Adam Collyer left a comment on Killer arguments against LVT, not (28):
Your point a): wrong. The landowner created wealth, represented by money he earned. That was not created by "society in general".
I agree that this applies to today's First Time Buyer. He commits himself to creating wealth (i.e. going out to work and earning money) of £500,000 over his lifetime and to devote a third of that to buying a house. Assuming that house price inflation and interest cancel out, by the time he has paid off the mortgage, he has an asset worth approx. equal to the wealth he created by working and was prepared to commit to paying off the mortgage. No prob's.
But he is not only paying for the bricks and mortar, he is paying for the land/location value, which was created by "society in general". If he buys a car, he is paying for a car that was created by a car manufacturer. If he buys ice-cream he is paying for ice-cream that was created by an ice-cream manufacturer. And if he buys land he is paying for something that was created by "society in general".
Until this point is agreed there is little point pursuing the argument. I am not talking about how the wealth is generated by the purchaser, I am talking about the value of the land. Or does anybody in their right minds suggest that had they decided to rent and not buy, and stayed a tenant all their life, but otherwise lived in a similar house, done the same job etc, that they have never created anything of value?
"Two thirds of households already pay 1% or more of the value of their property in Council Tax (plus IPT, VAT on domestic fuel etc) each year." Maybe that's true over the country, I don't know. [It is true, or else I wouldn't say it] But if two thirds are going to pay less, the remaining third will be paying A LOT more. And they will be concentrated in certain areas of the country.
Half-true. Adam cheerfully misses out the bit where I said that I would roll all property and wealth related taxes, in other words Inheritance Tax, Stamp Duty Land Tax and Capital Gains Tax into the 1% property tax. So it is not true that people in larger houses would be worse off overall (some would, some wouldn't).
"If you went mad and started charging £60 per acre tax [for agricultural land]"; which you would be at your suggested 1%. So the farming would cease AND THIS IS A DEADWEIGHT COST.
Adam appears to overlook that farmland is subsidised by about £50 per acre (which sets a floor under the rents that the owner is prepared to let the land for - if the rental value is < £50/acre, he does better to leave it fallow and just collect the subsidies - the deadweight cost of a subsidy!) and appears to be worth, at current market values, (say) £7,500 per acre. If the subsidy were scrapped, the capital value would fall to maybe half that, ergo, the tax would be £37.50 per acre, rather less than the rental value that a tenant farmer is prepared to pay of (say) £50. It helps in these matters if you understand the whole tax/subsidy system and approximate capital market values and rental values and so on.
In any event, the clue was when I said "If you went mad...". Adam is arguing in favour of income tax (by definition). It would be pointless for me to say "Income tax is bad because if you went mad and charged it at 110%, the country would grind to a halt". This is neither an argument for or against LVT or income tax. This is an argument that tax rates should be set intelligently, in such a way as to minimise deadweight costs. It just so happens that the margin for error with LVT is much higher. We know that following the introduction of the 50% income tax rate, a lot of hedge fund guys buggered off to Switzerland, where income tax is about 40% (and where they also have a 1% property tax, natch). Now forgive me if I've missed something, but what would happen if we hiked income tax on rental income to 50%? How many landlords would take their properties abroad and thus deprive UK tenants of somewhere to live? I'd guess none?
"Most [Land Value Taxers] agree that radio spectrum, landing slots, cherished number plates, fossil fuels, offshore drilling rights etc are included"; it's not going to be a simple tax then, is it?
Adam appears to overlook that we already have taxes (or user charges or licence fees or whatever you call it, usually set by an auction process) on radio spectrum, cherished number plates, fossil fuels and offshore drilling rights, and in the grander scheme of things this is all fair enough. So what the Land Value Taxers are saying is "We might as well auction off the landing slots as well" (and maybe get rid of more stupid taxes like Air Passenger Duty).
"[If the government's only source of tax revenue were] LVT, which by definition reduces taxes as a % of GDP to 20% or 30%"; that's a controversial assertion and I don't believe it. You are making heroic assumptions about the deadweight costs and admin costs of raising current taxes.
It would be helpful if Adam could suggest his own estimate of how much of GDP would go in ground rents (actual or implied), in the absence of any other taxes. Would it be lower or higher than 20% or 30%? What the deadweight costs of other taxes are is pure guesstimation, but has little to do with the point I was making.
