Friday 20 May 2011

Killer Arguments Against LVT, Not (134)

I must admit, I blather on about the rental value of land being created by 'society' or 'the community'; the notion that if the government spends taxpayers' money wisely, it channels the gains in the direction of landowners; and the assumption that the value of your particular plot of land is largely influenced by what the occupants of surrounding plots do and not what you do, etc, but as a fair minded sort of chap, let's have a look at what the hard core Home-Owner-Ists have to say about it...

According to Channel 4 - who broadcast a lot of Kirstie Allsop's programmes, and she should know - if you want your 'investment to show capital growth', here is what you should look for when deciding where to buy:

1: What's The Area Like?
If you're worried about whether or not you'll feel at home with your new neighbours, fear not. Discovering everything, from your neighbours' incomes to what paper they read, is a cinch with a neighbourhood profile from www.upmystreet.com. Similar concerns about crime? This site will also provide the latest statistics.

2: High Street Hints
It's true that newly opened coffee shops, delicatessens and especially estate agents suggest an upward shift in an area. Unfortunately, shops tend to follow shoppers, so you may have missed your chance to get in early and snap up a bargain. However, it's still an encouraging sign that the times (and area) are changing.

3: Smartening Up
Many post-war town centres have become concrete wastelands, but planners are realising that braving the urban jungle is not what we want. Some quick enquiries at the local council may reveal if there are plans afoot to redevelop a town centre, which will make the area a more pleasant place to be.

4: Architectural Delights
Sought-after building styles - Victorian terraces or well-proportioned 1930s semis, for example - can push one area to the fore if surrounding neighbourhoods are less architecturally strong.

5: Mapping It Out
You're not the only refugee from gorgeous but unaffordable areas. Take solace in the 'ripple effect' - places on the boundaries of good areas often become desirable, so the best advice is to get out the map and look for likely candidates around your dream location.

6: Look To The Future
Thinking ahead is a must when buying, so don't just consider what you want from your house now - factor in what future buyers might want, too. Even if you don't have kids, your future buyers might, so try to pick an area with good schools. And it doesn't matter if you're a gym-dodger - potential purchasers may want one locally. No car? No matter - inadequate parking in an area will discourage car owners, so remember to bear this in mind too.

7: Home Improvements
Look out for any new developments and skips outside private homes, as they're signs of new blood moving in. Large disused buildings are also prime candidates for refurbishing into flats for professionals.

8: What Are Local Schools Like?
Check performance tables at the Department for Education and Skills and Ofsted inspection reports to see how schools are performing - marked improvements are a good sign. Also, see if there are universities in the area, giving you the option of future rental income, either for the whole property or just a room.

9: Quiet Life Or Night Spot?
An area that is peaceful during the day can turn into a swinging hotspot by night, so it's always a good idea to visit at different times, both during the day and week. Gangs of unsupervised kids hanging around are not a good sign of an area on the up.

10: Are Transport Links Decent?
New transport links signal investment, so investigate planned improvements on roads with the Highways Agency. To find out about existing travel links, contact National Rail Enquiries for trains, or Travel Line for buses.


Maybe I've missed something, but isn't that exactly what I've been saying all along?

It's just that I think this through to one logical conclusion - that it is better to tax community-created land values than to tax incomes; and the Homeys and Faux Libs draw the opposite conclusion - that skimming off the profits resulting from the efforts of others is a good way of making money. I don't think there is any disagreement on the actual facts, is there?

15 comments:

Lola said...

Confirmed.

My home circa £450,000 - remote rural location no neighbours 2/3rds acre (yippee - that's what my neighbours would say about me not being there).

Same home in local town easily £750K and upwards.

But I know where I'd rather be...

Old BE said...

"don't just consider what you want from your house now - factor in what future buyers might want, too"

This is an excellent way for people who don't need these amenities to massively overspend on the kind of home they want/need.

I have always assumed that it was parents who bid up the prices in areas with good schools, but may it is even people without children who want to sell their house in twenty years time who add fuel to the fire!?

What mongs.

This is why I manage to live very centrally relatively cheaply, by avoiding the fashionable hotspots.

"Look out for any new developments"

And then don't buy the new-build because it will invariably be far more expensive than the older home. In my local agent's window there is a flat in my block for £X,000 and a flat in a new block around the corner which probably has smaller rooms and lower build quality for £2X,000.

Are people really that stupid?

Mark Wadsworth said...

L, exactly. And for your extra £300,000 in town, you'd lose three-quarters of your garden.

BE, but are they mongs? On a personal level, Kirstie is quite right, this is how you can make easy money at everybody else's expense.

TheFatBigot said...

What about those who have dipped into their pockets to make the improvements that make everyone else's houses more "valuable"?

To take the simplest possible example, Mr A improves his house at his own expense and it makes the whole area nicer so the "value" of Mr B's house goes up too. If I understand the argument correctly, LVT is intended to remove at least part of the windfall profit made by Mr B, but what about Mr A? His isn't a windfall profit it is a return on his own direct investment.

How, if at all, does your magical LVT distinguish between deserved and undeserved gains? If it doesn't, why not?

Sobers said...

