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geoffk

Redwood .house Prices And Cgt

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This is from his home page as a few of us went on there and voiced our opinion that btl was a problem for the housing market.He has now put this up.....this is just the first part of his article,,

http://www.johnredwoodsdiary.com/

There has been a deluge of support for arguing that we should realise that choosing competitive and fair rates of CGT is the way to maximise the tax take and to encourage saving and risk taking. Just a few have written in to demand higher taxes on buy to let property.

Let me explain why I do not agree. We need a decent supply of rented housing in this country. In the next few years there is going to be precious little money to provide additional public sector rented accommodation – as the ex Chief Secretary to the Treasury rightly said “There is no money left”. We will depend on private sector rented homes for the extra we need.

There is growing acceptance that there needs to be generous exemptions from CGT for entrepreneurs who make risky investments to create jobs and provide facilities to the public. It will be difficult if not impossible to design such exemptions in a way which excludes someone from setting up a lettings business in a company format and enjoying such exemptions.

Edited by geoffk

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Quouting Redwood:

"There is growing acceptance that there needs to be generous exemptions from CGT for entrepreneurs who make risky investments to create jobs and provide facilities to the public. It will be difficult if not impossible to design such exemptions in a way which excludes someone from setting up a lettings business in a company format and enjoying such exemptions."

Another one who believes houses disapear in the absence of landlords

Edited by Stars

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Another one who believes houses disapear in the absence of landlords

renting is the best revenge - think someone said that on here a few years ago

link

Suppose that you want to destroy a city. Should you bomb it, or would it be sufficient just to impose rent control? It's a bracing question at first, but some economists have argued that the two are roughly equivalent. When the price of rent is held below the market-clearing level, shortages emerge and the housing stock rapidly deteriorates.

Those who advocate price controls often do so on the basis of their views on distributive justice. It isn't right, they might argue, that someone who has lived somewhere his entire life should be priced out of his neighborhood; nor is it right for fat-cat landlords to enjoy high rents simply because a lot of people want to live in New York or San Francisco. The typical rent control proposal is based on the assumption that the same amount of economic activity will take place but with a different distributional outcome. That is, the same number of apartments will be provided, and they will be provided to the same people and in the same quality. The only difference, according to rent control advocates, is that the hapless renter won't have to line the landlord's pockets. Any change in the housing stock is then viewed as a moral failing on the part of the landlord.

According to rent control advocates, landlords aren't working for the high rents they enjoy. They are just sitting around, watching the prices increase. This view, however, ignores the information-transmitting function of prices. A building can be used for many different things. It can be used for rental housing. It can be used for condos. It can be used for office space. It can be torn down, and the land can be used to grow crops. Prices tell us the most valuable use of the building and land. Under rent control laws, the signals are distorted.

The reality of rent control is far different from what its advocates envision. A September 13, 2008, article by the Mercatus Center's Eileen Norcross in the Wall Street Journal discusses rent control in New York City, and she suggests that this is a lesson that is worth repeating. Norcross tells us about the digs occupied by New York congressman Charles Rangel. Mr. Rangel "occupies four rent-stabilized apartments in a posh New York City building." He lives in three and uses a fourth as an office. Because of rent stabilization, we cannot tell whether those apartments would be better used to house several families instead. Mr. Rangel is able to use valuable resources, at below-market prices, to the detriment of would-be New York City residents.

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Another one who believes houses disapear in the absence of landlords

BTW what are "professional" anything in property? Anyway why would a 'professional" landlord, who has set up a company worry about CGT? He's in the lettings business surely and any gain from the sale of a rising asset price can be rolled over when he buys another one. Surely these "professionals" are not in it for capital gain but to provide much needed assistance to the renter class? At yields that are commensurate with the risk of course., and voids and repairs and rising insurance and( wait a minute) lets hope for house price falls then young people can buy them again and repair them and maintain them and insure them ..................................Amen

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Another one who believes houses disapear in the absence of landlords

But there are many more who think that a house disappears when it is bought by a landlord

tim

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But there are many more who think that a house disappears when it is bought by a landlord

tim

I have never seen that theory forwarded

I think some believe the present slanted tax system creates a competition to grab / monopolise houses to let out and use in price speculation, and this competition and grabbing and price hiking forces other people into an abusive and unnecessary relationship with landlords who aren't really needed and aren't net actually providing a service to anyone.

Edited by Stars

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Why should we take any notice of Yankee crap?

Rent control works just fine in Germany, where 60% of the population rent.

If I had to live in either the US or Germany, I know which one I'd choose. PS, it's not the US.

