Valuation Office Agency: Private Rental Market Statistics (England only)

I discovered something new this week at the VOA website.

You can download their spreadsheet for average rents. If you take Tab 2.5 for 3-bed homes, which is primarily semi-detached and terraced houses, which we can take as our basic unit of housing; multiply average monthly rents in 324 local authority districts by 12; add on £22 billion for existing annual taxes on housing (Council Tax and TV licence fee); and finally knock off £4,000 a year per home for running costs/depreciation of bricks and mortar; you end up with a site premium (total rental value less actual running costs) of £162 billion for the approx. 22 million homes in England.

Gross that up for Wales, Scotland and Northern Ireland and you end up with a nice round £200 billion.

You could make
- lots of little downward adjustments to that figure (the average figure for England is skewed upwards by eye-watering rents in Inner London so average rents in the other three countries will be lower); and
- lots of little upwards adjustments (using averages for large areas with approx. 70,000 homes in each understates the total site premium: an area with an average rental value of exactly £4,000 does not have a total site premium of £nil, because half the homes in that area will have a total rental value of more than £4,000 and will thus have some site premium)…
but by and large, my estimate of "about £200 billion" for the total site premium of UK residential land seems about right, and if it isn't now, it will be within a year or two.
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On an even more arcane note, I've had debates with three or four different people who agree with the general principle of replacing the big bad taxes on earnings and output (VAT, National Insurance, higher rate income tax etc) as well as existing "property taxes" (council tax, business rates, IHT, SDLT and so on) with a tax on current site premiums for residential and commercial sites.

But their point of disagreement is that this would disproportionately increase business profits and hence the rental value of commercial sites. What they are really concerned about is that in political terms, the best kind of tax is one which somebody else pays, so instead of pencilling in £200 billion for residential and £40 billion for commercial, I should be pencilling in a lower figure for the former and a higher one for the latter.

Well, first of all, I have to admit that we'll never know until we try.

1) One counter-argument to their logic is that taxes on business are ultimately nearly all borne by individuals i.e. households anyway, so most of the tax reduction would increase household incomes (pre-housing costs).

If we got rid of e.g. VAT and National Insurance, it seems highly unlikely to me that all of this would just feed through into higher business rents. For that to happen, gross wages would have to fall by the amount of NIC currently being deducted, and instead of the VAT reduction being split five ways between lower prices-more output-higher wages-higher profits-higher rents, it would all have to go into higher rents collected by the landlord as rent or higher "profits" recorded by owner-occupier businesses.

2) The other counter-argument is that there is no hard and fast difference between commercial and residential land. It's the same land just being put to different uses. With a massive reduction in taxes on actual business activity, the number of businesses, the amount of business being done and the number of people being employed would go up, so some land currently used for residential or not being used at all would end up being used for business activity; whether that's flats above High Street shops being used as offices or people starting a business from home is nigh impossible to measure anyway and certainly impossible to forecast.

Assuming that all sites were being put to their optimum use (ha!) that means that the extra rental value of these re-zoned areas would not be substantially higher than the rental value of adjoining residential land.