Thursday 27 October 2011

Killer Arguments Against LVT, Not (172)

What makes life so difficult when arguing with Home-Owner-Ists is that while home owners and estate agents are happy to explain (or boast about) the factors that creates land values, they then go into complete denial mode when a Georgist points out that it is these self-same factors which create land values.

For example, the Home-Owner-Ists state that:

Houses close to public parks or open spaces now cost up to £21,000 more, revealing a “green premium”

Parents pay a £77,000 'premium' for homes near top state schools

the availability of good broadband internet access really can add value to your home

Every 60 seconds saved on the commuting time [from London] increases a home’s value by £1,300

One minute nearer the station adds £4,000 to the value of a home in London

and then there's the general observation that local wages are the main driver of local house prices or local rents. Of course, this is reinforced by the fact that in any geographical area there are higher earners who live in 'nice' areas and low earners who live in 'not so nice' areas, but that just illustrates that housing is a consumption good like any other.

So far so good.

It's interesting to filter out the impact of any individual factor, but they all overlap - a house in a high wage area may be nowhere near the station or the park, but might be near a good state school, and another house might be in a low wage area but near the station, the park and a good state school etc - suffice to say, all these factors overlap and we can tell what the net overall benefit of living in that area is by simply looking at local rents or local house prices.

And yes, there are negative factors as well, I wouldn't fancy living next to a nuclear power station, a prison or a sewage works, for example, but in most urban areas, land values are very much positive.

Now, there are those such as Longrider, who make bald and entirely unsubstantiated claims like this:

While one is living in a property, the “profit” does not exist – it is imaginary money and cannot, therefore, be at the expense of anyone.

The Homeys themselves do not dispute that the value of any location is made up of some combination of services or benefits provided by 'society in general' (see list above). And clearly, if you occupy land it is very much at the expense of 'everybody else' because you are excluding other members of society from things which they have provided (unless you are a subsistence farmer in the most inhospitable part of the Outer Hebrides, and in which case your potential Land Value Tax bill would by definition be precisely £nil).

Here's the bit with logic, hard facts and a bit of maths, to ignore at your leisure

i. We can do the same exercise with any factor that drives land values (a nice view, a good state school, local wages etc) but the example with London train stations is easiest to imagine. Let's assume that the landlord of a house which is half an hour's walk from the nearest station cannot charge any extra rent for 'being near the station' because frankly, the house isn't, I'm pretty sure that there is nowhere in London more than half an hour from a station, so this is our marginal land, the element of the rental value owed to the station is to all intents and purposes £nil.

ii. Between that marginal house and the station is thirty minutes walk, so our commuter would have to walk past (say) a thousand houses or flats to get to the station (one every two seconds, but there are houses and flats on each side of the road).

iii. We know from the list above that the rental value of a house near the station will be (say) £4,000 more than our marginal house, so we could also say that House 1 nearest the station owes £4,000 of its rental value to the station, House 2 the next one along owes £3,996, House 3 the next one £3,992 and so on.

iv. If the landowner of House 1 had not bought that site first, then the current owner of House 2 would have been able to build his house a few yards closer to the station and would be able to charge an extra £4 a year in rent, as would the owner of House 2 etc, all the way down to the owner of House 1,000 who can currently charge nothing extra, but would be able to charge £4 if he'd been able to build on Plot 999, and somebody else would have been able to build House 1,000.

v. So from the point of view of the owner of House 1, that extra £4,000 which he can charge is precisely equal to the reduction in rents of £4 each which each of 1,000 other owners has to accept. So the benefits accruing to the owner of House 1 is precisely equal to the sum total of the burden placed on 1,000 other houses of £4 each.

vi. The usual Homey get-out is "Yeah, but I am not a landlord, I am an owner-occupier and I am not collecting rent"; well clearly you are, the fact that no cash changes hands is irrelevant, it's like the owner of an apple tree who eats all his own crop claiming that the apple tree is of no value to him. Even if all the 1,000 houses in the above example were owner-occupied, the owner of House 1 is enjoying benefits which are equal to the burden placed on the owner-occupiers in houses 2 to 1,000.

