Thursday, 2 November 2017

Killer Arguments Against LVT, Not (424)

Ben Southwood seeing the wood, not the trees over at the ASI:

Land value tax advocates claim that a land value tax makes housing more affordable. But house prices rapidly adjust to take account of amenities, transport links, and expected taxes that the property owner will pay. These "capitalise in" so to speak. If you add £50,000 of expected taxes to a property (or, precisely, a net present value of that) its price will go down about that much. But it doesn't make the house more affordable! You pay £50,000 less for the house and £50,000 more in tax. No change. Once again, reasoning from the price change leads us astray.

It's an improvement on "landlords will just pass on the tax", I suppose. Ben Jamin's posted his own lengthy diatribe, here's my comment:

Why do you assume that the only purpose of LVT is to get selling prices down? It isn't, that is just a bonus. The main point is that it is simply much fairer and more efficient to tax land values (or any other form of rent) instead of turnover, employment, earned income etc.

As a knock on effect, the overall income of workers and businesses goes up and the overall income of landlords and banks goes down. The rental value of land does not disappear but more of it accrues to workers and businesses (however indirectly) and less of it accrues to landlords and banks.

6 comments:

Ben Jamin' said...

Landlords and banks yes. But they are in the list of people/firms whose current tax liabilities are relatively low compared to value of land they own.

So when we say that a typical UK hold would be >£10K a year better off, that assumes everyone says put.

In reality, many income poor/asset rich would move, so while that >£10K would be slighty lower for a typical household, the difference is made up in the value they get from moving into the bigger house or better location vacated by current income poor/asset rich.

Mark Wadsworth said...

Bj: "when we say that a typical UK hold would be >£10K a year better off, that assumes everyone says put"

Yes. Clearly, a lot of households will spend some of that extra on trading up. Others might just save up for retirement or go on nice holidays etc. They're still £10k a year better off.

Those who sell up expensive space they don't need to somewhere where they can afford the LVT bills aren't really that much worse off either. Going from three spare bedrooms down to one spare bedroom is no big sacrifice.

Logan Boettcher said...

So what does he think LVT advocates want to do with LVT revenues? Answer: reduce other taxes! So if we can reduce/eliminate other taxes with LVT and LVT reduces property prices, then the total amount paid in taxes + property will go down. £50,000 in future LVT payments - £50,000 in house price - £50,000 in future income/value added tax = £50,000 saved total. This is before looking at the dynamic effects of wages going up or applying a per capita rent dividend/exemption to the LVT bill, so it's going to be even better. If he accepts that LVT does nothing to change total property prices, then what would be the point of cutting LVT, since it would do nothing to make the property more affordable?

Mark Wadsworth said...

LB, exactly. All KLNs are based on looking at one side of the equation and ignoring all the results.

thresholdseeker said...

It all goes back to the simple question: Who owns the Earth?

Should the rent go to landlords (often known today as "banks," lol) in exchange for their pointing a gun at our faces and threatening us with non-existence? Or should it pass through them, via the market rent they pay to hold the title, to the people being excluded from the location?

People who "argue" against LVT consistently fail to see both sides of the equation. They default to seeing themselves as paying for land, but never see the possibility of BEING PAID compensation for land exclusion. LVT is how that second part of the equation happens. I usually find quicker success in changing minds when pointing that out.

Mark Wadsworth said...

TS, the true Homeys say that LVT is theft and they don't want to be bribed with the proceeds of crime. But if the argument works for you, then great.