Wednesday, 20 August 2014

Rabbit Hutch Homes. LVT will sort it out.

Under LVT, we would basically be swapping our tax into payments for land rent. As rents are based on affordability, the logical conclusion of this, is that State revenue becomes current taxes + current rents= 65% GDP.

Luckily for us small government fans, things aren’t quite so simple. Allocational efficiency as a result of LVT reduces demand i.e. Poor Widows In Mansions out, young families in. We also have to take into account that increased discretionary incomes do not all get spent on land/location rent.

Average UK household discretionary income, with £160,000 mortgage debt, is around £14,000 per year.

Assuming we have equilibrium, under LVT, that becomes £25,000 + 50% less mortgage debt = £31,000 or an extra £16,000 or so.

Given the choice, how many people would forgo the 50% less mortgage, and opt for a new home that was twice as big/twice the quality or a combination of both? Under LVT they'd still have an extra £11,000 per year to spend on other stuff.

The point being, higher discretionary incomes do not all get absorbed in higher rents, and a good proportion of it under LVT will no doubt go into building better homes.

We only need Greenbelt planning and building regulations because capitalised land rents skew the market.