"This is all about prising lazy people off the property ladder”

From the BBC:

Estate agents have reported a strong uptake in the first month of the government's extended Help to Sell guarantee scheme.

The Royal Institute of Chartered Surveyors said they had received a total of 2,384 applications from rentiers keen to sell their homes, potentially worth £365m in mortgages...

The government welcomed the figures, saying the scheme was "sending a message to those who can't be bothered to get a proper job and who have hogged too much housing for far too long" and helping hard working first-time buyers replace them on the property ladder.

"Four weeks in and its clear that Help to Sell is already delivering," said Prime Minister David Cameron.

"Most Help to Sell applicants are multiple landlords, late middle aged, who have very little in the way of earned income. This is all about prising those people off the property ladder again."

Social Networks

From The Guardian:

Facebook made a startling admission in its earnings announcement this month: it was seeing a "decrease in daily users, specifically among teens". In other words, teenagers are still on Facebook; they're just not using it as much as they did. It was a landmark statement, since teens are the demographic who often point the rest of us towards the next big thing.

Their gradual exodus to messaging apps such as WhatsApp, WeChat and KakaoTalk boils down to Facebook becoming a victim of its own success. The road to gaining nearly 1.2 billion monthly active users has seen the mums, dads, aunts and uncles of the generation who pioneered Facebook join it too, spamming their walls with inspirational quotes and images of cute animals, and (shock, horror) commenting on their kids' photos. No surprise, then, that Facebook is no longer a place for uninhibited status updates about pub antics, but an obligatory communication tool that younger people maintain because everyone else does.

All the fun stuff is happening elsewhere. On their mobiles.

It's interesting because the thing with personal social networks is that it's about people meeting the people they want to meet, without wasting time with people they don't.

The success of Facebook isn't technological, it's about who joined first. They got Harvard students, people we could best describe as "alphas" in some ways, people that other people would like to hang out with. So then, people in other top universities could join. And because Harvard is above them in social networking, they joined, then other colleges and finally, the public.

But what people don't want is to be bothered. You don't want you mum's crazy 2nd cousin asking why you don't bother commenting on her updates. Or your mum finding out that you got drunk. Or to be bothered by lots of people way down the social scale.

The people who do worst out of this are the people that everyone wants to talk to. So, they move to other networks to get away from people, and with this, others start to follow, until eventually the network has moved elsewhere.

I give it a couple of years and Facebook will be where MySpace is today. And we'll start getting news reports in the Daily Mail about various things people have been getting up to on WhatsApp.

"UK property taxes highest in developed world, says think tank"

Policy Exchange can say anything they like, knowing it will go down well with the Homeys at the Mailexpressgraph, but it was also faithfully trotted out in The Guardian.

Even if it were true (which it isn't) this is completely irrelevant to anything anyway, this is all just part of the anti-LVT agenda of course (even though the full report explains all the arguments in favour of LVT, it then basically says "But Poor Widows won't like it, so we can't do it") , but as far as residential is concerned, it is simply not true.

1. How they arrived at this figure

PE add up the following taxes and say that they make 4.1% of GDP, higher than any other OECD country (Hong Kong, Taiwan are not OECD countries). Unlike them, I will use up-to-date gross figures for the UK, not a mish mash of various years gross/net figures for England/UK at random.

Business Rates - £27 bn
Council Tax - £27 bn
Stamp Duty - £7 bn
Inheritance Tax - £1 bn (they take one-third of £3.3 bn as relating to residential land and buildings)
Capital Gains Tax - £2 bn bn (they take one-third of £5 bn as relating to residential land and buildings)
s106/Community Infrastructure Levy £1 bn

That's £67 bn in total, quite possibly 4.1% of GDP.

For whatever reason, the UK has something very close to LVT, being Business Rates on commercial land and buildings. It needs tweaks, but you can answer most KLNs by simply referring the Homey to the real life example of Business Rates.

2. Let's split this into residential and commercial

Their full report is in the context of home building, homeownership etc, so how much of those taxes relate to residential rather than commercial?

Business Rates - none
Council Tax - £27 bn
Stamp Duty - £5 bn
Inheritance Tax - £1 bn
Capital Gains Tax - £2 bn
s106/CIL - none

That's now down to £30 billion.

3. And how much of that is actual 'property tax'?

Is Council Tax really a property tax? That would suggest that the amount you pay is somehow related to the value of the property you own. As it happens, the large bulk of Council Tax is the Poll Tax element.

