Thursday 1 October 2015

Killer Arguments Against LVT, Not (372)

A traditional fatuous argument against LVT is that "Landlords will just increase the rent".

No they won't. They can't. Rents are set at the upper limit of what tenants can afford/are willing to pay and that is the end of that. The landlord's outgoings are entirely irrelevant (except in very marginal areas with little or no location value). But it is traditional Home-Owner-Ist strategy to just lie, lie, lie, regardless why; totally ignore logic or hard facts; and never, ever to concede on anything.

Exhibit A, from City AM:

There were 74,000 tenants owing more than two months’ rent at the end of the second quarter – up 7.2 per cent on the same time last year when this figure stood at 69,000 across the UK...

However this is still significantly less than the worst peak in the third quarter of 2012, when the number of households owing more than two months rent was 116,600.

It also represents just 1.4 per cent of all tenants, which is stable compared to the previous quarter and compares to 2.9 per cent of tenants in the first quarter of 2008 at the height of the crisis.

12 comments:

Bayard said...

"Landlords will just increase the rent".

Well, they will if other taxes are reduced or removed, because they will be able to, not because their outgoings have increased, but because their tenants' incomes will have increased and so they will be able to pay more. Take out the word "just" and the statement is true, under some circumstances.

I think it's important to stress that most landlords won't be much worse off in the long run, nor will tenants be much better off and that the main benefit of LVT is the removal of the deadweight cost of the taxes on economic activity, otherwise it looks like some socialist landlord-bashing tax.

Mark Wadsworth said...

B, it's called ATCOR. And I don't do 'socialist' landlord bashing. I do free market liberal landlord bashing.

Bayard said...

"B, it's called ATCOR"

What's called ATCOR?

Pablo said...

All Taxes Come Out of Rent
http://tinyurl.com/lgqvdbs

Random said...

http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/10113582/Rent-controls-are-madness-we-need-to-build-more-homes.html
Homeys hate rent controls!

Mark Wadsworth said...

P, thanks.

R, yes, Homeys hate rent controls and they also hate more new construction. It's not intellectually coherent and is not supposed to be.

Bayard said...

R, the only question such an article raises in my mind is, are they deluded or lying? (i.e. do they actually think that building more houses will reduce rents or do they know that building more houses will do nothing about rents and are simply acting as shills for the land-banksters).

The problem about rent controls is that it replaces rationing by price with rationing by scarcity, like social housing today. I am old enough to remember rent controls and it was bloody hard to find anywhere to rent at any price. Another problem is that it is just more state intervention in the housing market. Rents are at the level they are because that is what the tenants can afford to pay. If society wants poor people to have cheap housing, then it should encourage the provision of more social housing. Rent controls just provide cheaper housing for the better off. Also, if the state is going to control rents, why should it not also control house prices? It's certainly no more difficult to achieve.

Mark Wadsworth said...

B: "Also, if the state is going to control rents, why should it not also control house prices? It's certainly no more difficult to achieve."

Agreed. Can you explain for the benefit of the audience how a government could do this?

Bayard said...

Well, if the state is going to control rents, every time a landlord wishes to rent out a house, they will have to apply to the state to have a controlled rent assessed for that house. Once you have set up an office of bureaucrats to do this (called, perhaps, the Valuation Office), they could just as easily set prices for houses any time anyone wants to sell.

Mark Wadsworth said...

B, oh I see.

If I had to control rents, I would just set a maximum price for different types of home in each area. There will be a lot of cheating of course.

If I had to control house prices, i would just set a cap on mortgages of x times salary (two times joint or three times main, for example) and that would sort it out. The UK did this quite successfully for a long time. It's a bit more 'free market' than an absolute figure. (or I would just do land value tax).

Bayard said...

I agree, in the short term, the maximum multiplier would be the most effective and the easiest to administer. Incidentally, for a second income to be included in the calculations, does the earner of that second income have to be a part owner of the property?

Mark Wadsworth said...

B, yes of course, I'd also restrict it to one mortgage (or share of mortgage) per person.