Wednesday, 7 February 2018

Economic Myths: The costs of moving home are a benefit to the economy.

Estate agents and other assorted Home-Owner-Ists have an irritating argument against Stamp Duty Land Tax. Here's a random example from

“Current stamp duty levels are a tax on free movement in London and it is massively disappointing that the Chancellor has chosen to ignore this. Families who want to buy a family home in London, perhaps moving from one area to another to buy a larger home for a growing family or to be closer to schools or work, are being penalised and many are opting to stay put to avoid paying punitive stamp duty in the £1.5m to £3m price bracket. 

"The upper price brackets of a family home in central London, between £5m and £10m, are being hit with an aggregate of 15 per cent. This has reduced transactions substantially, impacting on the level of tax collected by the Government and is therefore damaging the economy.

"In addition, there is an entire eco-system built around moving house, from removals companies to furniture suppliers, from interior designers to painters and decorators. All these businesses are being hit by the Government’s refusal to reform stamp duty.”

Putting aside the London-centric wailing about people 'trapped' in £1.5 to £3 million homes and the notion that you need interior designers, it is the last bit that rankles.

If those things happen because people are moving home, they are a straightforward cost, they are a loss to the economy. Family A likes plain white walls and Family B likes dark wallpaper. If they swap homes, Family A has to strip the dark wallpaper and paint the walls white; family B has to buy a load of dark wallpaper and stick it up, merely to reinstate the status quo. Net gain to the economy, zero.

It's the broken window fallacy. If the estate agents' argument stacks up, it would benefit the economy if you weren't allowed to take any furniture with you when you move, you'd have to chuck it in a skip and replace it all. More money for the furniture industry! Must be good?!

The real benefit of people moving home is that they are putting land/location value to more efficient use/squeezing more value out of it each time they move.

Let's assume that the two families swap places because Family A lives in town/suburb 1, but most of them have a job/go to school/like to go shopping in town/suburb 2; Family B live in town/suburb 2, but a majority have a job/go to school/like to go shopping in town/suburb 1.

If they swap places, then the two families save in total several hours a day on commuting. They save time, save money, reduce congestion, reduce pollution, have a few more minutes in bed/at home in the evening; are more likely to be at work/school on time etc. Commuting costs ten or twenty per cent of GDP (if you just compare time spent commuting vs time spent at, so hacking it down must be good.

Those are the benefits of moving home, which - we have to assume - by and large outweigh the cost and hassle, or else people wouldn't do it.
All of which is an argument for replacing Stamp Duty Land Tax with Land Value Tax. Instead of discouraging people from putting land (i.e. roads, amenities etc) to more efficient use, it encourages people to constantly weigh the benefits and costs of moving to somewhere more convenient; it increases the benefits of moving and reduces the up front (tax) cost. Whereby an arbitrary tax like that is in itself not a cost - it is the dead weight cost of staying put instead of moving that is a true cost/loss.

The Homeys of course then flip the logic, and wail that Land Value Tax would 'force' people to move home who don't want to. Well duh, it's market forces at work - LVT is only ever as high as it is because some other household is prepared to pay the extra LVT to live there and make the better use of the available amenities.