The Poll Tax element is about £720 per household (a single adult in a Band A home has to pay on average £720 a year = Band D average £1,444 x 6/9 less 25% discount). It is only the amount above that which can be said to be "property tax".

27 million households x £720 = £19 bn Poll Tax
£27 bn Council Tax minus £19 bn = £8 bn property tax.

And how savage is that property tax element? About 0.2% of the first £1 million of the value of a home, i.e. a £1 million home will probably be in Bands G or H, and pay about £3,000 in council tax (depending on where it is in the country). If we divide that £8 bn by the total selling price of UK homes, we get an even lower figure.

And that 0.2%, which is a fixed amount and does not change if the value of a home changes, simply is not big enough to have any impact on people's behaviour.

As the report explains, in the USA and Canada, the property tax can be up to 1% of the value of a home with no upper limit.

4. So let's run that total again

Putting it all together, here's how much tax is paid/collected on the basis of the value of residential:

Business Rates - none
Council Tax - £8 bn
SDLT - £5 bn
IHT - £1 bn
CGT - £2 bn
s106/CIL - none

Ah… now we are down to £16 bn, or about 1% of GDP, a quarter as much as Policy Exchange said and somewhere in the middle of the field, internationally.

Brand Marketing

Russell Brand's appearance on Newsnight seems to have caused quite a stir and gained a lot of whatever is the internet equivalent of column inches.

Admittedly a lot of it is people saying that they always thought he was a tosser and this only confirms their opinion. What is more interesting is that so many people seem to agree with him that there is little point in voting, that all the main parties are the same, that there seems to be a lot acceptance that it is all Indian Bicycle Marketing, even if most people are unfamiliar with this term, for instance:

"The reason these coalitions are so easily achieved is that the distinctions between the parties are insignificant. My friend went to a posh "do" in the country where David Cameron, a man whose face resembles a little painted egg, was in attendance. Also present were members of the opposition and former prime minister Tony Blair. Whatever party they claim to represent in the day, at night they show their true colours and all go to the same party."

With even the minority parties, like UKIP, the Greens and the BNP steering a narrow centrist, statist course, avoiding both the Scylla of upsetting the banks and big business and the Charybdis of upsetting the homeowners and landowners, how could it be otherwise?

Some say that the reaction to Russell shows there is a huge untapped area of political support represented by those disillusioned by the present system which is not being exploited, because there is no-one who the refuseniks can feel they can vote for, no-one that anyone's heard of to head up such an anti-status-quo party. But is there?

When people are suggesting that a tosser like Brand should be a new political force, it shows how desperate things are. Problem is, Brand refuses to take part in the system, he even refuses to vote and he is encouraging others not to vote or take part either:

… my friend's 15-year-old son wrote an essay for his politics class… he prefers the idea of spoiling ballots to not voting "to show we do care" maybe he's right, I don't know. The reason not voting could be effective is that if we starve them of our consent we could force them to acknowledge that they operate on behalf of The City and Wall Street; that the financing of political parties and lobbying is where the true influence lies; not in the ballot box.

so he's unlikely to put himself up for election, which is the ultimate triumph of Indian Bicycle Marketing. Nor is he likely to be right about forcing the politicians to acknowlege anything - "If you want to send a message, use Western Union", as Sam Goldwyn rightly said - politicians don't care how many people vote for them, so long as they win.

The most depressing thing which independent or small party candidates hear when canvassing is: "Well, I like what you are saying, but I still won't bother voting for you. All politicians are the same once they get into power, and you'd be no different." Something amply confirmed by the behaviour of the Lib Dems, for years the "alternative party" of choice.

Intentionally or otherwise, Big Politics has got the UK just where it wants it, in a system that favours incumbents whilst making life very difficult for competition start-ups. Sounds familiar?
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Brand gets a bonus point for this one, an ad hominem attack familiar to land value taxers:

"When I was poor [a tenant] and I complained about inequality [supported LVT] people said I was bitter, now I'm rich [a homeowner] and I complain about inequality [support LVT] they say I'm a hypocrite."

More Faux Lib fun with Murray Rothbard

Kj draws my attention to this:

In the September 15, 1970 issue of The Libertarian Forum, (Vol. II #18), prominent libertarian economist Murray Rothbard wrote:

"The Heathian goal is to have cities and large land areas owned by single private corporations, which would own and rent out the land and housing over the area, and provide all conceivable "public services": police, fire, roads, courts, etc., out of the voluntarily-paid rent.

Heathianism is Henry Georgism stood on its head; like George, Heath and MacCallum would provide for all public services out of rent; but unlike George, the rent would be collected, and the land owned, by private corporate landlords rather than by the government, and the payment therefore voluntary rather than coercive.

