Housing Affordability. LVT will sort it out.

Housing affordability is measured by the Median Multiple, the ratio of median house prices to median gross household income.

In the UK, the MM is 5.1. So this roughly breaks down to median household income of £28,000 and house prices £143,000.

The trouble with this is, it doesn't really tell us about how affordable housing is once we've stripped out taxes and mortgage repayments. That's what is felt in peoples pockets at the end of the day.

So if we do that, we take off about £6,177 for net tax ( benefits netted off) and mortgage repayments £7,248, which leaves us with £14,575 per year to pay all the other bills and expenditures of life.

Which is a pretty small amount. If we use this as our measurement of affordability we get a ratio of 9.8:1 We'll call this the True Affordability ratio.

Now, what happens under LVT? Well simplistically you might say because the mean house prices will half, we'll end up with a Median Multiple of 2.5. So twice as affordable.

Pretty good, but that doesn't tell us the true picture of how LVT will affect True Affordability. Taken from the KAALTVN LTV net liability calculator here, we get the following.














So after-tax income becomes £29,300 minus £3,624 in mortgage repayments equals £25,676 to pay all the rest of life's expenditures.

To get the True Affordability Ratio we divide £70,000 by £25,676, which gives us 2.73

So under LVT, true affordability improves from 9.8 to 2.73, which results in housing being 3.6 times more affordable, as a ratio of discretionary incomes to selling prices.

The Median Multiple

Economists, policy wonks and journalists from all round the World are united in their analysis of the problem of housing affordability. It's all the fault of the Government.

Planning regulations are the cause and location values are the effect. Many economists now call land values "regulation tax" instead.

The tables above are taken from a typical report on the subject by Demographia here .

What the report does is rank 377 cities in USA,  Canada, Australia, New Zealand, UK and Ireland by their median multiple, which is the median house price divided by median household income ie affordability.

With this they also give various examples from the USA linking affordability with planning . Dallas being a perennial cherry picked favourite among economists (there are obvious reasons why the largest cities in Texas are outliers, but these are never mentioned in any of the reports).

For arguments sake, let us agree that yes, in general the higher the median multiple, the more restrictive the planning regulations are. But, going down that 377 list from least to most affordable, it's clear there is another differentiating factor that stands out.

I'm sure the sprawling Dallas Fort Worth metroplex (25,000km2) is a good place to find work and bring up a family. Texas as a whole is now doing well with mineral extraction. It also has a competitive tax regime.
But, if you want, beauty, culture, diversity, heritage and the very highest pay you live and work on the east or west coast.

We are told that supply constraints are the problem but there doesn't seem to be a shortage where the MM is highest.

You can make anywhere more "affordable" by trashing the place and making it less economically efficient. In an unregulated land monopoly this is what you'd get. In the absence of LVT, which would automatically prevent urban sprawl, and help efficiency, we need regulations via planning instead.

In the UK we have seen the effects of applying "free-market" solutions to the land monopoly by relaxing building regulations in 1980. The Parker Morris regulations had given us minimum space standards. With those gone, the effects were inevitable. The smallest homes in the developed World and the highest land values. One fed into the other.

Now we are being told to do the same with planning regulations.