There are of course three main ways a government can collect land rent.
1. Just own land and buildings and rent them out. That way there is no need to differentiate between rental value of buildings and of the location. We have that with Crown Estates and Housing Associations (which are QUANGOs and ultimately part of the government) who rent out at or close to market value and council housing, which is supposed to be there for lower income people who can't afford lower market rents.
2. Replace other taxes with Land Value Tax.
3. Lend money to people wanting to buy land and buildings and collect the interest, which is mathematically similar to Land Value Tax. It is largely the private banks that do this, of course, but there is nothing to stop the government doing it.
Somebody asked me about 3. recently, and I did some workings for them. In a perfect world...
a) The goverment, which runs HM Land Registry would simply no longer register private mortgage charges. The same as I can't borrow money secured on my right to vote. That's not for sale. If banks want to make huge unsecured loans to people and just rank along with all other creditors in case of non-payment, there's nothing to stop them, but I doubt they would (see tweaks).
b) The government sets up its own mortgage bank as monopoly mortgage lender, which has easy to access to a bottomless pit of funds i.e. government bond issues.
c) The bank knows what monthly payments people can afford (local rents, mortgage payments for FTBs, there's no right or wrong answer, if it's too high, people won't pay it), and can work backwards from that to choose a suitable combination of income multiples, mortgage term, target house prices and interest rate.
Worked example, at today's prices with private banks: Our average borrowers buy a house for about 7.7 times their income, or £280,000. Knock off ten percent deposit, and prevailing interest of 2%, the monthly repayments would be £938 for 30 years.
The government chooses the following combination:
- Max loan-to-income four or twice joint income,
- Deposit minimum 10%, max 20% (see tweaks),
- Mortgage term 35 years (or however long borrowers have before state retirement age, also up to government to decide),
- Average house prices to level off at about £145,000 (four times income plus 10% deposit),
- The required interest rate, to get monthly repayments of £936 (same as now), would be 8%.
d) The government bank can borrow for about 1%, being backed by the UK government and mortgages which are secured on assets that can only go up in value (in line with wages). So in future, the government bank's profit (monthly repayments IN minus net selling price and interest paid (directly or indirectly) to the vendor OUT) is about £6,000 per year per average home.
e) There's no need to worry about Poor Widows In Mansions, they will have paid off the mortgage and will be left in peace (having pre-paid the land rent before retirement).
f) Once the system is up and running and all houses have been bought and sold, the bank's net profit would be - in theory - £100 billion a year (tricky to calculate, assume two-thirds of homes are subject to mortgages and one-third owned by mortgage-free pensioners).
g) Even if it's only half that, it's a handsome chunk of money, enough to replace Council Tax, SDLT, planning fees and so on with plenty left over.
That is the general idea. It needs some tweaks. Clearly, movers would have to be allowed to 'port' an existing government mortgage and existing equity. Apart from that, there shouldn't be any cash buyers. If you want to buy a house, you just HAVE TO take out a government mortgage for 80% of the purchase price.
When a house is inherited, the government bank would give the executors a deposit with itself for 80% of its value and grant an 80% mortgage under the same terms and conditions as any other buyer. If the heirs want to continue living there, great, they can spend the deposit on subsidising their monthly repayments (effectively cut them by half). Which is Inheritance Tax in all but name, so we can scrap IHT as well.
Meh
1 hour ago
25 comments:
Mark
Even if well thought through, that is all too complicated to explain/understand and sounds even more like 'communism' than LVT (yes, yes I know it isn't but the usual idiots would paint it as such).
LVT is easier to explain to a 'non-believer' if it is equated with a user charge for services, like a ground rent. And don't EVER say 'rates' (as in UBR) as it is too emotive a term.
Perhaps we should call it Natural Resources User Charge (NRUC) since we would roll in radio spectrum, mining/fracking/water extraction rights etc etc. Or, my preferred option is to could call it Charge (for the) Use (of) Nature Tax..... with the obvious abbreviation.
M
Sh, none of this is going to happen. Not sure why it sounds like Communism. There are certain things you can only get from the State (right to vote, passport, higher education, roads, state pension) so why not add mortgages to the list?
As to the other stuff, radio, water etc, there are different ways of getting the unearned element back, you can't collect them all using a single C.U.N.T.... oh, I see what you mean.
" The government sets up its own mortgage bank as monopoly mortgage lender, which has easy to access to a bottomless pit of funds i.e. government bond issues."
It's already done that. In the UK it's called the Bank of England. In the US - the Federal Reserve. Then it proto-nationalised the banking system by regulationism - the FSMA 2000 - and went to town on mortgage lending. And look what happened next?
Using the government to run a mortgage bank is just asking for trouble. They'll be promising all sorts of goodies and interfering all the time.
L, anything can be run well or badly.
I'm saying "in an ideal world", the bank, a subsidiary of BoE if you insist, has a statutory remit
- to lend only for residential purchases
- for periods up to borrower's state pension age
- for max multiple of twice joint income or three higher income
- for an interest rate that is AT LEAST 5% higher than BoE base rate etc etc.
That's all the regulations you need. Any change to be approved by Parliament. Nothing snuck in by bankers regulating themselves.
Mark
"Not sure why it sounds like Communism" - not saying that it does but it is the retort you'd get from home-ownerists because....
"The goverment, which runs HM Land Registry would simply no longer register private mortgage charges."
and
"The government sets up its own mortgage bank as monopoly mortgage lender"
M
Mark
As you said, none of it will happen.
I'm an LVT 'believer' partly because of all the rational, simplicity of collection, economic efficiency reasons etc but also because its so 'in yer face' and therefore has 'min government' kinda baked in.
Anything where government gets involved in 'admin' I'm distrustful of.
