Two KLNs which have been bugging me for a while:
1. The YIMBY argument, "It's all about supply, build more houses and prices will fall, no need to hit existing home-owners with LVT".
I admit I got bogged down in trying to explain that:
a) more supply - of the right type of buildings in the right places - will increase overall rents and prices. They can't respond to my simple observation that there are more homes and commercial premises within the M25 than in the whole of Scotland, despite Scotland having fifty times the surface area, yet prices and rents are much higher inside the M25. So logic says, build more inside the M25, prices and rents there will increase further.
b) given a sensible corresponding reduction in taxes on earnings and output, the median or average home-owner will end up a lot better off. They're being "hit" with a large overall tax reduction!
Clearly, I'm wasting my time on such arcane points, and the best strategy is to accept their assumption as correct.
The short rebuttal is:
i. Land Value Tax is not primarily about improving affordability, it is about making land owners pay for the value of government spending from which they benefit (fair and economically efficient) instead of making businesses and workers pay for the cost of that government spending through taxes on earnings and output (unfair and economically inefficient). The fact that LVT improves affordability and reduces inequality (by reducing the constant net transfer of wealth from the economy to land owners) is a big bonus, but not the main aim.
ii. Even if in the idealised YIMBY world, rents and prices were to fall, the question of who should pay for the spending which generates land values is unchanged.
iii. Also, LVT would tend to encourage more efficient use of existing buildings and more efficient/productive use of development land.
2. One of Richard Murphy's KLNs "Lower and middle income households tend to only have one valuable asset, their own home. Wealthier people have as much again in shares, pension rights, cars, paintings, jewellery etc. Therefore, a tax on land would hit lower and middle income households hardest and would be regressive. A wealth tax would be much more progressive."
No it wouldn't, that's basic maths.
The point is that land ownership is very concentrated in a few hands, so any tax thereon would be very progressive. The potential revenues from LVT (at least £250 bn a year in the UK) would dwarf potential receipts from a general wealth tax on shares, pensions rights etc (£25 bn a year, tops, even assuming it were morally justifiable and administratively enforceable, which it isn't, and not subject to massive avoidance and evasion, which it would be).
The £250 bn LVT revenues (or indeed £25 bn wealth tax revenues) could and should be used to reduce the most regressive and damaging taxes, so although lower and middle income households will be paying in to the pot under LVT (which they wouldn't be under a general wealth tax), they won't be paying in much and their net income gain/tax reduction will be much more than if they were merely given an equal share of that hypothetical £25 bn wealth tax revenue.
Sunday, 2 June 2019
Killer Arguments Against LVT, Not (458)
My latest blogpost: Killer Arguments Against LVT, Not (458)Tweet this! Posted by Mark Wadsworth at 16:10
Labels: KLN, Land Value Tax, Richard Murphy, wealth tax, yimbys
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"It's all about supply, build more houses and prices will fall,"
Presumably you also got bogged down in trying to point out that this has never happened, anywhere.
B, there are extreme events during a bubble, like in Ireland where homes were built in totally inappropriate locations, sold for top Euro and then it turned out later they were barely sellable. The YIMBYs say this proves their point.
But that breaks my caveat "If they build the right things in the right locations". Build a nuclear power station in the middle of every town or village, prices will tumble.
I think there's a difference between London and other conurbations on the one hand, and more rural areas on the other. Conburbations suffer from (or benefit from, depending on your point of view) economies of agglomeration. Building more houses in those conurbations just exacerbates the economies of agglomeration thus there would quite possibly be no reduction in house prices as Mark suggests.
In contrast, in more rural areas, there are still big constraints on house building: land with planning permission goes for roughly HUNDRED TIMES as much as agricultural land. But there is no "economy of agglomeration" effect there.
Ergo I suggest that making it easier to get planning permission would bring down the price of houses there significantly, which in turn would induce some people to move out of conurbations.
Total selling price of land is the capitalised net transfer of incomes between groups in society. That causes excessive inequalities/affordabilty issues.
