Killer arguments against LVT, not (67)

John Redwood, who has described Land Value Tax, possibly accurately, as "a dagger to the heart of property values" on Housing Lobbies:

"The aim of housing policy should be to offer more people the choice and security which ownership brings. For all those approaching retirement it is especially important to lift the need to pay rent for the rest of their lives. The poorest of our society end up paying the most for their housing at the end of their lives when they can least afford it."

Lola steamed in with the financially literate counter-argument:

"False. Owning a house outright has an opportunity cost. The money tied up in the house is money an owner could invest into income producing assets to pay an income. Very roughly a properly set up fund will produce about 4% per annum in your hand for ever. Hence someone owning a 150,000 property (roughly national average house price) is foregoing £6,000 pa by owning. That's £500 per month. Round here you can rent a decent house in a reasonable area for that."

Lola's argument stacks up even better if we assume that the income from these investments were not subject to tax, at corporate or individual level, of course, which would be the case under a full-on LVT system. My take is as follows:

1) You automatically get a mark deducted for using "should" as an argument to support anything.

2) JR was talking about "the need to pay rent for the rest of their lives" as a long-winded excuse to flog off social housing at undervalue to people as a short-term and very expensive way of winning votes and signing more people up to Home-Owner-Ism.

3) Here's an idea - just exempt pensioners in social housing from having to pay rent at all! That way there is neither a need for them to saddle themselves with large debts nor a need for taxpayer-owned assets to be flogged off at undervalue. The loss of rental income is far less than the cash discount that would have to be offered to entice people to buy, so that's a win-win, and I think that "the poorest in our society" wouldn't have much to complain about, especially as there are plenty of other poor people in the queue for social housing - if you flog it off to one group, you deny it to the other.

4) We can apply the same logic to Land Value Tax. It is, in economic terms like paying rent for where you live or your business premises, so we'd all be tenants. But - assuming this were the main source of tax revenues - your old age pension would be paid out of rents collected from others, so in a way we'd all landlords as well - the two cancel out.

5) But if it is a good idea to exempt pensioners in social housing from paying social rent, we might as well just exempt pensioners from Land Value Tax as well (or give them massive discounts/exemptions combined with a higher state-pension, or interest-free deferment or some such fudge.)

6) I'd have caveats to this - it would only apply to pensioner households who only own one home and who use that home as their only or main residence etc, so it would only apply to about one-sixth of UK land values. It would be quite simple to do administratively and the unintended consequences would be fairly minimal.

7) This would be politically motivated rather than good economics, but hey, it deals with the Poor Widow Bogey once and for all.

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