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renting is the best revenge - think someone said that on here a few years ago

link

The link is correct about rent controls but is conflating two issues very badly and in a very misleading way

It is true, that In order for land to find its best use, the user must pay a market price for its use in competition with other uses. However, what is not mentioned in this article is that there is no need for any particular person or economic role (say an owner) to receive this payment in order for the best use to be found. Think about it - It is not the landowner that creates or provides the best use of land to the tenant. The land's best use and indeed the land exist independently of the landowner or anything he has done and so there is no economic need for him to be paid for it. In fact it can be shown very simply that nobody in particular at all earns this payment with their work.

So, while the article starts off confidently talking about landlords earning their money, it seems to deliberately fudge this important issue and one is expected to simply imbibe without thinking that because users must pay in order to get best usage of land it is also true that in order to get the best usage of land particular individuals must receive this payment - but this is not true.

Edited by Stars

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How do you make a comment on his site? I don't seem to be able to do so any more.

It is playing up..click on the comments at the bottom of the article...

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The link is correct about rent controls but is conflating two issues very badly and in a very misleading way

It is true, that In order for land to find its best use, the user must pay a market price for its use in competition with other uses. However, what is not mentioned in this article is that there is no need for any particular person or economic role (say an owner) to receive this payment in order for the best use to be found. Think about it - It is not the landowner that creates or provides the best use of land to the tenant. The land's best use and indeed the land exist independently of the landowner or anything he has done and so there is no economic need for him to be paid for it. In fact it can be shown very simply that nobody in particular at all earns this payment with their work.

So, while the article starts off confidently talking about landlords earning their money, it seems to deliberately fudge this important issue and one is expected to simply imbibe without thinking that because users must pay in order to get best usage of land it is also true that in order to get the best usage of land particular individuals must receive this payment - but this is not true.

But it is the landowner's choice whether to maximise their returns or not. They are not forced to, merely encouraged by the opportunity to profit. Landlords secure and maintain property to enable it to be rented out. They do take a risk and that is of not having any tenants. Private landlords deserve to be reimbursed for this role in exactly the same way a council expects council tenants to pay their rent.

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But it is the landowner's choice whether to maximise their returns or not. They are not forced to, merely encouraged by the opportunity to profit.

I don't think this deals with the point though

The pragmatic / mechanical reason we must pay (say) the owner of capital goods / tools for the use of these tools is because without the payment there will be no tools produced because nobody will engage in the effort to produce them. If we were to steal all tools from all owners, very soon people would not bother to produce tools and there would as a result be no tools. Notice this pragmatic reason is also closely tied with morality - we also should pay the owners of tools, because tools must be added with effort and also we must pay the owners of tools because they are made with effort, else there will be no tools. However, the landlord is not in reality supplying land, he is merely denying access to something that he has no responsibility for. So, in the same economic terms, it matters not if he is paid for it, because he is has in reality done nothing to provide it and so cannot undo this non-action to unprovide it.

I should add that i am talking about what a landlord charges for land, not the structure of a house

Landlords secure and maintain property to enable it to be rented out. They do take a risk and that is of not having any tenants. Private landlords deserve to be reimbursed for this role in exactly the same way a council expects council tenants to pay their rent.

Of course.

A building must be maintained etc.

All things being equal i would expect a landlord to net returns equal to the wages for the service he offers tenants in maintainance (approximately)

The thing is, most of this actual work involved in landlording, commands not much more than minimum wage on the labour market and so if the real estate market was working efficiently, I would expect a landlord who was working to maintain his houses 8 hours a day and five days a week to be clearing something like a typical semi-skilled wage (after expenses).

Edited by Stars

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This is from his home page as a few of us went on there and voiced our opinion that btl was a problem for the housing market.He has now put this up.....this is just the first part of his article,,

http://www.johnredwoodsdiary.com/

There has been a deluge of support for arguing that we should realise that choosing competitive and fair rates of CGT is the way to maximise the tax take and to encourage saving and risk taking. Just a few have written in to demand higher taxes on buy to let property.

Let me explain why I do not agree. We need a decent supply of rented housing in this country. In the next few years there is going to be precious little money to provide additional public sector rented accommodation – as the ex Chief Secretary to the Treasury rightly said “There is no money left”. We will depend on private sector rented homes for the extra we need.

There is growing acceptance that there needs to be generous exemptions from CGT for entrepreneurs who make risky investments to create jobs and provide facilities to the public. It will be difficult if not impossible to design such exemptions in a way which excludes someone from setting up a lettings business in a company format and enjoying such exemptions.

Mr Redwood, You have forgotten that all this BTL mania grew up when CGT was up to 40% all along!! It actually results from the 1987 & 1989 Acts which put in first protected shortholds and then AST's AND THE FACT THAT banks decided to allow finance of BTL with a 15% deposit only. Before 1987 there were huge difficulties removing tenants and you usually needed a 30% deposit. BTL has actually forced up the price of starter homes and made it difficult to either rent or even buy them for...BTL. THEY NO LONGER STACK UP. Only very lax lending and developers selling flats with pretend deposits has made it possible in recent times. This is all about sensible lending policies - unfortunately that means prices need to come down to meet proper lending policies which do not interefere with ordinary peoples ablility to buy. Ther are plenty of empty properties and people might buy them or rent them if the govt sorted it out. Where does he get it from?

