Killer Arguments Against LVT, Not (476)

Andrew Carey left the following comment under yesterday's post about why replacing Business Rates (and other taxes on businesses) with LVT would help get occupation rates on the High Street back up:

Brilliant by Mr Wadsworth. And unlike the Council Tax equivalent of this you're not at risk of losing your own home if you misjudge the market rent.

OK, let's agree that "losing your own home" is A Bad Thing.

And let's define "losing your own home" as being evicted by a landlord for non-payment of rent or simply because he wants to sell; or being repossessed by the bank because you can't keep up the mortgage repayments (usually because a borrower has lost their job).

(Then there is the thorny issue of people who are prevented from owning a home in the first place; their taxes are being used to fund public services and they are paying off their landlord's mortgage. For every five years they pay rent and extra tax, they have lost a home. Doesn't that count?)

We can then judge the relative merits of Home-Owner-Ism and an LVT system by looking at how many people lose their homes under either system. Whichever leads to the lower number is the better system.
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How rosy is the picture under full-on Home-Owner-Ism at present?

Statistics from The Resolution Foundation show the following:

Safe/not at risk
Owned outright with no mortgage - 28.3% of households (mainly older and pensioners).
Council and Housing Association Tenants - 13.1%.

Total 41.4%. This number will drift downwards if the Homeys have their way. Council housing will be sold off; and there are fewer first time buyers, whose average age and mortgage terms are increasing. Instead of buying at 25 and paying off the mortgage in 15 years (home free in your forties!) like in the Good Old Days of Georgism Lite, they are buying at 35 and paying off the mortgage over 30 years, just before retirement age.

At risk

Households with mortgages 24.7%
Private renters 17.2%
Sub-letting, sharing or living with parents 16.7%

Total 58.6%, a figure which will drift upwards. How many of those lose their homes each year? Difficult to tell, and I don't know. But it's a number X.
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How would things look under a 50/50 Georgist system, with income tax and LVT only (no Council Tax, SDLT, IHT, VAT or NIC etc).

1. At present, only about 3% of people are involuntarily between jobs at any time (and stand to lose their homes). This number would go down with lower taxes on productive activity, so maybe 2% under Georgism. So they could add a 2% "unemployment insurance surcharge" to LVT bills and simply exempt people for a few months if they lose their jobs.

Seeing as the average LVT bill would be about £7,000, as long as one partner is working, the LVT is affordable in nine cases out of ten anyway. And the mortgage arrears that build up while one partner is out work will be lower (because mortgages will be lower).

2. The total amount paid in rent/mortgage plus LVT under Georgism will be considerably lower (thousands or tens of thousands of pounds a year per household) than the amounts people currently have to pay in rent/mortgage plus Council Tax, SDLT, VAT and NIC (basic maths and logic). So there will be a safety cushion built in.

3. Under Georgism, house prices will be lower and being a residential landlord will not be such an attractive option. So a lot of the 34% currently living with parents, sub-letting or renting privately will be able to afford to buy, which greatly increases their housing security (can't be chucked out on a whim and it's just nice to own your own home to decorate or improve as you wish).

(Many of those who currently are prevented from owning their own home in the first place will now own one; a few of those might lose it again. But overall, it's a win.)

4. Pensioners are a non-issue, there would of course be a roll-up and defer option if both owners are over pension age, so none of them will lose their homes. Heirs will inherit less, but so what? The heirs will have been able to buy their own homes long before their parents die so overall most are just as well off (if not better off).

5. There would be more council housing for truly affordable rents, which is far cheaper for the taxpayer than subsidising private landlords via Housing Benefit. (I'd argue it makes an actual cash profit but whether it does or not, it's cheaper than paying Housing Benefit).
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Therefore, overall, housing security (the flip side of the risk of losing your home) will improve quite markedly under Georgism. The current low number of people who lose their homes each year will fall considerably to close to zero. This is not hypothetical. Property tax rates in the USA vary widely, and areas with higher rates have fewer mortgage repossessions.

I fully accept that under Georgism, there will still be some people who budget badly (who would lose their homes under Home-Owner-Ism anyway); or couples who've paid of their mortgage and who both lose their jobs and simply cannot find work during the exempt period (who would have been safe under Home-Owner-Ism). And those people will actually "lose their homes because of LVT".

There will be an outcry in The Dailymailexpressgraph every time it happens. But that number will be a lot lower than whatever the number currently is under full-on Home-Owner-Ism, X. where three-in-five households are at risk of losing their homes. It's the risk of it happening that grinds people down psychologically, even if it never happens to most (although there are plenty of horror stories about no-fault evictions).
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So as per usual, if you think about the slogan and look at actual hard numbers, what appears superficially to be an argument against LVT is in fact and argument in favour of LVT.