Wednesday, March 24, 2010

An unhealthy obsession?

Alistair Darling lines up a stamp duty bribe

''Alistair Darling is today expected to steal another flagship Conservative policy by scrapping stamp duty on homes worth up to £250,000.''

Posted by hpwatcher @ 05:46 AM (3830 views)
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47 thoughts on “An unhealthy obsession?

  • The Conservatives have promised to exempt first-time buyers from stamp duty on properties worth up to £250,000 since 2007, funded by a levy on non-domiciled foreigners who avoid tax on their offshore earnings.

    The fact that a bottom band of up to quarter of a million pounds is associated with first time buyers says it all really.

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  • That will pee off those who rushed to buy at the end of last year. I don’t think it will have much impact if its permanent. The load has already been shot on last years holiday, with no deadline there will be no rush to complete, it might even strengthen the £250k ceiling. It will give second time buyers a small cash boost, but for ftb deposit required still dwarfs the stamp duty. The only season the holiday worked is that it fitted many ftb prices and was finite so buying before end of last year would save up to £1500.
    We looked at buying last year partly due to the holiday, this bribe won’t have any effect on my decision of when to buy.

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  • Newwomansuzy says:

    Oh dear.

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  • If this is true and stamp duty is abolished on properties up to £250,000 then perhaps they think there is going to be a crash and there is not going to be a lot of tax revenue coming in from property anyway. On the other hand maybe they think prices are going to soar so high that as far as tax is concerned property is a good bet? I really hope it’s not the latter!

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  • it_is_going_with_a_bang says:

    What a pointless give away of money.
    Why play around like that? It does nothing the address the core issues / problems involved in housing at all.

    It serves no real purpose other than as a bribe – to say it is anything other than a give away is just rubbish.
    After all if property prices go up by 1% then the tax cut has just gone. It really is pointless.

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  • We are moving into a bear market anyway so I would guess that prices between £250,000 and £300,000 will quickly be sucked down below the £250,000 mark suppressing all lower prices and dragging on those over £300,000.

    IMO this is good news.

    It has appeared, like a rabbit out of a hat, because it looks likely that we will only need to borrow £170 billion instead of the previously forecast £178 billion. Makes us feel quite prosperous as a country doesn’t it!

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  • happy mondays says:

    The man’s a Genius…

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  • Any sort of leeway and again the focus goes straight to housing – and disarming the tories, it was their policy.

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  • It’s a shame that non-FTB’s would also benefit from this.

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  • This would be fantastic news in order to cement a firm foundation. Good old Alistair, what a jolly decent bloke he is.

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  • fallingbuzzard says:

    Hurray, house prices below £250k will rise by 1%. Bad news for existing property chains since sellers are going to want to share the tax cut with buyers, if not take it all for themselves.

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  • In Ireland, this is already the case and has been for a long time but only for FTB (not BTL investors or upsizers). If the same caveat were applied here, then I would be happy. They should abolish stamp duty for all FTB up to £300K and double it for BTL investors on all properties over £100k. Given the government’s sickening support of BTL fiefdom, the chances of this happening are about the same as Shane McGowan featuring in a Colgate advert. Anyway, I would have thought most STRs here would be happy with this proposal as even a 35% crash may mean their new home was still liable for Stamp Duty under the old threshold.

    Stamp duty needed to be reformed in the sense that the tax should have been payable only on the proportion that was above the threshhold. Instead, crossing the threshold made the tax payable on the entire amount. This distorted prices around the thresholds. Imagine if that was applied to income tax. You pay nothing up to 7k (or whatever the allowance is) but 20% on the whole lot at 10K or 40% on the whole lot at £37k. You’d earn more at 7k then you would at 10k and more at £28k than at £37k.

    I don’t agree with stamp duty anyway, my suggestion about treating FTB more favourably than landlords is simply a step in the right direction in a flawed system. Ideally I would like to see a LVT but at three or four flat rates per square metre of land (not building) depending on the region (rather than based on specific valuation). I divert slightly from geolibertarianism as I don’t believe in the land being the property of the community etc. (the community is a theoretical contruct and cannot ‘own’ anything) but support LVT because libertarianism does not work without some mechanism to enable access to finite essential amenity like land. My divergence with the gelibertarians is minor and purely academic since we propose the same solution. However, I insist LVT’s purpose should be entirely pragmatic and set at a level which achieves this end.

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  • mark wadsworth says:

    As itisgoing says, this is completely daft, as a 1% increase in prices wipes out the saving.

    Because of the economics of land, the bulk of the saving goes to the vendor, not to the seller, so this doesn;t even help FTBs.

    As Tenant says, LVT is a much better way of doing it. The more Christian LVTers say that “land belongs to the community”, which is an extreme vew. The hard fact is that land is in itself worthless, it is the location times the generosity of planning that gives the (relative) value. And those are created by the community.

    The location value clearly has nothing to do with the efforts of the individual land-owner – it is created by railways, law and order, local shops and schools and businesses, most of which is paid for or created by others (so why tax the others’ incomes and subsidise the land-owner?) and planning permission is clearly granted or restricted by government, which is supposed to be democratic and act in the interests of the majority, so clawing back some of the value added by planning permission (or ‘not forcing people to knock down existing houses’ permission) seems fair enough to me.

    But why stop at three or four flat rates for LVT? You must realise that land in some areas is only worth £1 per square yard but in city centres or on Sandbanks can be £10,000 per square yard? To have any sort of proportionality, you’d need at least fifty or a hundred bands.