The Heathian 'proprietary community' is, of course, in stark contrast to the scruffy egalitarian commune dreamed of by anarchists of the Left.

I accept that such Heathian corporations will often lead to better outcomes than dividing up land into ever smaller plots, that's a separate topic. But it amazes me that somebody can say something so incredibly stupid and then not realise what he has just said.

He merrily overlooks the fact that all landownership arises from the use of force.

To make a car, you need metal, rubber, electronic stuff, plastic, machines, lots of electricity and workers and so on. And you put it all together and have a car. For sure it is helpful if you have anti-locking devices and police who will chase car thieves and so on, but that's an extra. There can be no "car ownership" until people create the car, the "car" and the "car ownership" are the same thing. In a sane world, whoever makes the car is the first owner (not in a Socialist or Home-Owner-Ist world, of course) and they can sell it and split up the proceeds between themselves.

To own land, you need an army, police, courts and prisons. You need fences, gates, locks and barriers. That's all you need, the "land ownership" was not created by the people who created the land. "Land" and "land ownership" are not synonymous, what are synonymous is "land ownership" and "the state". That land or location has been knocking about for billions of years, and belonged to nothing and nobody. The "land ownership" did not come into existence until somebody ("the state") built up a big enough army to invade it and/or defend it from invaders.

Secondly, like all Faux Libs he says that any payment to the government must automatically be a tax paid under coercion and therefore BAD, but that any payment to a "private" entity is voluntary and therefore GOOD.

We can illustrate that this is nonsense quite simply by following the logic through:

i. Let us imagine that the country is divided in a few dozen areas, each owned by a Heathian corporation. We know that they will make bumper profits, even after paying for border patrols, roads and so on.

ii. Unless you want to move abroad, you will have to choose in which area you want to live. You have no choice about this. You can choose the amount you are willing to pay but not whether you pay. Even if you move abroad, you will always have to pay something (unless you hide somewhere uninhabitable).

iii. So each corporation in raking in £10 billion in rents, spending maybe £3 billion on border patrols, roads etc and the rest is a handsome profit. That is monopoly profits, it cannot be competed away (the rents would level out at whatever cannot be competed away, by definition. If they could be competed away, they would be). Perhaps the shares in the corporation are publicly traded on the stock exchange, so what, it is still monopoly income.

iv. If the government tries to tax that profit (i.e. by demanding £6 billion in LVT from the corporation), the Faux Libs argue that this is a tax and therefore automatically BAD.

v. From the point of view of the citizen, it does not make any difference, his rent is the same however it is split up between corporation and government, the government is just the superior landlord. But the Faux Libs think it does.

vi. Suitably outraged, the corporation decides to cede from the country and form its own independent state. Again, apart from customs hassle, this makes little difference to the citizens of that area, he's still paying the same rent to the same people and goes about his business.

vi. But wait - that is no longer a corporation, it is now a "state" in its own right. So according to Faux Lib logic, any payment to that state/corporation is now paid under "coercion", is a tax and is BAD.

I mean, I've heard some really shit KLNs in my time but he disproves his own point.

And why he bundles in Georgism with "the scruffy egalitarian commune dreamed of by anarchists of the Left" I do not know, I don't even know what this is supposed to mean. "Egalitarian" suggests some form of redistribution, but in anarchy, there is no government to collect and redistribute.

Executive Salaries

There's a head of steam building up about executive salaries. Not only has Oxfam decided to weigh in on the side of the Living Wage, but, as Matthew Lynn reports in Moneyweek, the Swiss have decided to tackle the subject head on.

A referendum this year forced companies to get shareholders' agreement on top salaries and another later this month will, if successful, force them to limit the highest salary a quoted company pays to twelve times the lowest. (Although currently that ratio is ninety-three to one in Switzerland, it's over two thousand to one in the UK.) It's hardly surprising that our governments only allow us a referendum once every forty years or so, if that is the sort of laws they produce.

Of course, all the over-renumerated executives are prophesying an exodus of big companies if the Swiss vote in favour of the twelve to one ratio, but if that's the way the vote goes, then their bluff may well be called. After all, Switzerland is one of the richest countries in the world and the most lightly taxed: it's hard to make a case for moving elsewhere if this is going to land the company with not only higher salary costs, but a much greater tax bill as well.

