World cities - rents vs metropolitan area population

The BBC ran a good article pointing out that it will soon be rent-freedom day, which is analogous to the Adam Smith Institute's tax-freedom day.

So one-half of their earnings go in tax (stealth or otherwise) and one-third goes in rent. That means the average working tenant's disposable income after tax and housing costs is one-sixth of their earnings!

What caught my eye was this graphic further down the article:


Those rents are fairly proportional to the size of the population of those cities and their metropolitan/surrounding areas, co-efficient of correlation 0.93 (says Excel):


What's the relevance of this, you may ask (except for BenJamin' who put me onto this in the first place).

The point is that larger populations push up rents (agglomeration effects). If you build more homes in large cities, the simplistic supply-demand assumption is quite simply incorrect (unless you prevent any immigration into the city, which is impossible). Build more homes = more people = even higher rents. Rinse and repeat.

Sources:
https://en.wikipedia.org/wiki/Tokyo
https://en.wikipedia.org/wiki/New_York_metropolitan_area
https://en.wikipedia.org/wiki/London
https://en.wikipedia.org/wiki/Paris_metropolitan_area
https://en.wikipedia.org/wiki/Greater_Dublin_Area
https://en.wikipedia.org/wiki/Demographics_of_Berlin
https://en.wikipedia.org/wiki/Rome
https://en.wikipedia.org/wiki/Madrid_metropolitan_area
http://worldpopulationreview.com/world-cities/brussels-population/
https://en.wikipedia.org/wiki/Warsaw_metropolitan_area

"Jazz for cows"

Emailed in by James Higham:

Killer Arguments Against LVT, Not (439)

Bayard posted this a few weeks ago. He didn't present it as an argument against LVT but said it was not necessarily an argument for, but nonetheless, it is clearly incorrect:

The argument for LVT: "... the private collection of rent is not only economically imprudent because it periodically destroys the economy, it is wrong!"

Leaving aside the periodic destruction of the economy, I don't think that it is a valid argument for LVT that it will be an instrument of social justice. This idea has quite some traction, especially amongst the ranks of the class warriors and ties into the populist landlord-bashing cause of enduring appeal.

His argument seems to be that rents will just increase, leaving tenants and first time buyers no better off, i.e. no improvement in 'affordabiity', however defined.

There are three overlapping concepts here - "social justice", "affordability" and "income/wealth equality". To simplify the way I understand them:

"Social justice" means everybody gets an equal share of whatever it is we are talking about. So, for example, in a democracy, every adult gets one vote 'for free', this has nothing to do with income or wealth equality.

"Affordability" means maximising people's incomes after housing costs, whether it changes income/wealth equality or not.

The best measure of "income/wealth equality" is net incomes after tax and housing costs. Landlords are at the top of the heap, their income IS other people's housing costs; owner-occupiers and council tenants break even; and private tenants or recent first time buyers are at the bottom of the heap.

Even if a landlord, an owner-occupier, a council tenant and a private tenant/recent first-time buyer have the same earned income from an actual job or productive business, their net of housing costs income varies enormously.

Let's look at UK housing policy in the 20th century to illustrate.

Back in 1900 or so, only a few people were owner-occupiers and everybody else rented from a few private landlords. This clearly leads to massive wealth/income inequality, as the tenants were left over with the bare minimum and the few landlords lived the life of Riley.

Fearful of a Socialist revolution, councils started building social housing, which was much cheaper and/or better than what private landlords were prepared to offer. Even more fearful after World War I, the UK government introduced rent controls.

The Tories noticed that council tenants are more likely to vote Labour and owner-occupiers more likely to vote Tory, so their counter-play was to encourage new construction and ensure that prices remained affordable by capping mortgages (and hence house prices).

Private landlords were squeezed out of the market - undercut by council housing and prevented from out-bidding private purchasers of new housing by rent controls and high taxation of rental income.

By 1980 or so, 70% of households were owner-occupiers; 30% were council tenants and only 10% rented privately. Between them, Labour and Tories did a great job.

In the UK, council rents were below market rents. The land rent element, which would have been used to pay a Citizen's Dividend was not collected in the first place. From a council tenant's point of view, it comes to much the same thing whether he pays £80 a week for the bricks and mortar cost (below market rent), or pays full market rent £200 a week (to include the land/location element) and his household gets a Citizen's Dividend of £120 a week. That £80 a week is clearly very affordable for all but the poorest couple of percent. The rest of your income is yours to spend on nice stuff!

