one small aspect of achieving independence." What he or she means is "I don't want to have to work to earn a living, I want to buy my home, retire early and let everybody else get on with paying for public services and looking after me.")

But I digress, returning to the article...

Families face plunging home values and potential negative equity if Jeremy Corbyn slaps a Land Value Tax (LVT) on properties, as promised, according to the Labour Land Campaign (LLC).

The levy would replace council tax and business rates and will result in the "collateral benefit" of knocking house prices, the group gleefully told Labour members.

Falling values may even lead to another banking crisis, the group incredibly hinted.

I look at it this way:

A. Prices are unlikely to fall...

1. Going by what real data we have, a 1% tax on land and buildings appears to reduce selling prices by about 17%. But the UK already has taxes on housing which average out at about 1% a year (all the minor ones - council tax, SDLT, inheritance tax, CGT, ATED charge, TV licence fee, Insurance Premium Tax etc). A straight swap would have little impact. The houses most likely to fall in value are those which have risen most over the past few years, easy come, easy go. My house would have to fall 75% in value before I can really say I lost money on it (glossing over 25 years of largely living rent-free).

2. Having LVT as an additional tax on top of what we've already got is a stupid idea and nobody has recommended it, so we don't need to address that.

3. All LVTers are agreed that LVT could and should reduce/replace the BIG taxes on output, employment and earnings as well. If it's a £ for £ swap, there's no reason to assume that prices would change much. Some people (first time buyers and second-steppers) will have a lot more disposable income and will bid up prices; the semi-retired might decide to trade down, pushing down prices for larger/family homes etc but it all largely cancels out.

B Even if prices were to fall...

4. The LVT is like an interest rate hike of a percent or two, people who take out mortgages ought to reckon with the fact that interest rates might go up a percent or two. Aren't the Homeys always criticising the under-40s for being addicted to debt? Don't they always boast about having paid 15% interest on their mortgages and survived? Why do they have so much sympathy all of a sudden? Presumably because they are two-faced gits.

5. Nequity is largely a psychological problem, it's not pleasant but it only really affects people who want to move.

6. The number of people in nequity depends on how large their mortgage is. It is only people with high loan-to-value who will be affected, this is mainly recent purchasers.

Put 5 and 6 together and ask yourself: how many recent purchasers suddenly want to move? Why did they buy somewhere recently and now want to move?

7. If we do a proper tax shift and reduce VAT and NIC, then while some people with large mortgages (our recent purchasers from 6) go into nequity, they are the ones who make the biggest tax savings, call it £10,000 a year on average. Are they really worse off? They can now pay off the nequity in a few years, from there on in they are cruising.

C There are various ways of fudging this and sharing the apparent loss (it's not a real loss, the real value of the houses is unchanged)...

8. If people want to move, we can just introduce rules saying that they can transfer their existing mortgage on the same terms and conditions to the new place, and pay off the shortfall at their leisure. Those who are trading up will end up in the next house they wanted with a smaller total mortgage than otherwise.

9. We can write down mortgages to the new lower value, but keep monthly repayments the same by upping the interest rate.

10. If banks take losses, they can do debt-for-equity swaps. That looks like a "banking crisis" but it is a one-off transitional thing. If mortgages are smaller/more affordable in future, future banking crises will be very much muted (like they were during the post-war decades when Georgism Lite kept house prices down).

11. We could adjust LVT bills down for a) people who took out mortgages before LVT is introduced and/or b) give recent purchasers a credit for the SDLT they paid (borne by the vendor, of course, but not much consolation to those who sold and bought recently).

So somehow or other, the apparent loss can be shared between borrowers, banks and the taxpayer generally, it is not a huge number to start with, split it three ways and spread it over a number of years, it's chump change.

I'm sure you can think of more reasons why this is no Big Deal but I've got to get back to work :-)


James James said...

Did you see this a couple of weeks ago?

Mark Wadsworth said...

JJ, yes, ignore it.

Ben Jamin' said...

@ JJ

Bowman is a troll. He's copied and pasted the same mental diarrhea at least three times now. Obviously he's never been bothered to read or engage with any of the comments. That makes him a twat IMHO.

@ MW

You should link your previous, which I think is one of your best.

Ben Jamin' said...

@ MW

regarding point 2. You know that's wrong. I've heard you say so myself.

Mark Wadsworth said...

Bj, it's a good thought experiment, but politically infeasible.

Lola said...

De No. 8. Thats effectively what Northern Rock was doing with its 110% mortgages.

Mike W said...

Very clear.

11. We could adjust LVT bills down for people who took out mortgages before LVT is introduced.

So the Express rehash/argument turns out to be the 'Old widow' in new clothing?

Mark Wadsworth said...

BJ, thanks for linking to those calculations, I didn't have time or energy.

L, re 8, exactly, thanks.

MikeW, yes, it's the "Poor Hardworking Couple Who Want To Climb The Property Ladder Bogey". Seeing as they are diametrically opposite to PWIMs, it requiress real Homey DoubleThink to believe both.