vii. And if any of these owner-occupiers does not use the train (or send his kids to the local state school, work locally, use the local park, enjoys the view, whatever) then why is he so desperate to destroy value by denying others these opportunities? it's like the owner of an apple tree claiming that the tree has no value because he throws all the apples on the compost heap. For clarity: I do not propose taxing apple trees, or the income from growing or selling apples, merely the land on which they stand.

viii. And the usual Faux Lib get-out is "If house prices and rents are too high, then let's allow more houses to be built" which is:

a) Rank hypocrisy, because they are all NIMBYs when it comes down to it, and wail on about 'other people infringing on my property rights',

b) Completely ignores reality: there is clearly no point building House 1,001 as the rental value of Plot 1,001 will be negative - there is only any point building a house where the rental value is positive - there is only any point building something somewhere if you are placing a burden on 'everybody else', for example by knocking down Houses 1 to 9 and replacing them with a block of fifty flats, in which case the owners of Houses 961 to 1,000 will find that they do not get a seat on the train in the morning and their rental value falls accordingly.

c) Seriously completely ignores reality: if all young, hard working, well qualified people were allowed to build their own New Towns, then rental values in those New Towns would soon rocket, so this would only help the first wave of arrivals, and what would happen to all the existing towns which turn into ghettos full of all the left over civil servants, dole scroungers and pensioners? What have we achieved from this apart from wasting oodles of public and private investment and shoving the problem elsewhere?

36 comments:

Anonymous said...

I used to live in Chislehurst and there are some roads which are more than 30 minutes from the station.

e.g. Barham Road, Bromley

That is part of London for tax purposes - however I agree with the rest of the post.

Mark Wadsworth said...

Anon, I apologise for the Londoncentricity of all this, I just happen to live here and am perfectly aware that train stations aren't so important in most of the UK.

But the same principle applies to anything; consider for example the difference in the rental value of a beach hut in the front row with the rental value of a beach hut two or three rows back.

Anonymous said...

@ Anonymous.

What would happen to prices if a tube line was put in near there?

AC1

chefdave said...

Great post. I'm generally quite quiet on the comments section as it's difficult to think of something to say when you tend to agree with every word!

Mark Wadsworth said...

AC1, in the Bromley area it's all overground trains which are every bit as good as the Tube; the article I linked to refers to 'stations' generally and not just 'Tube stations'.

CD, all friendly support is welcome, I'm mainly doing this for the benefit of others who think like us so that we have our counter-counter-arguments at our fingertips, I doubt it will make the slightest difference to the Homeys, "It's not moi fault that they built a station, park, good state school near moi laarnd, that's wot Oi poid for!" etc.

James Higham said...

So the benefits accruing to the owner of House 1 is precisely equal to the sum total of the burden placed on 1,000 other houses of £4 each.

So the buyer of the house in the marginal area invested less in the original purchase and therefore charges less in rental. And what?

Mark Wadsworth said...

JH, quite how people came to own the bits of land they own is immaterial, what they own is the right to place a burden on others (and the owner of House 1,000 in this example is not placing a burden on others because he is right at the back of the queue).

Just because some of them paid out of their hard earned income for it, and some of them got the land virtually for free, makes no difference.

Compare: my next door neighbour buys a telly and watches it in the evenings, he is free to earn and spend as he likes, that places no burden on me. However, if he turns up the telly full blast and leaves it on all night, that does place a burden on me, it's hardly a defence for him to say "But I paid for my telly".

See also: buying stolen goods.

chefdave said...

Well if that's the plan it's working well, I've certainly used a few of your arguments against the libertarian Marxists I've encountered on the web. The cow stuff hasn't been as useful on the LVT front, but I still try and shoehorn it in wherever possible ;)

Mark Wadsworth said...

CD, and I in turn borrow bits and pieces from you and others, until I can't remember who thought up what.

Anonymous said...