Apart from a few years paying off the mortgage (capped at just above new-build costs - so little land rent element), owner-occupiers were benefitting from location rents without having to actually pay for them; again, that rent/mortgage saving is like a Citizen's Dividend. Once you have paid off the small mortgage, the rest of your income is yours to spend on nice stuff!

Therefore, with LVT in place, whether it is used to reduce other taxes or paid out as a Citizen's Dividend, we would all effectively be somewhere in between council tenants and owner-occupiers; the net housing cost is reduced to little more than the bricks and mortar cost of housing (just like it is for council tenants and owner-occupiers with a small or no mortgage).

That's "social justice" (everybody gets his share or land rent without having to pay for it), "affordability" (council rents and mortgages minus Citizen's Dividend are a smaller proportion of earned income subject to lower taxes ) and more "income/wealth equality" (as between landlord class and everybody else, or between Baby Boomers and Millennials, or between people in different parts of the country).

All with the bonus that there is a continual free market allocation (price rationing) of the best and worst sites (you want more, you pay more into the pot to be shared between everybody else).

There is no point arguing that 'landlords will put up the rent'. If they do, then LVT receipts will go up accordingly, and taxes on earnings and output will go down and/or Citizen's Dividend will go up, leaving most households unaffected in net terms.

Outbreak of common sense in Islington

Opinions are divided on the topic of 'affordable housing' quotas*, and I am pretty indifferent either way, but rules are rules.

The scam in question goes like this, based on a real life example that Peter S helped me piece together:

1. Developer bought some land in London pre-2008. He planned to build 100 units, 30 affordable units were to be sold at break even and he hoped to make £100,000 profit (i.e. selling price minus construction costs but ignoring the land price) on each of the other seventy unaffordable units = £7 million profit. The amount he paid for the land was a large chunk of this £7 million, call it £5 million, leaving £2 million normal builder's profit.

2. In 2009, selling prices had fallen. The developer managed to get the affordable quota reduced to zero by submitting a new viability assessment...

3. The developer's logic was this: the profit per unaffordable unit has fallen from £100,000 to £70,000, so to make my normal builder's profit and recover the £5 million I paid for the land, I have to be allowed to sell all 100 units for the new (lower) unaffordable price.

4. The council gave in, scrapped the affordable quota and told him to get on with it.

5. The developer cheerfully did nothing for a few years until prices had recovered back to pre-2008 levels. So the potential profit was now 100 units x £100,000 = £10 million; £3 million more than he had originally hoped for.

6. The council did not re-impose the affordable quota, even though logic says they should have done.

7. That developer then sold the land to another developer for nearly £3 million more than he had paid for it pre-2008 (to reflect the additional £3 million profit which the next developer can make).

8. Clearly, if the council now tries to re-impose the affordable quota, the second developer can submit his own viability assessment, and say that if he is not allowed to sell all 100 units for the unaffordable price, he will be pushed into losses, bearing in mind the £8 million he paid for the land.

9. As we can see, viability assessments and the price paid for land are a circular argument.

The Planning Inspectorate has finally decided that overpaying for land (or falling prices) are simply not an excuse to wriggle out of the affordable quotas any more.

Islington’s housing boss Cllr Diarmaid Ward said the decision would help stop developers “manipulating” the viability process.

He said: “Islington, like all boroughs in London, faces a significant shortage of affordable homes. A viability process in planning that allows developers to rely on a flawed approach to market value that delivers little or no affordable housing makes this problem worse, and means developers are not making a fair contribution to the community.

“The decision sends a strong signal that developers need to take into account planning policy requirements when bidding for land, and that they cannot overbid and seek to recover this money later through lower levels of affordable housing.”
------------------------------
* On a very small scale, I don't think it has much impact and normal supply-demand rules apply, whereby selling prices are dictated by the incomes of potential purchasers. A developer would normally sell all finished units for the same price - based on the average incomes of all purchasers (price differentiation is nigh impossible).

If some units have to be sold for a lower price (and a much lower profit), then that takes the lower-earners out of the market. The average income of the remaining purchasers is therefore higher, so the unaffordable units can be sold for a higher price and the overall average selling price is not wildly different.

It is however a beggar-my-neighbour situation. An individual developer is always better off he can wangle a lower affordable quota that other developers in the same geographical area. Taking all developers in that area together, it doesn't make much difference.

The Trumps and Macrons arranged in order of age

Donald Trump - born 1946
Brigitte Macron - born 1953
Melania Trump - born 1970
Emmanuel Macron - born 1977

Facebook profits - $2.27 per active user

From The Independent:

Facebook profits soared 63 per cent to $5bn (£3.6bn) in the first three months of the year despite the company being engulfed in a data privacy scandal that has angered millions of users.

from Statista:

As of the fourth quarter of 2017, Facebook had 2.2 billion monthly active users.

