Monday, Mar 17, 2008
Putting an end to boom-and-bust
Conservative Home: Time to look at Land Value Tax?
In which I explain to them how to end ridiculous boom and bust cycle in housing market once and for all. And get roundly booed for doing so.
Posted by mark wadsworth @ 02:05 PM (674 views) Add Comment
15 Comments
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2. cornishman said...
I don't agree with a land tax, because it would be too difficult to organise, value and collect.
But what you could have is a mortgage tax. Tax the repayments on any mortgages that are secured on properties that are in the UK. This would be simple to assess and collect. It would mean that the price of houses could be manipulated independently of base rate - so that industry or the pound could have a rate to suit them and we don't get runaway HPI. The rate of taxation would need to be looked at or altered monthly according to conditions - to keep HPI in a narrow band. Mortgage repayments would then consist of say 2.5% interest payment and 3% tax - or whatever was deemed appropriate at the time [percentage of sum borrowed].
The only problem with this idea is that it is the wrong time to introduce it! It should have been done in 2001 or so.
3. inbreda said...
"what you could have is a mortgage tax"
Damn right - I have never understood the sense in taxing savers and subsidising borrowers as currently happens. It encourages completely the wrong type of behaviour. Taxing mortgages is absolutely teh right way to go. So I doubt very much whether any party other than lib dems would even consider it - let alone implement it.
4. mark wadsworth said...
"it would be too difficult to organise, value and collect"
If you have time to read the article, I explain that it would be a heck of a lot easier to assess and collect that the taxes we should replace. I work in tax, I know this stuff.
The time to introduce LVT is of course at the bottom of the house price cycle, 1997 would have been about right, 2010 or 2011 will be the next window of opportunity.
A mortgage tax would be totally unfair as between people who inherit a wodge of money and buy outright and those who have to pay a mortgage out of already taxed income. And we're not subsidising borrowers, per se, we are subsidising home ownership, because most services are paid for out of taxes on production or income (notwithstanding that income tax payers and home owners are by and large the same people).
5. stillthinking said...
Wadsworth does make the point that a land value tax would ideally be introduced at the bottom of the cycle. While I think this is at least a possible idea, basically it means forcing pensioners/those in adverse circumstances etc from their homes to compensate for a lack of available housing.
Wouldn't a better way be to allow a naturally declining population to decline? Instead of continuously propping up housing requirements with immigration. Given that the proposal follows from an acceptance of the shortage of developed land, why not encourage people to move out of overcrowded cities.
I don't think that after making the effort to finally purchase a house, I would like being taxed back to a studio flat, even if I did keep lock in some financial gain. Old people want their homes more than spending money, or they would have downsized already. Forcible downsizing would be fascist.
6. talking rot said...
I HAVE read the article.
It matches my view of what needs to be done but it does represent a significant change from how business is currently done. Of special concern is the effect upon the elderly who are key voters for the Tories. Although I, for one, would cheer at seeing the price of family homes coming down to a point where I could afford them. On my way to work I do pass a number of homes occupied by 'Baby-Boomers' who rattle about in 4-bed houses. One is a friend who is glad young people today have it hard getting on the housing ladder as it imposes financial discipline and fosters a work ethic - "Just like the good olds days." I've always wished to remind him that in "the good old days", the old starved and froze to death and would he really like a return to them. Alas manners prevent me.
Good article Mark Wadsworth - gets my vote.
Sadly I do not think the Tories will ever have the nous, drive or courage to turn this dream into reality.
Keep trying old chap but I think you'll find your liver-lillied leaders lacking in the long term.
7. cyril said...
The idea of land value tax is an old chestnut (and not really news is it?)
8. mark wadsworth said...
Stillthinking, as I explained, inheritance tax would be scrapped/rolled into LVT and pensioners would be allowed to roll up unpaid tax if they couldn't afford it or simply didn't want to pay.
Cyril, Land Value Tax is the oldest tax of all, but it has fallen by the wayside in this country.
9. cornishman said...
Mark - the problem I would have with your proposed tax is the massive cost of the bureaucracy you would need to assess value fairly and then deal with all the appeals.
A tax on mortgage payments could be collected by the lenders automatically and passed straight to the treasury. Easy and cheap.
There aren't many people who enter the housing market for the first time as cash buyers, and those houseowners who don't sell don't alter house prices - so prices must be set by those buying on a mortgage. That price could then be easily controlled and kept fair. In fact, if people knew that house prices were going to remain stable [within limits] then all the speculative froth would be taken out of the reckoning.
My idea wouldn't address what to do about the other taxes you suggest abolishing though, I admit.
And we both appear to agree that now is totally the wrong time to introduce anything new!
10. Mikelivingston said...
Surely the point of a land value tax is to prevent speculation in Land. Taxing mortgages does not necessarily do this and would discriminate againt the young who have less savings and those wanting to make investments funded through borrow.
Really the tax should be there to prevent land values becoming excessive and sucking the life out of the productive economy. Land per se is not productive, its just there. Its the activities that take place on it that should be encouraged eg farming, industry, living etc. If land was taxed, the holding of land as a speculative investment would be reduced and land prices would fall. This would be good for the economy, as the price of land would then be determined by the most useful and profitable activity that could take place on it.
11. Neo-serf said...
This says it all really....
http://uk.youtube.com/watch?v=6ZkfmY1PMng
12. techieman said...
This is a bit Harrison esk Mark. You may very well in general overall be right. Actually i am not a tory voter nor labour - thats a positive choice i think the lot of you are about as bad as each other! - Anyway I had no real problem with the poll tax - had it been started at a differential rate on people's ability to pay.(and then everyone gets the same % increment charge based on the differnt base values per person). A land tax wouldnt be popular with the voters so its a bit of an acedemic exercise. What you have is an electorate that WANTS housing bubbles because it makes them feel richer. EVEN assuming we have a crash now - the view will be (rightly or wrongly) ok well we have had this before and it hasnt gone back to the levels of anywhere near the values associated with the last crash - so its ok!! Now add in the old BTL brigade (however many of them are left - perhaps they are only there because we or is that the Tories aided and abetted by Labour?? have decimated the public housing stock and eh volia - and theres your answer. Basically Mark you reap what you sow... Lawson could have done this - failed, Brown could have done this and history will show he has also failed. Think about this - you are not going to convince a beer swiging Sun reading public that any such proposal is really in their interest. Its a pity but im sorry people are So skeptical that you will have no chance of pushing something this controversial through.
13. techieman said...
By the way i've just looked at the comments and i adore the "absolutely preposterous - no more needs to be said" - I have a great picture in my head of a paul witehouse type gettting "very very drunk" in a smoking jacket and a cigarette in a holder - perhaps a monocle. Talk about debate - preposterous no more need to be said..... brilliant!! :-).
14. mark wadsworth said...
Cornishman, re "the massive cost of the bureaucracy" read the article, the whole thing could be automated, it would take considerably fewer people than currently administer all the taxes it would replace.
Techieman, you have hit nail on head, people have been lied to for so long that they genuinely believe that house price bubbles are a good thing and that credit crunches are somehow something completely different. The same way that people refuse to accept that national insurance is not a tax.
15. stillthinking said...
If you kept the option, as you seem to suggest, that I (as in the people) could one day just own their own property without having to stump up cash they maybe don't have (through rolling over to death duties) i.e. they got to the finishing post of property ownership, then I would vote for this idea.
But I will vote Tory anyway so not a vote winner.