Meh
4 hours ago
9 comments:
One other factoid that homeownerists should have compulsorily pointed out to them is that buying or renting a house cost almost exactly the same. The extra payment made for buying is the capital repayment on the debt used to buy the house - its actual price. The rest is interest, or money rent. This rent is always approximately equal to the rent for the property in the first place. Don't forget the rent for the property you are buying also includes the loss of the rent you could have charged on the money you used as a deposit.
Broadly if someone rents a house and in real terms saves and invests the saving over the mortgage payment over 25 - 30 years he/she will accumulate a capital sum large enough to generate an income that will pay the rent on the house he is then living in.
Now, one of the structural problems with the flexibility of the UK labour market is the inability to be sure to be able to quickly sell a house to be able to move to where the jobs are. If my analyis above was better understood, and there was a more professional rented sector and we had LVT it is absolutely certain that more capital would be truly 'invested' in wealth creation rather then sterilised in house buying. Wouldn't you say?
L, yes, there appears to be a correlation between unemployment and high levels of homeownership and/or being a council tenant (which offers similar benefits).
But where you will draw a blank is this: "One other factoid that homeownerists should have compulsorily pointed out to them is that buying or renting a house cost almost exactly the same."
During booms (i.e. the last ten or fifteen years), the purely paper capital gains more than cover the cash mortgage payments. Buying appears to be much clever than renting. People think that this is "investing" (and on a personal level it is) but across society as a whole, and from one generation to the next, it makes us poorer for the reasons you state.
Yep, agreed on false booms and capital gains. But, one my logic pre-supposes that we might actually get a government that knows what sound money is and how it can be ensured. And two, over the 25 - 30 years prices and consequent capital gains even out.
For example the only thing currently supporting house prices is QE and the consequent banking bonanza. Once that stops house prices will stabilise or decline and return to the trend line. Whether this happens quickly or slowly I do not know. I hope very quickly.
Buying for me was more about security than investment.
I could live to 60 or i could live to 100, if i rent and save the difference, for how long after i stop working will my savings pay my rent?
I wonder what the parameters where when working out what was cheaper, buying or renting?
It's also nice not having to run to the landlord whenever i want to do anything as well (decorate, new windows, new carpet etc), though obviosly if something goes wrong it's also me that has to sort it.
Anon 09.27. If you do the thing properly your savings - properly invested - will pay your rent until you are dead, easily.
Renting is cheaper because the landlord is repsonsible for all depreciation and insurance costs, plus the market has driven rental yields right down. But I don't think that there is any material difference in cost between renting and buying - as long as you make sure you save the equivalent of the capital component of the mortgage payment.
Sure there are what might be termed 'social' downsides to renting. Security of tenure for one. (That would be improved by better more professional landlords). Choice of property for another. (To be able to live in a really choice home you'd have to buy - and pay for it, and why not you could consider it a 'hobby', like golf.)
For the avoidance of doubt I own my home and I have a very small mortgage. But it is a particular house in a very particular location which would never be available for rent. Also I bought it at a good price as a wreck and spent a huge amount of time and a fair bit of cash restoring it. In other words I have genuinely added value to the building, but not of course the land/location (see any MW rant on LVT for why). All my children rent their housing and consequently have little debt and complete flexibility as to where the work is available.
"If you do the thing properly your savings - properly invested -"
Youll have to expand on that abit.
Do you mean high intrest savings accounts, shares, bonds?
I know nothing about investing money, like most of the population i suspect.
I think we need to keep in mind that someone has to own the houses.
"If you went mad and started charging £60 per acre tax [for agricultural land.
AFAIK £60/acre is the going rent for agricultural land round here.
M, yes of course, I'm thoroughly in favour of people owning their own houses, being as English as anybody else. But the Home-Owner-Ists aren't interested in people being able to own a nice house; they want prices to be as high as possible by fair means or foul.
B, sure, ag rents appear to go from £25 to £100. What I mean is if you set the tax at more than the rental value for any given site.
Of course, with a % on capital value, the capital value would always adjust downwards so that no site would ever fall out of use (it's like a higher interest rate). That's one of the many reasons why I favour small % on capital values to high % on rental values.
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