Reader's Letter Of The Day

From The Metro:

Fatting up Damian was unacceptable

If director Ricky Tollman needed an actor to play overweight, scandal-hit former Toronto mayor Rob Ford in 'Run This Town', why didn't he cast an overweight one?

'Fatting up' the slim Damian Lewis, however successful, is no more acceptable than having a white actor black up to play Othello.

Geoff, Stockport

I just can't decide if he's being serious or satirical...

Summary of a conversation I had with a journalist today about Land Value Tax.

A journalist (who shall remain nameless as I do not disclose my sources:-) rang me this morning to chat about Land Value Tax, so we met at lunchtime to go through an implementation proposal I had drafted, I can't find the spreadsheet we were looking at, but apparently it's on the Labour Land Campaign website somewhere.

To summarise, including the stuff I didn't say, but wish I had...

1. I am a simplification campaigner as much as a pro-LVT campaigner. Even the worst taxes or subsidies can be made a bit less bad if they are at least simple and netted off as far as possible - there is no point subsidising something and taxing that same thing. Either pay a small net subsidy (and don't tax it at all) or tax it at a lower rate (and scrap the subsidy). At least that is the honest thing to do.

2. LVT is clearly the least bad kind of tax, compared to horrors like National Insurance or Value Added Tax. Endless articles have been written about why LVT is good and other taxes are bad, and either you understand them or you don't. I can explain stuff, but I can't make people understand stuff which they don't want to understand. (I can hear and I understand how sound waves and the inner ear works, but I can't give deaf people their hearing back).

3. The only real 'problem' with Land Value Tax is political. In the UK, we have a weird slavish worship of house prices. The last half century has shown, if house prices are rising, the party in government will be re-elected; if they are falling, the opposition party will win. So the politicians, of whatever party, don't like to utter the words "Land Value Tax" because - it is widely believed - this tax would push down house prices.

4. The UK already has a dozen fairly minor taxes (which between them only raise about one-tenth of total taxes) on housing, land values and private wealth generally. If we - in the interests of simplification if nothing else - replaced all these with a flat-rate LVT, there would be little impact on house prices and most households would pay the same total amount of tax over a lifetime as they do now. So this should be politically acceptable, assuming a rational electorate. (Business Rates just needs a few tweaks and it's LVT, that's a minor issue).

5. Annual revenues from the specific taxes in that spreadsheet (figures two or three years out of date) were as follows:

Council Tax - England - £24 bn
Council Tax - Scotland - £2 bn
Council Tax - Wales - £1 bn
Domestic Rates - N Ireland - £1 bn
Less Council Tax benefit, rebates etc - £(5 bn)
Stamp Duty Land Tax on housing - £8 bn
Capital Gains Tax - £6 bn
Inheritance Tax - £4 bn
TV licence - £4 bn
Stamp Duty on shares - £3 bn
Insurance Premium Tax - £3 bn

Let's call it £50 bn per annum, all in.

(Maybe we could scrap Housing Benefit for private landlords and exempt private landlords from income tax as a quid pro quo, in which case, the required revenues are only £45 bn. And scrap Help To Sell Buy, in which case, required revenues are only £44 bn and so on.)

6. The purists are quite correct to say that LVT should be based on site premiums i.e. the potential rental value of land and buildings, minus the cost/value of the actual physical building (referred to as the "Site-only rental value assuming optimum permitted use"). For a low level LVT, it is quite sufficient to base it on potential selling prices. So the purists say that £50 bn can be raised with a tax calculated as 25% of site premiums. The not-so-purists say that £50 bn can be raised with a tax calculated as 0.7% of potential selling prices. Comes to much the same thing.

Either way, there has to be some system of valuations, so I explained how we can adapt the Council Tax system very easily to get 80% - 90% of the way there. Is this the best way of doing it? For an expert valuer, clearly not. For administrative simplicity, I think yes, until somebody can think of something simpler and better, then I'll support that instead.

7. To summarise this summary: the UK already has LVT!! It is just diced and sliced and heavily disguised - the little people pay Council Tax and the TV licence fee every year; buyers/sellers pay Stamp Duty Land Tax; landlords and second home owners pay Capital Gains Tax when they sell; the really wealthy pay Inheritance Tax when they die; super wealthy foreigners pay the Annual Tax on Enveloped Dwellings etc. Each of these taxes is a minor tax, raises relatively little revenue and is fiddly and bad tax in itself, with all sorts of cliff-edges and unintended consequences.