I'm using the arguments from here constantly, but it's far more radical here in Norway than I believe it is in the UK. Questioning the benefits of being on the property ladder while pulling it up under you, extremely generous tax treatment as opposed to renting, and not believing that it isn't "hard work" and skillfull redecoration that made you profit from selling your last home, isn't even met with a counter-argument, just empty looks.
The last attempts at making property valuation for tax purposes here forced people to take out their measuring tapes, metering out the size of each room, and categorizing the functions of the room. This understandably adds to the resistance of property taxes in general.

-Kj

Mark Wadsworth said...

Kj, thanks: "...forced people to take out their measuring tapes, metering out the size of each room, and categorizing the functions of the room"

Why is why 'property value tax' is stupid, it is far easier to go for Land Value Tax, then all you need to know is
a) how big the plot is
b) what sort of planning permission that plot has;
c) what the rents and prices are for buildings in that area.

All of this information is already collected and is freely publicly available, the rest just needs a big Excel spreadsheet.

Anonymous said...

"All of this information is already collected and is freely publicly available, the rest just needs a big Excel spreadsheet."

It could be that easy, but all taxes is supposed to meet egalitarian and social objectives, which is why people as myself, who are homeowning, commuters, and have a family, pretty much don't pay income tax after the deductions. It was actually suggested from the bureaucracy that we'd use the complete GIS registry of all property in the country(great), to map out "favourable views" (which sort of touches on aspects of LVT, but is still hilarious in it's ineptness)...

-Kj

Mark Wadsworth said...

Kj, good stuff, but...

"all taxes is supposed to meet egalitarian and social objectives"

Doesn't LVT do all this and more?

"people as myself, who... have a family, pretty much don't pay income tax after the deductions"

It's not like that in the UK, our tax and welfare systems are very anti-family, but never mind.

That is the point of the Citizen's Income/Child Benefit part of the LVT/CI system - an average family in an average house pays an amount in LVT and then gets it all back as CI, so the net payment to or payment from the government is £nil or only very small.

Anonymous said...

"Doesn't LVT do all this and more?"

I'm not the one who needs convincing.

"It's not like that in the UK, our tax and welfare systems are very anti-family, but never mind. "

I meant have children. Tax treatment not favouring marital status necessarily, but favours having children. There are some welfare benefits favouring single-parenthood, but not as in the UK I think (most benefits are based on previous-labour income, there are fewer means-tested benefits and such).
The irony is that I benefit from municipal amenities at low cost (no council tax, just some user fees), subsidised public transport and heavily subsidised childcare, and the most taxes I do pay is VAT, which is rather a poor measure of benefits received...

Mark Wadsworth said...

Kj, I mean "family" in the good old fashioned sense of Mum, Dad and two or three children, where at least one parent goes out to work.

These people are screwed by the welfare system, by the tax system and by the housing system.

In the UK, the people who do best out of "the system" are those who do no proper work at all, i.e. single mothers and corporatists and landowners.

Anonymous said...

That's the great sell for flat entitlements such as the CI, not rewarding particular lifestyle choices, thereby not having political vogue deciding the demographics long into the future...
The big challenge, and I think would be in most scandinvian countries, would be to touch on benefits in the social insurance model. Which is perceived to be benefits wholly paid for by deductions from wages, which isn't entirely true, because it goes out of general revenue even if it's taxed with an insurance-sounding name). This includes sick pay, disability, maternity leave, and ofcourse pensions.

-Kj

Maverick said...

No they do not place a burden on anyone Mark, they charge rent according to the price people are willing to pay for it.. whether it is near to the station or not. I would no more rent a slum or pay over the odds because I can step out the front door and onto a train. exactly what is the half hour ? walking slowly .. cycling or taking the car ? .. Homeowner A has invested and cared for his property (or it was built by better builders) and it happens to be within 5 mins of his local station and he knows his property is more desirable .. he is entitled to charge what he sees fit as rent and the consumer is willing to pay .. it is not a state property or council house. (you can buy or rent the same as you buy or rent any other product)

You have a choice .. pay or rent within your means .. save gym fees and use a bike .. otherwise stop bleating you socialist gimp ..

