Killer Arguments Against LVT, Not (123)

The final counter-argument in the article at Appraiser10.com is this:

Loss of Asset Value

Land value is the discounted present value of expected future after-tax rents; so LVT, by increasing the taxation of those rents, would reduce the value of all real estate owners' holdings (1). A rapid reduction of real estate values could have profoundly negative effects on banks and other financial institutions whose asset portfolios are dominated by real estate mortgage debt, and could thus threaten the soundness of the whole financial system.(2)

Rapid introduction of LVT must therefore be considered a somewhat irresponsible approach, and most LVT advocates consequently favor a long phase-in process lasting at least a decade, and potentially much longer. (3)

If land's value were reduced to zero or near zero by recovering effectively all its rent, as many LVT advocates propose, total privately held asset value could decline by as much as 1/4 or even more, a massive reduction of private citizens' wealth. (4)

1) Fair summary.

2) No it wouldn't - that's just what They want us to think. On the basis of official statistics, my magic fag packet says that if house prices fell by a quarter and half of those in nequity lost their jobs, defaulted, went bankrupt and had their houses repossessed and sold at the new lower value, then rather surprisingly, the loss to UK banks would only be one or two per cent of their total net assets.

And as I explained in my previous post, actual businesses would be paying £300 billion less in tax each year, so there'd be plenty of money sloshing around for them to be able to meet their existing mortgage or rental commitments.

3) Five years seems about right to me. Although nobody likes transitions, people can adjust to things quite quickly, and there's no point dragging out the transition longer than necessary. Maybe a quarter of households would decide to trade down, all that means is that turnover in the housing market would go back up to 2006-07 levels for a few years and then we are sorted.

4) People keep talking about land as an 'asset' without realising that it is only an asset to one party (the owner) because it is a corresponding liability on somebody else (a tenant or future purchaser). It is not the land which generates the income to pay the rent or mortgage, it is the person living there and working nearby, or a business trading from those premises. And those people also have a massive future income tax liability, so by merging income tax and a large chunk of rents/mortgage payments into LVT, their overall lifetime net income (after tax + rent/mortgage bill) would go up considerably (especially if you include the boost to the economy from scrapping income tax).

In any event, it is land price bubbles which trigger 'financial crises' which is why we keep having recessions, so low buying/selling prices are inherently A Good Thing. Remember: high house prices make us poorer, not richer!