We could, of course, have several Charge (for the) Use (of) Nature Taxes if appropriate (and in IMHO a very good thing) - all of which would instantly appeal to the environmental lobby!
M
MW. It won't work. It WILL become a political and bureaucratic opportunity. Not lease as unless you reform money they'll just print it and we'd be back to square one. You cannot ever, never ever, trust government and bureaucrats. Ever.
Better - to properly reform the current banking settlement and if you insist on keeping central bank give it one job - provide sound money. Apply LVT as a wholesale replacement of the current tax system and stop government spending money, the bulk of which ends up in rent seekers pockets and drives up land prices.
Sh, land titles are created and guaranteed by the government i.e. HM Land Registry, who also register charges and options against land. TSB, PO Savings, Girobank and NS&I run (or ran) just fine when state owned. They can do this on a purely administrative level, it is not complicated.
I wouldn't want a gov bank involved in complicated stuff that requires skill and judgement like lease finance or debt factoring or personal loans etc. Nor would I want a gov bank involved in bailing out private banks, that's bound to go wrong. Oh, it did.
L, in an ideal world we'd do all things on your list, but ain't gonna happen either.
LVT is a "political and bureaucratic opportunity"... to refuse to do it in the first place and get the Homey votes, the backhanders from developers and a million extra civil service jobs.
MW. Agreed. Sadly.
Shiney, it doesn't matter what you call it, people will think of it as a Land Tax. A evidenced by the Poll Tax, rebranding doesn't work.
M, point 1: this is how it all started out. All the land was owned by the King and those with exclusive rights to it paid rent in the form of providing an army when the king needed it. The bigger the landholding, the more soldiers you had to provide on demand.
B, sort of, yes.
How about 'privatise' the Land Registry, allow it to charge an annual fee of what the market will bear, and tax the excess profits at 100%? Those not wanting to pay the fee can simply pay a private landlord instead, who will pass on the land element to the land registry :-)
Mr. Wadsworth, this is quite astonishing. You've just pretty much described Location Value Covenants. And then made a claim to have invented them. Fred Harrison is an expert at that kind of theft too.
Will you be apologising to the late Dr. Adrian Wrigley for stealing his idea?
Shame on you.
RS, your LVC's are a load of drivel which you cannot explain properly.
I have not invented anything nor do I claim to have done so. This is all about implementation of existing things (housing and mortgages) in a sensible way.
Is it that I cannot explain LVC's properly?
Or that you are possessed by an ideology which hates competing ideas. So the clear responses I give you each time sound like nonsense. That is, your religion is leading your thought against a dangerous competing idea?
Your hateful response here is a strong signal of the latter.
I'd be happy to use this forum to explain LVC's to you and others. Quid pro quo, you must promise me you won't do any more of the above?
Deal?
RS, sure send me an article 'explaining' LVCs. I will post and then we can tear it to shreds in the comments.
RS, if you read your own wild claims, you would realise that they cancel each other out.
Claim One: "You've just pretty much described Location Value Covenants. And then made a claim to have invented them... Will you be apologising to the late Dr. Adrian Wrigley for stealing his idea?"
Claim Two: "You are possessed by an ideology which hates competing ideas."
If I hate the LVC idea (I don't, it's fine in principle but an unenforcable jumble of vague crap on day to day level), why would I pass it off as my own, which implies that I approve of... something I hate?
WTF are we to make of your claims?
Are you familiar with the logical fallacy called 'begging the question'?
How can this engagement be a quid pro quo if you start out by saying you intend to tear it to shreds? Hardly the attitude of an honourable man with good intentions.
Now, do you want to make fair assessment of LVC's or not? If you're not yet ready to
look into something which risks questioning long held beliefs that's fair enough. I'll come back once again later.
BTW what's happened to all the Georgists we used to hang out with at the pub?
RS, why don't you just take what I say at face value rather than accusing me of all sorts of imagined crimes? WTF have I ever done to offend you this badly? Are you the Witchfinder General or the reincarnation of a Stalinist show trial judge?
You have explained LVCs, and I have made a fair assessment: it's a nice idea but totally unworkable and full of loopholes i.e. crap. But maybe others who read about it here think it's genius. Not for me to judge.
MW are you familiar with the saying 'do as I say, not as I do'?
You're still begging the question, by alleging that LVCs are useless, without showing you understand them. It's hardly an honourable position.
You are projecting yourself above too. Lots of violence and gaslighting in your language. Are you aware of this?
Here's an idea: if you are certain what LVCs are, tell me what is their 3 most important features? To make it easy and route around the denial, say so in terms I would use.
Fair?
LVC's as you envisage them is a system where you pay LVT and are exempted from other taxes (quite which ones are unspecified or course, as you do not much about the UK tax system).
That's fine in principle, but as soon as I asked you a question of how it would work in practice, and pointed out all the obvious loopholes, you went into full denial mode.
You appear to have made a few grammar errors so I don't really understand your point?
Nevertheless, the first para is 100% incorrect.
Do you want to have another go at describing 3 main features of LVC's? If not, why not just describe the fundamental difference between LVC's and LVT for starters.
Or would you like to concede that you don't know what they are?
In that case I'm happy to enter into an honourable dialogue to discuss them with you?
RS, I'm not having a dialogue with you, this is all happening in your imagination. It doesn't matter what I say, you'll just assume I said something completely different.
MW, In your own hand above you have shown clearly you do not understand what LVCs are.
Are you able to concede this? If not that would be identical logically to someone promoting a KLN.
Remembering: you are making the allegation that LVCs are fatally flawed, yet how could you know this if you do not understand how they work?
Is your God forcing you to fight hard against these scientific facts?
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