Wednesday, 5 January 2022

Killer Arguments Against LVT, Not (491)

Kester Pembroke emailed in the following, by a clueless wanker called Neil:

Or alternatively we can recover planning gain from developers and impose peppercorn leases on all land given planning permission. Then those leases are held by the local council and they create sufficient for all builders in the area to build as they see fit. We keep going until houses start to depreciate. If insufficient builders come forward we build council housing. It's bizarre to believe that planning gain should continue and the entire country taxed instead.

The bit about 'peppercorn leases' is just waffle. Once the developers - who are always seen as The Bad Guys, as evidenced by endless cinema films - have sold the homes they build, who pays it? And the notion that granting lots of planning permission would lead to house prices is falling is nonsense - when prices start falling, developers stop developing.

The bit about "the entire country being taxed instead" is mathematical bollocks. You own one home? Pay tax on one home. You are a land banker with a hundred thousand sites with planning? You pay on a hundred thousand homes. That's like saying ordinary motorists shouldn't pay Fuel Duty because they don't use as much as large transport companies.

Agreed on Council Housing - but the rent you pay on a council house is a combination of real costs (maintenance, insurance etc) and location rent. If you pay location rent to the government, that IS Land Value Tax.

Particularly one based upon subjective value and that has never worked - as every version of rates and council tax shows.

Business Rates were introduced over four centuries ago and are still going strong. Sure, the valuations are done in a sloppy manner and are a bit hit and miss, but it's still the closest we have to LVT.

... yet council Tax is still on 1991 values, which shows that reality doesn't coincide with the fantasy. The previous two rating systems suffered from the same issue.

The council tax on any home bears so little relation to its 1991 value as to be meaningless. In practice, an annual council tax bill can be anywhere between 0.1% and 100% of a home's current site premium/location rent (Mayfair vs Blaenau Gwent, or wherever the cheapest houses are). Council Tax is made up numbers. So what? The only reason we have this stupid system is because of Home-Owner-Ist resistance to a sensible valuation system, which was the same under Domestic Rates.

So this is akin to a spoiled child smashing a new toy with a hammer and then complaining that is doesn't work. Northern Ireland shows that it is not too difficult to update valuations. They assessed market values in 2005 and the Domestic Rates is about 0.7% of each home's 2005 value.

When taxing, it's not about it being 'about right'.

When taxing, the most important thing is taxing in the fairest possible way that is least damaging to the economy. Without a government or government spending, most homes would be nigh worthless. So you pay for what you get. The government would be just a mutually-owned, for-profit service provider and every citizen gets an equal share of the dividends (mainly in kind, with an element in cash).

There has to be a system that is rigorous and seen to be fair. And that is why property taxes always fail. The value of them is subjective.

Of course Domestic Rates or LVT or 'progressive property tax' or Council Tax or whatever you want to call it can be applied in a "rigourous and fair" manner, he's just doing the spoiled child again. The rental value of 99% of homes is not subjective in the slightest. It's a simple question - how much could you rent it out for? Then knock off a bit for the bricks and mortar element, round it down for luck, stick similar homes in Bands and average it all out. There's your answer.

Sure, 1% of homes are so quirky or odd that it's difficult to establish the exact market value, but the market value itself is not 'subjective'. I don't know exactly how much rain fell in my back garden yesterday, so I'd have to interpolate and guess. But "how much rain fell in your back garden" is not 'subjective', it's 'objective' and the fact we will never know the precise answer does not make it 'subjective'. 'Subjective' is questions like "Were Led Zeppelin better than Little Mix?", on which everybody has their own equally valid and irrelevant opinion.

As long as you are paying the same amount as similar homes in your area, and people in bigger homes/nicer areas are paying more and people in smaller homes/grottier areas are paying less, what's the problem?

Whereas wage taxes are always absolutely objective and unarguable. Ultimately unless things change hands rental values and property prices are a matter of opinion. That can never be a stable basis for taxation.

Property taxes are a VERY stable basis for taxation, the money is just collected (preferably by direct deduction from wages or welfare/pension payments) without the need for tens of millions of annual tax returns, quarterly VAT returns, monthly or weekly payroll calculations etc. That's a massive headache and cost with a huge amount of fraud and error.

