Friday, 24 February 2017

Housing Supply (non)Crisis. LVT will sort it out.

Because freeholders do not pay compensation, as tax, for their right to exclude others from valuable locations, they are in receipt of an implicit State subsidy worth around £200bn per year. Not only does this get capitalised into selling prices and rental income, but will lead to misallocation and over consumption of immovable property.

It is reported that the UK has over a million more dwellings than households, and twenty five million empty bedrooms. How many of these are over consumed due to freeholder subsidy? Lets try doing some maths to find out.

Across England and Wales the average household size was 2.4 people. This figure was the same for owner occupied, but lower for rented households at 2.3 people.

Looking in more detail, the average household size was lowest among those households owned outright, at 2.0 people per household. This may in part be explained by the residents being older, with some members of the family having moved out, or a pensioner living alone.

The above graphic and text was taken from the ONS Home ownership and renting in England and Wales – Detailed Characteristics

 From it we can extrapolate that for every 100 owner occupied households 300 bedrooms are consumed but for every 100 rented households only 218.

So if we factor in 0.1 more people per household on average for owner occupiers, freeholder subsidy causes the over consumption of  11.8 million bedrooms in England and Wales alone.  Or the equivalent of 3.9 million three bedroom houses.

Of course the assumption that a land value tax would rationalise that number of bedrooms is based on the fact that by levelling the field for all participants in the housing market, their housing consumption preferences would all be the same. I personally don't see why they would be significantly different.

At the very least, it appears that by allowing an LVT to match supply with demand, the UK has more than enough housing to cover any changes in population or household make up for the foreseeable future. 

NIMBY's of the week...

Other than to say this was a screenshot taken from this video, I've really nothing to add to this one...

"Crouching Tiger, Hidden Figures"

From Wiki and Wiki:

Mathematician Katherine Goble works as a "computer" in the segregated West Area Computers division of the Qing Dynasty during the 43rd year (1961) of the reign of the Qianlong Emperor, alongside aspiring engineer Mary Jackson, a female warrior and professional body guard and unofficial supervisor Dorothy Vaughan. The death of Katherine's closest friend and fiancée to Mary complicate these characters' feelings for one another.

Following a successful Russian satellite launch, Katherine decides to relinquish the warrior lifestyle, and asks Mary to gift her sword "Green Destiny" to head engineer Sir Paul Stafford. One evening, white supervisor Mrs Vivian Mitchell sneaks into Sir Paul's estate and steals the sword. Katherine and Mary trace the theft to the Space Task Group of Al Harrison, who has been has been posing as a governess for many years.

Following a protracted battle, the group is on the verge of defeat when Mary identifies a flaw in the experimental space capsule's heat shields, encouraging her to more assertively study the Wudang manual and surpass Vivian in combative skills.

Thursday, 23 February 2017

Economic Myths: "We all hate wasting food"

Quite clearly we don't, or we wouldn't do it, but people keep bringing up the topic, so here goes...

For example, they have posters up at my local Tesco saying Love Food Hate Waste. They had a segment on a recent Food Unwrapped programme (which are very interesting programmes on the whole) where one of them was interviewing a farmer who employs people to sort carrots for the supermarkets. About a third of them are not 'supermarket quality' i.e. long, straight and easy to peel and these are chucked on a huge pile and sold for animal feed etc.

The presenter then got on his Righteous Horse, bagged up some of the odd-shaped ones and got permission to sell them in a supermarket for half the price of the long, straight ones. "They taste just as good as the long straight ones", he explained breathlessly to a few Righteous Shoppers who bought them.

1. Well of course they taste the same, that's not the issue here - they just aren't as easy to peel and chop. Peeling and chopping carrots is a chore and you want to get it done as quick as poss, so people who value their own time are quite happy to pay double for fairly uniform, long, straight ones.

2. It's like pre-washed lettuce. If we were given bags of unsorted carrots, assuming that people value their own time, it would make economic sense to buy more than you need, peel and chop the easy ones and chuck the rest in the compost. There is simply no point faffing about for ten minutes rescuing ten pence worth of carrots.

3. Farmers are businesses like anybody else, and of course there are unwanted by-products. They are quite happy to throw away all the carrot leaves, the odd-shaped carrots are just a by-product, the same as the leaves.

4. In theory, farmers could reduce their carrot production by one-third, see a corresponding fall in income and use the spare land for growing something else. We have to assume that markets have sorted that out and that growing more carrots (even if a third end up being sold for pennies) gives them the most extra income compared to growing more of something else. So in economic terms, this is not waste - they are maximising the value of their output.

None so blind as those who think we can't see the wood for the trees etc.

The director of a London landlord writes in City AM:

Ultimately, business rates are a property tax rather than a corporate one, and for some companies this means that there is a relatively straightforward solution: move location. Businesses currently located in areas from Victoria to King’s Cross will be considering their options. Most worryingly for the locations worst hit by rates rises, the most desirable and influential businesses are also often the most mobile.

East London has undergone fundamental change over the last 10 years. In 2008 the Crossrail Bill received Royal Assent and construction started on Europe’s largest infrastructure project that would shift London’s economy East. That same year, the first iPhone was launched, a watershed moment in the fourth industrial revolution which would firmly take hold in East London with the “launch” of Tech City in 2010. All this before the Olympic Games put East London at the centre of the world for a month in 2012.

Shoreditch, Old Street and Clerkenwell are unrecognisable from 2008. Tech and creative businesses arrived in the area due to its affordability and stayed because of the community of businesses, cafés, shops and the nightlife that sprung up around them. Rents increased incrementally, but a tech and creative cluster endured as businesses recognised the value of collaboration with their peers.