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This is from his home page as a few of us went on there and voiced our opinion that btl was a problem for the housing market.He has now put this up.....this is just the first part of his article,,

http://www.johnredwoodsdiary.com/

There has been a deluge of support for arguing that we should realise that choosing competitive and fair rates of CGT is the way to maximise the tax take and to encourage saving and risk taking. Just a few have written in to demand higher taxes on buy to let property.

Let me explain why I do not agree. We need a decent supply of rented housing in this country. In the next few years there is going to be precious little money to provide additional public sector rented accommodation – as the ex Chief Secretary to the Treasury rightly said “There is no money left”. We will depend on private sector rented homes for the extra we need.

There is growing acceptance that there needs to be generous exemptions from CGT for entrepreneurs who make risky investments to create jobs and provide facilities to the public. It will be difficult if not impossible to design such exemptions in a way which excludes someone from setting up a lettings business in a company format and enjoying such exemptions.

His fear and loathing for the equal treatment of income and capital gains in the tax system is bizarre since the idea was first implemented by Reagan and Thatcher governments back in the 1980s in their drive to bring down general tax levels

http://www.ft.com/cms/s/0/1eca0b6c-6a86-11df-b282-00144feab49a.html

His confusion of the concept of the entrepreneur capitalist with the rentier class is also strange given that Adam Smith was highly critical of the latter group in his Wealth of Nations a book which Redwood purports to revere.

Even allowing for his inability to grasp the difference he still does not explain why CGT changes would undermine the rental market since it is the earnings yield on the capital investment not the potential capital gain which should be the prime motivation for any investment in an efficient market economy .

To be honest I suspect like most politicians who claim to be believers in a free market he is just a complete f*cking hypocrite who just wants to preserve the vested interest of a tiny section of the population in a rigged game.

Edited by realcrookswearsuits

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His confusion of the concept of the entrepreneur capitalist with the rentier class is also strange given that Adam Smith was highly critical of the latter group in his Wealth of Nations a book which Redwood purports to revere.

You see, even most educated people would not notice this gaping conceptual inconsistency in his position because the uk politico-conceptual map has no marker at this position. You are right Adam Smith makes a big deal about this and talks about it as the best, least destructive place for taxation to fall. So did John Redwood just miss those chapters? The more you look into this rentierish area and think about it the more you realise, there are a lot of very unpleasant and quietly dishonest people on both political wings

Edited by Stars

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BTW what are "professional" anything in property? Anyway why would a 'professional" landlord, who has set up a company worry about CGT? He's in the lettings business surely and any gain from the sale of a rising asset price can be rolled over when he buys another one. Surely these "professionals" are not in it for capital gain but to provide much needed assistance to the renter class? At yields that are commensurate with the risk of course., and voids and repairs and rising insurance and( wait a minute) lets hope for house price falls then young people can buy them again and repair them and maintain them and insure them ..................................Amen

When I wrote to Vince about CGT I suggested that to really get the piggies squealing then they should start discussing changing the tenancy laws to give tenents more security and potential to make the propeties more like their own homes.

As you have hinted the change to CGT tax should not bother them unless they chose to sell and as they are all 'in it for the long term' then it really should not matter!?

(changing the tenency laws would put the shits up them though... :)

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You see, even most educated people would not notice this gaping conceptual inconsistency in his position because the uk politico-conceptual map has no marker at this position. You are right Adam Smith makes a big deal about this and talks about it as the best, least destructive place for taxation to fall. So did John Redwood just miss those chapters? The more you look into this rentierish area and think about it the more you realise, there are a lot of very unpleasant and quietly dishonest people on both political wings

It is interesting that certain parts of the Tory party are finding the Orange Book Liberal Democrat heirs to the intellectual ideas of Adam Smith and David Ricardo a lot harder to stomach than the supposed socialists sitting on the benches opposite. It has re-exposed a fault line in British politics not seen since the 19th century. What essentially has happened is that Clegg is calling the Tory party bluff on the free market. It is clear that many Conservatives are only to happy to farm a privileged situation free from any nasty market competition. In fact they want to preserve the staus quo by entrenching their interest in law and using the tax system to pass the burden for paying off the national debt to the rest of society. This is really not much different from what was going on in the era immediately after the Napoleonic wars. Back then, of course, the early socialists allied with the economic liberals to topple the Ancien Regime. Now the labour party has so lost its moral compass that I would not be surprised to see them backing any attempts by John Redwood to reintroduce the Corn Laws. In fact I have a feeling that before long the Tory right may end up voting with the oppostion. It has all got so out of kilter that I think I need to go for a long lie down.