Just because you think that some economic variable - like wages or turnover - are 'objective' does not automatically make them good subjects for taxation. You are paying for the privilege of working or running a business, providing goods and services etc (which are Good Things - if you tax them, you get less Good Things) for absolutely nothing directly in return (apart from a few contributory benefits, which are an insane idea anyway. They are the opposite of means-tested benefits, which are just as insane.)

Why not get rid of that and ask people to pay some percentage of the value of what the government provides them? Not forcible payments towards the cost (that way lies Poll Tax) but voluntary payments for the value, just like in any free market transaction? Think you're being overcharged? Move somewhere cheaper. Nobody's forced to shop at Waitrose. It's voluntary because they can shop at Aldi or Lidl instead.


Bayard said...

Mark, I know you don't agree, but I still think that at least 95% of planning gain should be recovered from landowners. The state is causing the uplift in value, therefore the uplift in value belongs to the state. If you were a former landowner lifting a restrictive covenant, you'd want as close as possible to the uplift in value that the removal of the restriction caused as a payment for doing that. After all, it's only getting back the value that was removed from the land when the covenant was placed on it.

Mark Wadsworth said...

B, I agree it "should" in the general sense.

Question is, what is the best way to do it?

1. If you tax the uplift at a high percentage, say 80%, then landowners just mothball everything and wait for the tax to be scrapped again. This has happened several times over the past century. Receipts = zero.

2. Alternatively, impose LVT at 80%. Seeing as land sells for the capitalised value of future net rent, that pushes down selling prices of land by 80%.

So they still can make a gain of £20,000 per home plot (which I wouldn't bother taxing again), so what? That is better than trying to collect 80% tax from a gross gain of £100,000.

Even if we - as I recommend - exempt 'honest hard working developers' from LVT for a year or two between planning grant and final sale, so what? They are still only making a small gain from land speculation.

mombers said...

"Whereas wage taxes are always absolutely objective and unarguable"
Explain the need for Universal Credit / tax credits then. 9 million working age people are paying so much tax that the state has to refund them - an incredible waste of resources. 3 million of these are in paid work, but all of them are subject to VAT. And how many would be in paid work absent the dead-weight loss of VAT, NI, etc?

Mark Wadsworth said...

M, I think he meant that the basis of calculation is objective, which it sort of is.

The churning problem is because the personal allowance is so stupid low. If it were £50,000 or something sensible, then the likes of thee and me would be paying some income tax, but we'd still have plenty left to live off and no need for welfare payments.

People who are earning £20,000 or whatever a year and losing a third in tax are pushed from 'just scraping by' to 'really struggling', which is insane.

L fairfax said...

Is this true
"Agreed on Council Housing - but the rent you pay on a council house is a combination of real costs (maintenance, insurance etc) and location rent. If you pay location rent to the government, that IS Land Value Tax."
Surely if it were private and council rents would be the same? Or am I missing something?

Mark Wadsworth said...


a) you rent from a private landlord. You pay a combo of bricks and mortar rent and location rent to the landlord and council tax (very modest LVT) to the government. The landlord pockets the location rent.

b) you rent from the council. You pay a combo of bricks and mortar rent and location rent (and council tax) to the government. If you pay location rent and council tax to the government, the total of those two IS 'land value tax'.

Or have I misunderstood your question?

L fairfax said...

I thought the theory behind private rent was that you pay for the amenity of being there some of which goes to the landlord's brick and mortar rent some of it goes to the value of the location.
If the landlord has very low or high costs it should not make any difference to what he can charge although of course if the costs are higher than what he can charge then he sells and then there will be less landlords.

Mark Wadsworth said...

LF, you are quite correct on all that.

"If the landlord has very low or high costs it should not make any difference to what he can charge"

Correct. Of course in real life, LL does not say "The bricks rent is £400 per month and the location rent is £600 = total £1,000."

He just charges £1,000. But in economic terms, the split is very real and can be estimated to within a tolerable margin of error.

Bayard said...

"1. If you tax the uplift at a high percentage, say 80%, then landowners just mothball everything and wait for the tax to be scrapped again."

Given that the "housing crisis" is a complete fiction, is that such a bad thing? The landowners would mothball everything and wait for LVT to be scrapped, as it most assuredly would be, so that is not an argument against taxing planning gain.

Mark Wadsworth said...

B, how do you mean "wait for LVT to be scrapped"? They're doing an excellent job making sure it never comes in!