Maverick said...

Oh and we already pay enough tax into a system that pisses it up against the wall ... again the have nots .. not willing to work AND SAVE for it .. wanting more put into the pot for them to leech off .,

Maverick said...

Quote: JH, quite how people came to own the bits of land they own is immaterial,

Of course it is not immaterial A pays £100,000 and B pays 75,000 .. yet B still expects to charge the same rent ? - GET REAL !!!

what they own is the right to place a burden on others ????

What utter socialist poppycock !!!

Bayard said...

Maverick,

why is it more Socialist to tax people's landholding than it is to tax their income and expenditure, or do you just think all taxation is Socialist?

The fact that governments tend to "piss up against the wall" their tax revenue, is, surely, irrelevant to seeking a better taxation system. Agreed, it is an argument against taxation in general, but the existing system is just as affected by it as any new one.

"Of course it is not immaterial A pays £100,000 and B pays 75,000 .. yet B still expects to charge the same rent ? - GET REAL !!!"

Get real yourself. A house that in 1986 cost £65,000 would now cost you £320,000, but whether you bought then or yesterday, the rent you could charge for it now would be exactly the same.

Bayard said...

"those who do no proper work at all, i.e. single mothers"

OK some single mothers sit around and do f all all day, but I suspect most are working hard to bring up one or more kids, a job, if done well, that is one of the most valuable to society of any job.
It's because the affluent middle classes are refusing to reproduce sufficiently, that it's left to the likes of single, largely working class mothers, to take up the slack.

Mark Wadsworth said...

Maverick: "You have a choice .. pay or rent within your means .. save gym fees and use a bike .. otherwise stop bleating you socialist gimp"

I couldn't agree more!

Those who want to live in desirable areas should pay rent... to the people who made that area desirable in the first place. As you point out, those who want to live in the desirable areas without paying for it are indeed 'socialist gimps'.

I refer you also to the comments of my noble friend Bayard re the fact that Home-Owner-Ists, like Socialists, want to take away people's hard-earned incomes while feathering their own nests.

B, there are different kinds of single mothers, I was referring to the wrong sort.

Anonymous said...

B: It comes down to whether giving birth is a choice you make because you want to raise a child or because it's a rational economic alternative to not having one.I find it hard to judge anyone for wanting to have kids, whatever their situation is, but we probably shouldn't politically favour one situation over the other.

-Kj

Bayard said...

I suspect that there are only two main reasons for having a child, unprotected sex and a dislike of abortion on the one hand and the desire to reproduce on the other and that the whole "getting pregnant to get a council house" scenario is an over-hyped product of what Mark calls the Daily Mailexpressgraph. Regardless of the reasons for women having children, the fact remains that if they don't, the society faces the "demographic timebomb" of an ageing population.

Mark Wadsworth said...

Kj, B, hang about here, I'm a libertarian, you can't stop people having children, it's just something that most people do (and the world is a better place for it) and by and large 'the state' should neither encourage nor discourage it (people left to their own devices tend to make the best decisions).

Now, we know that women who have had children have to accept lower wages, and the reduction is broadly proportional to the number of children they've had but it flattens off at three.

i.e. it makes a big difference whether you've had none or one, and a big difference whether you've had one or three, but it makes little difference whether you've had three or four or six or ten.

So a modest child benefit of £40 a week or something for each the first three does not in any way pay for the whole cash cost of having a child, food, nappies etc (so is not enough to encourage non-earners to have kids), it merely compensates women for the loss of their future salaries (thus ensuring that normal working couples are not penalised for having kids).

Problem solved. Plus such a scheme as I propose is nice and simple, if we observe after a few years that the birth rate is falling unduly, we bump it up to £50, and if it appears too high, we knock it down to £30.

Anonymous said...

>people left to their own devices tend to make the best decision

So don't subsidise the kids (and thus lower the quality of the gene-pool)

AC1

Mark Wadsworth said...

AC1, I'm a libertarian, not a Nazi, I've asked you this before, at what age would you propose that the CI starts?