Also, it is very hard for the same overpaid executives to argue against the first referendum result. This can't be simply passed off as a result of the politics of envy. The shareholders are the owners of the company and if they are happy to vote the top management massive salaries, who's to complain. They, the shareholders are, after all, paying for it. If they are not happy, then why should they not be able to do something about it, directly. It would end the scam where a small group of of the same people sit on the boards of some companies and occupy senior management positions in others and routinely vote each other huge pay rises, at the expense of the shareholders.

"Mix control"

There was finally a sensible article about retail and 'The High Street' in today's City AM Forum:

The thing is worth reading in full, but it appears to boil down to this:

A lot of high streets have nothing intrinsically wrong with them. Mix problems are, however, inevitable when there is a plethora of different shop owners. Multi-ownership leads to a letting free-for-all. In the absence of mix control, there is nothing to sustain attraction. Mixes are not self-sustaining: they need continuous work...

The more modern managed shop space we have added (mostly with free parking), the more shopping centres, retail parks, superstores and outlet centres we have built, the more chain operators have migrated from small shops in small unmanaged high streets to larger, higher productivity, modern spaces serving bigger markets...

But a lot of the recent high street attrition is not due to obsolescence: it is self-inflicted. On the one hand, mixes have been undermined by multi-ownership; meanwhile, the quality of the shopping experience has been further eroded by lack of investment in the parking and access infrastructure needed to serve high street shopping.

There are a few general rules here:

1. Except for the very centre of very large towns, the ideal use of available space is about half car parking and half retail space.

2. Retailers benefit from each others' presence, so the rot sets in once there are one or two empty or very down market shops.

3. From the specific point of view of retailers on the same street, there are "public goods". They all benefit if everybody smartens up their shop fronts, or if the pavement is widened/enhanced to include trees, benches, bins and bike stands etc. They all benefit from better bus services and more attractive bus shelters.

4. Public goods are the flip side of the first mover disadvantage. Smarten up your own shop front in isolation, or get permission for a bench or bike stand and there is little or no benefit to you. And no individual retailer is going to voluntarily subsidise the bus service.

5. There is also a free rider problem, i.e. if nine out of ten shops smarten up, pay for benches and bike racks, then the one in ten refuseniks benefit as well.

As the author explains, this is because large shopping centres and out of town retail parks are owned by one large landlord, he is far more likely to get the "mix" right and speed up the process of agglomeration than if there are dozens of shops owned by dozens of landlords or leaseholders, with separate ownership of the flats and offices or wasted space above.

If one shop falls vacant, even if the large landlord refuses to drop the rent (for fear of all the other tenants demanding a reduction), he will at least do something with the empty shop front (you hardly notice the empty ones in Westfield, Stratford, it's very cleverly done). A landlord with one vacant shop doesn't care how terrible it looks.

Returning to my favourite topic, car parks.

If you are building a new shopping centre, what you do is make sure there is as much parking space as their is retail space, a 50/50 "mix". So on many high streets, it would be in the collective interest of all shop owners to demolish half the shops and have a large car park instead (Rule 1).

The sales at the remaining shops would nearly double, their net profits would more than double and the rents which can be extracted would treble.

But if each shop is small, no individual owner has a direct incentive to knock down his own shop (even if he could get planning and that were physically possible) and build a car park. He's waiting for everybody else to do it.

(And if he did make a car park, you can be quite sure that his parking charges would be just as swingeing as the local council's parking charges.)

So as ever, breaking up a monopoly into a cartel leads to an even worse outcome. Owners of large shopping centres might be rent seekers, but at least they are on the side of progress and look at the bigger picture.

If there are are lots of small landowners, each one of them acts as a drag on progress and development (as well as draining money from the productive economy). Put them all together and your high street is doomed.

As to what the solutions are - if any - you will have to work that out for yourselves (they seem blindingly obvious to me, being a combination of three or four things).

£150 per square inch.

From The Evening Standard:

… Chelsea property experts said the sites could be worth as much as £1 billion when fully developed.

Ed Mead of agents Douglas & Gordon said the 3.5 acres would sell for up to £350 million — some £100 million an acre — but would be three times as valuable after being built on.

£100 million for one acre* (4,840 square yards) = £200,000 per square yard.

£200,000 per square yard = £150 per square inch.

That's like a knee-high stack of £1 coins on each square inch.

* In contrast UK farmland sells for up to £10,000 per acre for the best stuff.

Homeys don't do maths. But if they did, it would probably be the worst maths in the world.

Policy Exchange's report hit the headlines with the entirely spurious claim that "property taxation in the UK is higher than all other developed countries, and already forms a high proportion of the tax base" (page 4).

I already debunked that little myth here. Even if it were true, it is not relevant to anything.