So the measure of any policy on housing affordabilty is how close to zero does it result in.
LVT ends that net transfer, dropping prices to zero, solving affordabilty issues instantly. (100% tax on land rents, 100% of the time)
Building more homes doesn't.
Secondly, housing policy should result in best market allocation of existing housing. The LVT does that by levelling the playing field between all tenures, increasing overall expenditure on housing, thus reducing demand for it. That eliminates excessive vacancy and under-occupation i.e reduces costs
Building more homes doesn't.
Thirdly, housing policy should facilitate of the right type of development in the right places. LVT levels the playing field between UK regions, allowing the market to best direct investment. As a source of state revenues or paid out as a UBI, it incentivises the maximisation of lands rental values which can only occur when the right type of development is directed to the right places.
Building more homes doesn't.
Fourthly, the whole point in political economy is to maximise our stock of wealth/welfare and make sure it is fairly distributed.
High land values result from optimal resource allocation. As the consumption of land is inherently progressive and its taxation inherently efficient, best policy is to increase aggregated land values and use them as public revenues and/or paid out as UBI.
That way we could have a tax system that is free from deadweight losses and zero excessive inequalities/true meritocracy.
Which is best policy for the poorest in this country.
Building more houses doesn't.
Its a great shame economists think high land values are a bad thing. High selling prices are, but they conflate the two.
Whereas, we all think high value of labour/capital in aggregate is a good thing. That's because the returns to them are fairly distributed whereas with land they aren't.
We are told there is no economic difference between any of the factors of production, yet somehow what we apply to labour/capital isn't true of land. That's cognitive dissonance.
Fewer than half of adults are landowners whereas just about all are the proud owners of labour and capital. Ergo reduce taxes on those things if you want to help more people.
Also, building more a new home results in a windfall of the best part of half a million quid in London, and only in marginal locations is the profit margin similar to competitive industries. Building more without a massive effort to socialise these monopoly profits will result in even higher inequality. And even if you socialise them at build time, it's a one-off solution. All future sales and rents are collected at well above normal profit.
RM, agreed, sort of, but it seems like a daft way to go about things.
Benj, amen to all that.
M, good point re labour being very equally distributed. Also good point re new construction leading to windfall gains for some landowner or other i.e. increasing inequality, not reducing it.
"Ergo I suggest that making it easier to get planning permission would bring down the price of houses there significantly,"
No it wouldn't. The true value of land is its value without any restrictions on use. Land without planning permission is land with a restriction on its use, which reduces its value. Remove that restriction and the land reverts to its true value which depends entirely upon location. It doesn't matter how much land you remove the restrictions from, it will still revert to its true value, so making it easier to get planning permission will have no effect on the price of houses.
"there are extreme events during a bubble, like in Ireland where homes were built in totally inappropriate locations, sold for top Euro and then it turned out later they were barely sellable. The YIMBYs say this proves their point."
How can they say that? Lots of houses were built, the price rose, not fell, like they said it should. Then there was a financial crash, nobody had any money and the houses became unsellable, not because there were too many on the market, but because no-one could afford to buy them. If the YIMBYs were right, you would expect the price of the surplus houses to fall until they were sold. This isn't what happened. Rather than being given away for next to nothing, the houses were abandoned and left to rot which showed that both the earlier high price and the later complete lack of value had absolutely nothing to do with supply and demand.
B, what they were building were physically 'houses', but they were not 'homes', they were like forged paintings, tulip bulbs, shares in the Theranos, a bubble situation is a deviation from the mean and not really relevant.
Plus, selling prices are not the relevant metric here, the relevant metric is rents. Rents in places people want to live i.e. Dublin were completely unaffected by the Tiger Villages in the middle of nowhere.
Building more houses can reduce rents. BUT only if those houses are not for sale.
In other words build council houses and rent them out at cost. DO NOT sell them to sitting tenants. Once enough have been built in an area they will start to drag down the local market rate of rent, encouraging private landlords to sell up their less profitable properties. Any council tenant who wants to leave the public housing sector can buy one of those.
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