Anonymous said...

If £50 a week for child benefit was added for all under 18s (ca 20-25 %), and then divided on all adults, that would make a nice 60-80£ extra per adult CI if only given to adults, moving even more people into non net taxpayerdom. Lifetime CI income for most adults would be the same, and in a previous post you trusted people enough to save and borrow for future needs right? A sum of 2500£ doesn't really compensate for loss of salary, for the median incomer anyway. Just a thought.

-Kj

Anonymous said...

I mean an extra 600-800 £ per year.

-Kj

Mark Wadsworth said...

Kj, a good starting point for rejigging the current sorry income tax/welfare shambles with an LVT/CI system is to replicate it as closely as possible, i.e. how much does the current system cost, who gets how much etc.

Here are my workings and suggestions on the Citizen's Income part of the equation, but everybody can make up their own rules.

Onus Probandy said...

As always, your logic borders on irrefutable.

The only part I have trouble with is this:

"if all young, hard working, well qualified people were allowed to build their own New Towns; then rental values in those New Towns would soon rocket"

True enough. But for rentals to increase in New Town; wouldn't they have to decrease in Old Town? Supply and demand and whatnot?

Then we go again: New Town 2. New Town 3.

This seems to be an issue that is tangential to that of LVT. If magically, overnight, a city the size of London, with a premade set of tube stations and airports magically appeared -- are you saying that London rents would remain unchanged?

Mark Wadsworth said...

OP: "But for rentals to increase in New Town; wouldn't they have to decrease in Old Town? Supply and demand and whatnot?"

Yes, that's exactly what would happen.

The total rents payable in any society is a function of how well the economy is running and it's a fairly fixed total figure, it just gets spread round differently.

We see this with these new out-of-town shopping centres, all that happens is that rents on the bit of land now used for out-of-town shopping centre sky rocket, and rents on the old high streets fall.

Onus Probandy said...

MW: Glad I understand. However, have I misunderstood what your point in the article was? Weren't you implying that building new towns wouldn't solve the problem?

I agree it wouldn't solve the problem of tax-induced distortions; but surely it would solve the problem of excessive property prices?

Mark Wadsworth said...

OP, the real point was that the rental value of any plot is broadly similar to the burden which the owner's exclusive possession places on 'everybody else'.

Part viii. point c) the 'new towns' was a thought experiment, these would benefit the first comers enormously and place an equivalent burden on the land owners in the old towns, while not particularly benefitting the second and third waves of arrivals in the new towns.

So all that happens is that the total rental value is now soaked up by a different group of land owners.

It also seems a terribly inefficient way of running things, if the old town is already there with all the houses and the infrastructure and so on, it seems to me to be better to ensure optimum use thereof before we start building new ones and letting the old ones fall into ruins.

Onus Probandy said...

MW: Ah. I understand the point of that example now. It was an example to show first mover advantage. I'm happy now. Thanks for clarification.

Your same point applies to this "affordable housing" requirement being placed on residential developers. The developer takes a loss on X houses out of Y. Selling them at an "affordable" price to some "poor people". What will the rational "poor people" immediately do? Sell up at "non-affordable" price for a tidy profit. So, instead of the developer collecting that tax, the first buyers do. Zero difference to the price of housing; tax still collected by a private owner. Well done government.

Mark Wadsworth said...

OP, sure, this whole 'affordable housing' thing is a load of nonsense. If there is a fixed quantity of housing and developers have to sell at a loss to one favoured group, then there are fewer homes for those in the non-favoured group to buy, hence pushing up the price for the non-favoured.

And on a practical level it is worse. I've heard from plenty of developers and clued up buyers that developers deliberately restrict the number of homes they build on a site, because in most boroughs, there is a de minimis threshold.

i.e. if you build fewer than 20 units, there's no requirement for 'affordable', but above that they have to sell a quarter of all units at cost price to a housing association.

So if they want to build 28 units instead of 20, they make no profit on the last 7, and the extra profit they can make on the remaining 1 to be sold at full price does not justify building the extra 8.