Edited by realcrookswearsuits

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.. It is clear that many Conservatives are only to happy to farm a privileged situation free from any nasty market competition...

Well, they have to listen to their voters don't they?

The death [dearth?] of ideology, Tony's lasting legacy.

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It is interesting that certain parts of the Tory party are finding the Orange Book Liberal Democrat heirs to the intellectual ideas of Adam Smith and David Ricardo a lot harder to stomach than the supposed socialists sitting on the benches opposite. It has re-exposed a fault line in British politics not seen since the 19th century. What essentially has happened is that Clegg is calling the Tory party bluff on the free market. It is clear that many Conservatives are only to happy to farm a privileged situation free from any nasty market competition. In fact they want to preserve the staus quo by entrenching their interest in law and using the tax system to pass the burden for paying off the national debt to the rest of society. This is really not much different from what was going on in the era immediately after the Napoleonic wars. Back then, of course, the early socialists allied with the economic liberals to topple the Ancien Regime. Now the labour party has so lost its moral compass that I would not be surprised to see them backing any attempts by John Redwood to reintroduce the Corn Laws. In fact I have a feeling that before long the Tory right may end up voting with the oppostion. It has all got so out of kilter that I think I need to go for a long lie down.

You have given me things to think about and things too look into

Thanks

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Guest sillybear2

Redwood misses the point, perverting the tax system to favour an asset class like housing doesn't help on the supply side, it's not like there's a sudden demand for rental cars so the manufacturers ramp up production, with housing you simply get more money chasing the existing stock, so this does nothing to help house the population, aside from making an essential even more inflated in price.

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There is growing acceptance that there needs to be generous exemptions from CGT for entrepreneurs who make risky investments to create jobs and provide facilities to the public.

What he does not say is that BTL does not match these criteria. Buying a house and renting it out is not entrepreneurial. It does not create a single job. It is not risky since the primary asset will always remain. It seeks to siphon off the money of others from simply owning something. No additional goods are produced by this arrangement. A tenant farmer giving half his crop to the landlord for land rent offers no more crops than if the farmer owned and operated the farm himself. It is straight forward rent seeking which allows a parasitic class of owners to parasitice others.

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What he does not say is that BTL does not match these criteria. Buying a house and renting it out is not entrepreneurial. It does not create a single job. It is not risky since the primary asset will always remain. It seeks to siphon off the money of others from simply owning something. No additional goods are produced by this arrangement. A tenant farmer giving half his crop to the landlord for land rent offers no more crops than if the farmer owned and operated the farm himself. It is straight forward rent seeking which allows a parasitic class of owners to parasitice others.

You miss the first premise. If there was no profit or return from the building why would it be constructed in the first place?

The builder/developer constructs the building because someone will buy it. Whether it is to live in themselves or to use for another purpose is by the bye. The Buy to Let boom enabled the capital risk to spread across a wider spectrum of owners than before. Housing Associations neither had the capital or the appetite for risk that financing the large scale development that ensued entailed.

Housing Associations are generally quasi public sector organisations that replaced local authorities responsibilities for the provision and maintenance of housing. Their role, one would have thought, would have been the same as that of local authorities in the immediate post war period, but conditions were different. They replaced local authorities so that their performance could be measured in the same way as commercial organisations with the ideology that they would not be dependent on taxation for their financing.

Whether there is a shortage of housing in the UK is not something I am sure is true, what is true is that there is a shortage of housing in the areas where people want to live and work. That means large conurbations and the South East. Supply was most definitely constrained before the house price boom. Some of the factors that increased demand; inward migration for example; have now changed but the the balance of supply and demand has not swung dramatically in the opposite direction.

It is fundamental to our society that property ownership is protected, if it were not the tin foil hatters extrapolations would be evident all around us. Your example of the tenant farmer falls down because the tenant wants the utility of the land to produce more than the land owner would. I'm sure the lessons from Zimbabwe could be used to refute your hypothesis. There, for ideological reasons the land was returned to the indigenous population, the later settlers were dispossessed. Were more or less crops produced because the ownership of land changed?

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... I'm sure the lessons from Zimbabwe could be used to refute your hypothesis. There, for ideological reasons the land was returned to the indigenous population, the later settlers were dispossessed. Were more or less crops produced because the ownership of land changed?

The farms in Zimbabwe were given to criminals that supported Mugabe - they had no interest in producing food only getting what they believed to be land wealth. Modern agriculture requires large parcels of land suited to machinery. Breaking that up and returning it to peasantic means of production will reduce the productivity to the levels of a superseded era. Your example does not provide lessons for your argument.

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  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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