The actual section on LVT, pages 8 - 9, explains the points in favour but then trots out the old KLNs, the Poor Widows In Mansions, the Army Of Surveyors, the Spectre of Negative Equity etc, boring.

Here's their super tip top supremo maths and logic fail:

"The poll tax, the last major revaluation, was originally designed to reduce average bills, but most people’s bills actually rose, making reform even more politically difficult."

That's because with income or wealth distributions, the median is far lower than the average (usually about two-thirds; and three-quarters of people have less income or wealth than the average). So replacing a tax on income or wealth with a Poll Tax for the same amount of revenue automatically means that three-quarters of people pay more.

It was exactly the same with the shift from Domestic Rates to the Poll Tax. Three-quarters of them paid more (admittedly most of them only paid a bit more) and one-quarter paid less (in many cases, a lot less, as Portillo explained on This Week, that was the whole point, to pander to the Tory voting landowners and give them a massive tax cut/one-off unearned land value uplift, admitting that "property in this country is vastly under-taxed").

For example, total UK income tax receipts are £150 billion, paid by 30 million taxpayers from taxable income of £900 billion. That's an average bill of £5,000.

If we replaced that with a Poll Tax of £5,000 each for everybody (the same average bill) with any taxable income whatsoever, then three-quarter of people would pay more, i.e. those with taxable income of £35,000 or less.

Even if we reduced the average Poll Tax bill to £4,000, we'd still find that two-thirds of people (those with taxable income of £30,000 or less) would pay more.

And so on.

But agreed, shifting to a Poll Tax is unworkable, inhumane and politically unpopular.

So by their logic, doing a U-turn from Poll Tax back to Domestic Rates would have been workable, humane and politically popular.

And shifting from Domestic Rates to pure Land Value Tax would have then continued in the same direction. There would have been even more winners etc.

So using the Poll Tax debacle as an argument against LVT is like driving up a dead end and using that as an argument against reversing: when we were driving forward we get stuck, so if we drive off again, regardless of the direction we take, we will get even more stuck.
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To round things off, they bung in another fact and logic fail:

There is a general acceptance of existing redistribution where affluent areas pay more in council tax and obtain less from central government.

A higher tax burden on more affluent areas would shift political debate as new higher land taxes in more affluent areas would reduce support for transfers.

Either people support "transfers" (and Council Tax does not shift one penny from affluent to poor areas, but never mind, perhaps people really are this stupid) or they don't. And if they do (PE's own contention) then LVT (which would reduce taxes payable in poor areas quite markedly) would have instant widespread support.

Digging and natural monopolies.

1. Driving through town yesterday, I noticed that a local utility seems to be wrapping up their engineering for a new district heating network. It´s been over 8 months of open pits in almost every street, in some places it has more or less closed off normal business dealings, and caused severe revenue losses. Noone knows if district heating is actually any good, as they are subsidised beyond measure, in construction as well as in operation, and there are plenty of options, including better insulation, ground-based heat exchange etc.. But anyway, new utilities are going to get built. In a few years, it might be pneumatic refuse collection, more fibre and what not. Same thing over again.

2. Digging accounts for 80% of costs in laying down fibre. In addition, there are externalised costs for utilities construction, that are not paid for by utilities, but by businesses (theoretically, landlords as well, but you know they are not going to take that hit in practice). To reduce costs, some are going for the technique of micro-trenching to lay down fibre. This sounds excellent, until you consider the long term, where there will be another layer of complication at road-repairs or laying new utilities.

When the hell are local governments going to start building utility tunnels? You have an initial once-off cost, and minimal maintenance. From then on, the limitations are only in the physical space in the tunnels. Preformed concrete tunnels, about a metre in diameter, divided by separate chambers, accessible by manholes, can carry all utilities including wastewater for normal density residential areas. For high-density urban environments, you have larger tunnels, that are large enough to fit people, even small vehicles. When it comes to telecoms, you have now eliminated any natural monopoly. The tunnel-owner, i.e. local govt., can charge the operator nominal maintenance costs for laying down fibre, as long as there is room in the fibre-section of the tunnel, and switching operators will be simple. Still some intial cost, but nowhere near the costs of separate trenches.

There is a tax that can be applied to pay for the capital costs of these tunnels which happens to fit perfectly.

The thing is, local government has changed their focus from "public goods" to the business of providing every service known to mankind, and have no time or money for such follies. In fact, in my local government, doing this stuff; local roads, water/wastewater, refuse collection, fire services, is about 5-6% of the total budget.