From an article at The Cato Institute (spotter's badge: Anti Citizen One) about subsidies for rented housing for low income people:
"For instance, a recent paper in Real Estate Economics estimates that only a third of the value of the Low Income Housing Tax Credit actually makes it to the renter in the form of lower rents. The remaining two-thirds goes to benefit the developers, owners and others who live off the process. So before we even think about spending more on federal rental assistance, how about making sure what we do spend actually goes to help the poor and not the special interests?"
We observed the same effect when MIRAS (a subsidy for mortgage interest payments in the UK) was phased out. Instead of the borrowers having to pay a higher percentage of their income in mortgage repayments, the percentage of income which borrowers paid in interest (before subsidy) went down, so the net amount they paid (after subsidy) remained constant.
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Now, if a tax is the opposite of a subsidy, and most or all of the subsidy is siphoned off by [landowners], would not a tax on the same commodity [land] be borne mainly by [landowners]? This is quite different to the general rules that a) subsidies make things more expensive and b) taxes make things more expensive, which applies if there is price elastic supply and demand.
One of the Killer Arguments Against LVT, Not is that "Land value tax would hurt tenants because landlords would simply pass on the tax" for which there is absolutely no basis in theory or in real life - unless, of course, taxes on the tenant (income tax, NIC, VAT etc) were reduced accordingly (in which case, fair enough - the tenant is 'consuming' the land in exactly the same way as an owner-occupier, so there's no reason for one type of tenure to be taxed higher or lower than the other).
What have we wrought in the UK?
1 hour ago
4 comments:
"only a third of the value of the Low Income Housing Tax Credit actually makes it to the renter in the form of lower rents."
And perhaps that third then makes it to their employer in the form of lower wages? After all, why would a business carry on paying full wages if the employee is getting their rent at a discount?
Subsidy is incident on economic rents. The tenants can only capture the benefit if they control an economic rent. They don't. So the benefit will go not only to developers and investors (as the paper suggests), but also to bankers and CEOs.
The paper's analysis is completely screwed up by treating household income as an exogenous factor. This basically excludes the possibility that LIHTC is a cause of changes in income, and means that they can't account for how all the subsidy is lost by tenants to rentiers.
I may be wrong. The paper would need an extremely careful analysis to be certain.
AW, good point about the one-third that goes to lower rents then being siphoned off as lower wages.
But that wasn't really the point, the points were:
a) That subsidies to 'deserving' groups like social tenants or first time buyer accrue mainly to landowners, whether that means 67% or 93% or 99.9% is neither here nor, and, more importantly
b) That an openly Faux Libertarian organisation like Cato Institute (i.e. the intellectual wing of the Home-Owner-Ist movement) would admit this... and once you realise that these subsidies are Not Good, you might learn to accept that taxes on land are Not Bad.
As someone who gets the Cato daily podcast I would say they are closer to your position that the home ownerist one you credit them with. But they can fight their own battles if they are interested.
The point I did want to make is that Cato also argues the same over education subsidies and has shown that university fees rise in line with state subsidies.
SF, maybe they aren't as bad as I make out. Their point (and mine) was that ear-marked or ring-fenced subsidies get swallowed up by providers (esp. if they can erect barriers to entry, which in the case of land ownership are nigh on 100%).
My point is, that's where non-earmarked subsidies to human beings (aka Citizen's Income) have a great advantage - providers will at least be competing for people's enhanced spending power.
The same principle applies to education fees - if young people get the same CI whether they are in HE, FE, in work, low paid training or unemployed, this leads to the least-bad outcome in terms of spending allocation while 'alleviating poverty' and enabling the unemployed to at least go to HE, FE, low paid training etc.
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