If you replace them all with LVT, you have one slightly bigger and very simple tax (which would still raise less than half as much as VAT, for example) which is a good tax; most households would pay much the same over a lifetime; and the impact on house prices would be negligible (might push them up a bit, might push them down).

Killer Arguments Against Citizen's Income, Not (13)

Chris Goulden at the Joseph Rowntree Foundation betrays his deliberate lack of understanding.

He lists the main pro's and then plucks some con's out of thin air:

A citizen’s income would require two big principles to be accepted and supported by the public, namely that:

1. Everyone should get a baseline level of state financial support, even if they choose not to do anything to try to earn money for themselves.

2. The basic marginal tax rate should be much higher than it is now, otherwise almost everybody’s net income from the state would rise, and there is no obvious way to finance this. (Some do not assume UBI must be paid for through income tax and suggest a wealth / carbon tax instead, or bigger cuts to state spending elsewhere, for example. None of these are easy options either).

Most politicians in the UK (or in England at least) are likely to regard both of the above as unacceptable to voters - a view supported by long-standing evidence on public attitudes to welfare.

3. A third objection relates to support for housing (and other) costs. For UBI to achieve its goal of removing the complexity and disincentives involved in means-testing, it would also need to replace support for housing costs. But with largely market-based rents, it would not be easy to include a simple rent element in a UBI payment without creating shortfalls for some or large surpluses for others. The same applies to means-tested childcare support. This counter-argument is strong – arguably public attitudes towards benefits and taxation could change but differing needs will not.

4. So, a central problem is that advocates of UBI either unconsciously or wilfully fail to acknowledge that the current system is designed to provide specific payments for people in specific circumstances (e.g. caring, disability, high housing costs, high childcare costs). If you sweep all of that away, you either have to level up, giving a massive boost to people without those specific needs (at huge cost), or you create a fall in income for those with them. Neither is remotely acceptable in any real world.

1. Agreed.

2. Is complete crap. The actual effective tax rate for claimants (i.e. about half the population, if you include Tax Credits) i.e. the total of PAYE deducted AND means tested benefit withdrawal is stupendously high and would fall considerably. There is no need to increase tax rates at all, and certainly not the basic rate of tax, that's basic maths.

As to "unacceptable" to voters, this is not an argument AGAINST simplifying and harmonising welfare and tax systems, it is an argument FOR educating voters. He is simply providing the brain dead with ammunition.

3. Housing related welfare can be kept running in parallel for the time being. Welfare for landowners is bad; means testing is bad, but needs must. Saying that "we have to means testing housing relating welfare, therefore we must also means-test non-housing related welfare" is just crap logic, you might as well go on to say we should means test non-cash benefits (state schools, NHS, the right to vote or use a public library etc).

He clearly knows bugger all about "means-tested childcare support". There's the superficially generous but savagely means tested Childcare element of Tax Credits (progressive) and the equal and opposite, weird and wonderful tax breaks for employer payments (regressive); as well as Free Early Education vouchers and kids who get a 'free' Kindergarten place at a state school (flat rate and non-means tested).

The actual cash amount/value that most parents get - regardless of which scheme(s) they benefit from - is pretty close to £90 per week per child, plus or minus £10. Ergo, we can get rid of all the overlapping crap and just give every parent of a pre-school age child £90 a week (a kind of age-related Citizen's Income) or a state school nursery place (and a small cash balance?) and there would be few winners or losers at either end of the income scale.

4. He then lists things which Citizen's Income proponents have always said should be left completely outside the system and continue to run in parallel. Disability payments should be transferred to the NHS budget anyway. . We dealt with housing and childcare costs above; he mentions them twice just to make his list appear longer. He clearly doesn't know about "caring" either. I assume he means "Carer's Allowance" which is just another reason for paying people a lower rate of Income Support by another name, so recipients thereof would be better off with a Citizen's Income (which would be pitched at the same £ amount as Income Support to start off with)

This whole Windrush generation fiasco - questions

Background here.

So some people grew up and lived here all their lives on the reasonable assumption that they were British citizens (for most things, being permanently resident here is good enough), even though technically they weren't.

What strikes me, is that only UK and Commonwealth citizens are entitled to vote at most elections (different for EU Parliament elections, which we won't need to worry about any more).

So, with the benefit of hindsight, either all their votes were invalid; they were de facto accepted as British citizens (in which case the matter is settled); or there is some leap of bureaucratic logic that says they were notionally citizens of their [parents'] country of origin (most likely a Commonwealth country), despite that country probably having no record of them?

I also wonder why this wasn't noticed decades ago, at the latest when they were old enough to need their own (British) passport to go abroad on holiday, which surely plenty of them must have done.

Hmm.