However, from 1 April 2017, rates will increase overnight to reflect seven years of economic development in East London. When added to the associated rental increases, this will be too much for many businesses to bear. Smaller, entrepreneurial firms in particular may decide their growth prospects are better in a cheaper location...

Successful regeneration projects such as King’s Cross and Victoria take years to deliver, and the painstaking process of creating new spaces, attracting businesses and growing rental values will be undermined by the sudden sharp increase in business rates.

Tuesday, 21 February 2017

Mr Carney to start with Airfix Spitfire and work his way up to Modelling the Economy (if James May helps him)

Shock News from the Bank of England.

They admit that 'We are unlikely to spot next financial crisis'.

Dear Mr Carney,

Can I make three small suggestions that may help you with regards to your inability to understand and model the economy and society around you.

1. Hire Steve Keen

2. For a tiny fraction of your salary, hire his team at Kingston and have 'Minsky' up and running by next year (just in time for event above).

3. Read the bit in Minsky that says that an economics that cannot explain recurrent boom and bust is junk science, and/or jusk ask Keen to explain your 'barter illusion' to you.

Yours sincerely,


Monday, 20 February 2017

Air Passenger Duty bleating LOLZ

More rent seeking in the City AM:

In one part of Whitehall, the Department for Transport, ministers and civil servants recognise the importance of developing policies over the next decade to help UK aviation to grow sustainably...

But their efforts will be largely in vain if the Treasury cannot be persuaded to abandon hopelessly uncompetitive APD rates that are a major obstacle to UK businesses seeking to follow the Prime Minister’s lead by going into the world and building new trading relationships...

Of course, it is good news that the government has given the green light to the construction of a new runway, but the fact is that we will massively reduce the impact of expanding aviation capacity if we don’t have a competitive tax regime that will enable us to take advantage of it...

The government should also ensure that aviation-related negotiations and decisions are prioritised during the EU withdrawal process – but unless the UK tax environment is competitive, all the air services agreements in the world won’t make it viable for airlines to open new routes to and from the UK.

A few facts:

Gatwick and Heathrow are running at close to 100% capacity, so by definition, APD cannot be reducing the number of flights there. APD might have a marginal impact on the number of flights at less popular/regional airports, but the rentiers don't care about 'the regions'.

The bulk of the value/price of an airline ticket is where you are flying to and from and at what time of the day etc, the actual cost of doing it is surprisingly small. Compare the price of a ticket from Stansted to Riga with the price of a ticket from Heathrow to Berlin, or the price of a very early/late flight with one in the daytime! The difference in price is rent/location value.

Admittedly, APD is a dreadfully clunky way of collecting part of the rental value, but compared to VAT-liable businesses, airlines are still getting a fairly good deal overall:

Air transport is VAT zero-rated. That means that they can reclaim all input VAT but do not have to charge VAT, a best-of-both worlds status also enjoyed by 'home builders' and proper exporters.

Total revenues of UK airlines £22 billion per annum.

Total UK APD revenues £3 billion per annum.

Ignoring the fact that UK airlines also have non-UK revenues and some APD is payable on flights with non-UK airlines, passengers are paying £25 billion all in.

If air travel were VAT-able, the VAT due would be one-sixth of that = £4.2 billion, a lot more than the £3 billion they are actually paying.

Under the circumstances, it would probably be better to get rid of APD and impose VAT instead; that would bear more heavily on flights to and from Heathrow and Gatwick and would reduce the tax paid on flight to and from less popular/regional airports, as well as collecting a larger share of the rental income. The problem then would be collecting VAT from non-UK airlines, I'm not sure how you'd enforce that.

So as ever, the best kind of tax on air travel is a charge on the value of the landing slots, whether the airlines pay it directly or it is included in the Business Rates assessment of the airports is by the by. Airports themselves are probably in the best position to negotiate this and they can just add it to their landing fees.

Heathrow wants a new runway? Fine, they can haggle with HM Treasury over what the extra Business Rates will be; they are in the best position to work out how much extra pure profit they can make. HM Treasury can run a parallel auction with Gatwick, and whoever bids the most is allowed to build a new runway.


Sunday, 19 February 2017

Scrubs up nicely

I spent two hours today cleaning the alloys and washing/polishing it to get the winter muck off. Two hours well spent:

"Not just the Daily Mail…"

… says Mark C, who spotted this corker in The Evening Standard:

A murder investigation has been launched after a young man was killed during a mass fight on a suburban street in north London.

Police rushed to Heathfield Gardens, where houses cost around £1 million, at around 7.15pm on Friday following reports of a number of males fighting.

Thursday, 16 February 2017

Fun Online Polls: Means-testing & in-car entertainment

The results to last week's Fun Online Poll were as follows:

Which taxpayer-funded services or subsidies should be means tested?

State school places - 2%
NHS - 5%
Police and fire brigade - 2%
Child Benefit - 30%
Public libraries - 4%
None of the above - 54%
Other, please - 2%

With the benefit of hindsight, I should have set up the poll to allow multiple answers.

I am relieved that 54% agree "none" (in which case the argument is - how should the government spend or redistribute taxpayer's money) but why means-testing of Child Benefit is so popular is a mystery to me.

For lefties, fair enough, they like means-testing because it is taxation by stealth and means a larger state apparatus to administer. Fine, but why piddle about with shaving £1 bn off welfare spending when you could go for broke and means-test much more expensive things like 'free' state education?

Why so many Conservative or right/libertarian leaning people support it is a mystery to me. I am genuinely baffled.
This week's Fun Online Poll is just out of personal interest.

"What do you usually listen to when you're driving your car?"

Vote here or use the widget in the sidebar.