Monday, 23 August 2021

Something else for LVT Man to sort out

Over in the USA, a head of steam is building up under Airbnb.

To be clear, renting out spare rooms, attics, basements, and backyards in owner-occupied properties isn’t the problem. It’s when an investor outbids a family for a second property and turns it into a full-time Airbnb. Or worse, when a holiday rental company does so. Or worse, when a highly-leveraged hedge fund buys a swath of holiday rental companies. Or worse, when a sovereign wealth fund buys a portfolio of hedge funds. It’s why the average house will cost $10+ million within 50 years.

Of course, the last sentence is alarmist nonsense, but the problem is a real one. It's the same problem as the "second home" problem in the more scenic parts of the UK: the incomers have more money to spend and so push the prices up.

In the UK, there is an easy solution which is already being applied in the case of full-time holiday lets, but being applied backwards, as one comes to expect with anything to do with land in this country. If you have a property that is a full-time holiday let, you have to pay business rates on it. However, this is welcomed by most FHL owners, because business rates are much lower than Council Tax, often zero as they fall under small business rate relief.

If second homes were a different use class to main residences, the additional buying power of the second home owner or the FHL owner could be reflected in a higher rate of LVT, levelling up the playing field for local residents, whose buying power is set by local wages.

Even without LVT, the same technique could be used to impose higher business rates or council tax on houses owned by non-residents. Unfortunately, where there isn't a will, there is seldom a way.


Mark Wadsworth said...

Some Welsh councils do impose higher council tax on second homes, and there is ATED on UK residential owned by companies, trusts and so on.

But I don't like all these complications, ideally, LVT is a flat rate regardless whether owner-occupied, second home, tenanted, AirBnB or vacant. That saves all the snooping and arguments.

Bayard said...

However, the flat rate would leave unsolved the problem of rich incomers with greater purchasing power outbidding the locals.
In any case not much snooping is involved. The state would already know how many properties you own, from its LVT database. Everyone needs somewhere to live but no-one needs two homes to live in, so there is a pretty good ethical case for charging a higher rate of LVT on the second or higher multiple homes.
Alternatively, you say, sod the locals, charge the LVT on the highest value use of the land and have the phenomenon I first came across at age 4, villages where no-one lives in the winter.
Another point is that LVT is supposed to be a user charge for all the land value that is generated by everyone else, the roads, the wires, the pipes, the schools'n'hospitals. However, the value of Holidayhomia is largely generated not by man, but by nature, mountains, moors, beaches, cliffs, sea etc.

Mark Wadsworth said...

B "However, the flat rate would leave unsolved the problem of rich incomers with greater purchasing power outbidding the locals."

Then build more homes for the 'locals'.

Bayard said...

"Then build more homes for the 'locals'."

which are then snapped up by holiday let landlords.

mombers said...

@B, would the gvmt be making rules like only one home per couple? Big loophole right there, just put the second home in the spouse's name. There's already a huge couple's penalty in the benefit system, no need to make it worse. Also intrusive to enforce against unmarried couples. Multiple ownership blind LVT itself would eliminate a lot of the second home market anyway, leaving a much smaller over consumption of housing problem

Bayard said...

" Multiple ownership blind LVT itself would eliminate a lot of the second home market anyway, "

How would it do that, apart from putting up the cost of ownership of land (whilst, hopefully, reducing the cost of living elsewhere)?

As to married couples, my view is that it should be none of the government's business whether you are married, cohabiting or single. A married couple should not be treated any differently to two single people sharing the same home.

Mark Wadsworth said...

B, council housing to rent.

Bayard said...

Or, indeed, leasehold properties where you own the house but rent the land. Sadly both these types of houses come without the magic money tree growing in the back garden, so there is nowhere to prop your housing ladder.