@Lola: it all depends on the town and lots of other factors. Its not just a case of 'house in town = x times similiar house in country'. I've just compared similar houses in one of the most exclusive parts of Swindon (there are one or two amazingly) and the rural village close to where I live. Slightly more to live in town (c. £500K for detached house vs £400K+ in the village). I could find rural properties on the Cotswolds that are more expensive than similar houses in town.

And more importantly, given MWs recent post, what are the rental values? Probably fairly similar I suspect. Certainly not as far apart as the capital values. So the LVT for town living vs rural living would not be that different, for similar properties.

DNAse said...

@TFB
Mr A will have a nicer house but pay the same LVT as Mr B and A's house will sell for more - so he wins here. This will naturally encourage Mr B to make the same bricks and mortar improvements since they are free of direct tax (unlike now)

Mark Wadsworth said...

TFB:

a) If you go to the trouble and expense of making your own house nicer, then any gain above and beyond the cost of the works is windfall gain which you can only earn if you are a land owner. For example, I spent £25,000-odd on a super-duper loft conversion and sold the house for about £50,000 more than it would have sold for without the conversion (because one extra room = worth £20,000, one extra bathroom = worth £10,000, let's say).

b) As the estate agents say "It is better to buy the worst house on the best street than the best house on the worst street". If you are lucky and buy a run down house in an area which becomes fashionable and everybody does their places up nicely, then the corresponding increase in the value of your house is windfall (whether you do work on it or not).

c) In extreme case, you can own a few hundred square yards of land and never do anything, and if that patch happens to be somewhere where a town or a suburb grows around it, you can sell it for £100,000s without ever having lifted a finger.

It is mathematically quite easy to distinguish between the increase in value of your own bricks and mortar (see ABI rebuild tables) and the value of the windfall gain element, i.e. the location value.
---------------------------
You will now argue, "Ah, but if there's a rundown area where ambitious young people move in, buy every single house, do them all up nicely (spending £40,000 each) and the value of the houses goes up by £100,000 each, then haven't they collectively earned £100,000 each, or created £100,000 of value?"

No they haven't.

Each one of them has created (say) £40,000 of value and the other £60,000 of their gain was only earned because they had a share in the local landowning cartel.

Unless you own a house exactly in that area, it is impossible to make that £60,000 gain, and provided the number of people in the area who do absolutely nothing and leave their houses derelict is small, then those people will also make the £60,000 gain, because they now own "the worst houses in the best street".

There is absolutely no economic distinction between the £60,000 gains made by the people who actually spend money improving their houses and the gains made by the people who didn't.

Mark Wadsworth said...

S: "it all depends on the town and lots of other factors..."

Yes, average wages in the area is most important, then transport links, then everything else on Kirstie's list, and then a million and one other factors, some positive, some negative. They all add up to one simple figure - the rental value (and capital value is a function of rental value).

But as Kirstie admits, the rental value of the location is generated 100% by 'society' or 'the community'.
---------------
DNAse, exactly. TFB is staunchly anti-LVT (although he is not actually a Homey or a Faux Lib, he does it for sport) but he overlooks that £1 extra in LVT is £1 less in income tax.

So Mr A and Mr B each pay an extra 10p LVT, Mr A (who clearly has a few bob to spare) ends up paying 20p less income tax, so he ends up ahead of the game.

Derek said...

MW wrote,

£1 extra in LVT is £1 less in income tax

There's a first: Mark understating the advantages of LVT !

Because of the reduced tax evasion and lower costs of collection associated with LVT, £1 extra in LVT might be as much as £1.20 less in income tax.

Mark Wadsworth said...

D, indeed :-)

Lola said...

Nope. Rental of my home less than equivalent city home in my area. I don't have any amenities really. No bus. No street lights. No drainage. No sewerage. Not close to park or theatre. Have to heat with oil or gas. Road is only partly made up and frequently breaks up in winter and acts like a sluice for 3 or 4 springs. I have to cut the grass banks. I cannot get out in the snow (well I can, I own an old Land Rover). The police never come round. I've got moles playing merry hell with Mrs Lola's lawn. I have to own a hedge cutter, a chain saw (for when the trees fall down and block the road - the council never turns up). I clear the frequent fly tipping. etc etc...

A K Haart said...

I have a big concrete air-raid shelter in my garden and I'm assuming it will add enormously to the value of the house one day. I just need an old-fashioned war...

Mark Wadsworth said...

L, so with your house it seems the value of not having any neighbours outweighs the downside of having no services to speak of.

AKH, that might turn out to be your good fortune, but I suspect at present it takes away from the value of your house?

Lola said...

MW - yes, but only to me and mine, and yes the market value is less. But it is in a location to die for, so...

Mark Wadsworth said...

L, everybody has their own set of preferences, most prefer suburbs, some prefer the countryside, that's all absolutely fine, it'd be a dull world if we all wanted the same kind of house in the same kind of area.

The strange thing is that in economic terms, people are much better off if they are close to other people (measuring proximity in minutes or cost of travel rather than just distance) and people want to be close to other people (for working, shops, school, hospital, whatever) but...

... conversely, most people like having a bit of distance between themselves and other people - they don't want to hear or smell their neighbours, and preferably not see them either.

People want to use motorways, but don't want to hear them from their back garden, for example.