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  • Because of my justification in setting LVT (the finite availability of land) my V in LVT is calculated on the basis of land scarcity and not infrastructure and other things that give land its ‘value’. Of course in reality (again for pragmatic reasons), there has to be some difference between regions but I don’t think there is any justification in having a different rate at different ends of the same town because there’s a better school or train station.

    Similarly, a man can own a ten story luxury house and should pay the same LVT as a person next door in a mobile home on a plot of land the same size. By building a tall, luxury house, you are not taking anything away from anyone else. The Value of the property is different but the value of the land is the same

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  • * sorry, I do of course mean a ten-storey (not story) luxury house ! With a lift of course!

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  • Thecountofnowhere says:

    Might as well wait for the a big saving when they reduce the £250K+ rate from 3% down to 1%, then you are starting to save real money.

    If they did this I’d consider buying.

    They must be selling practically no houses below 250K at the mo, so they are not loosing much.

    Usual Labour stupidity.

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  • Is there any chance of us not getting bogged in another discussion about LVT ? It’s not on the agenda. We might as well talk about what Elvis would be like now if he had lived.

    Let’s see what the details are when the budget is announced and comment on the effects of that. If it is something that gives FTBers an edge over BTLers then it is indeed a step in the right direction.

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  • I would also add that if you take Kensington, it is just as well-connected as Elephant and Castle (two Tube Lines, Zone 1) in fact the Elephant is closer to the city. So if you value Kensington Land higher than Walworth land this is a taxation on ‘niceness’ or on the basis of social demography of an area. I don’t support progressive tax like this.

    I also don’t agree that the council will try and improve an area to raise land value and therefore their revenues. They will only focus on areas being gentrified where there is a reasonable prospect of change and areas like Peckham which will never be desireable will be completely written off and neglected.

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  • @LJ you are right … the discussion is purely an academic one for those of us who enjoy such pursuits. I am currently writing a 50k word thesis on why coercive psychiatry should not be used to prevent suicide but the law will never be changed in the forseeable future so perhaps this is a year of wasted time too! Mea culpa!

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  • Is LVT implemented in any countries comparable with the UK ? And what has been the effect on HPI ?

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  • To luckyjim @ 14 – Well said! LVT is all academic.

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  • I’ve repented and actually read the article now!

    “Labour will be desperate to avoid signs of another collapse in house prices in the run up to the general election, expected in May, and a stamp duty cut – reported last night by the BBC – would be an ideal way of propping up the market.”

    Says it all really!

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  • mark wadsworth says:

    @ Luckyjim, if Elvis were still alive he would definitely support LVT, but I’m not sure if that’s relevant.

    @ TS, land (in the wider sense) isn’t scarce, not even in the UK. It’s “limited” but not scarce – only five per cent of UK by surface area is residential areas. What is limited are LOCATIONS near train stations, shops, with a nice view, far from a council sink estate or gas works. Similarly, there are good reasons why Kensington is worth more than E&C – it’s nearer the west end, nearer Hyde Park etc etc. Those all arise from the way the community has organised itself and/or the way that the government has organised them.

    So in relative terms, land in Kensington is more “scarce” than land at E&C, which is why it’s worth more. Ergo, a tax that reflects scarcity should be higher in Kensington.

    That does not mean that people in Kensington would pay more, they can just build upwards more, so somebody in a 15 storey block of flats in Kensington pays no more than somebody in a 5 storey block of flats at E&C, for example.

    And how is a flat tax “progressive”?

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  • Well that’s the Daily Mail’s view. It will be interesting to hear the exchanges in the commons. The tories can’t really criticise it too much if they are also claiming it is their idea.

    Usually when something is leaked from the budget it’s because they want to draw attention to it. Usually there is something extra in the actual annoucement. It might be that the 3% rate only applies to value in excess of the 250k threshold. I would favour this, not because it supports house prices, but because it makes the market work more effectively. For one thing, stamp duty is a tax on downsizing.

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  • Elvis IS alive. I saw him last week and asked him if supported LVT.

    He said ‘A-huh-huh’.

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  • Grant Hutchinson says:

    Don’t be fooled, it’s all about propping up the over inflated housing market and winning an election.

    Further house price falls will cripple the banks from all the bad debts, etc…

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  • landofconfusion says:

    ”Alistair Darling is today expected to steal another flagship Conservative policy by scrapping stamp duty on homes worth up to £250,000.”

    Great! Maybe I should buy a house. Oh hang on, prices here are currently 10x local average wage (8x national average wage).

    @ 10. tenant super
    “I divert slightly from geolibertarianism as I don’t believe in the land being the property of the community etc.”

    I’ve been called a socialist because I don’t try and shoe-horn capitalism onto a product which no-one has manufactured. Everyone ‘owns’ the land of the country in which they are citizens. All LVT does is charge people for their exclusive use of land with the rate based on the underlying ‘value’ of the land.

    Also see what MW says.

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  • If it does have an effect on the market, I think it will make first time buyers delay a purchase until the new rules come in. This may be after the election.

    So it will reduce demand further and pushes prices lower over the next few months.

    Nice one Darling.

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  • Anyone care to define “first time buyer” from a legal point of view?

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  • Roberto Birquet says:

    I have the same concerns as some of those who have already posted, such as mark wadsworth. Would a cut in stamp duty just allow vendors to say: “You (FTB) have an extra £2K because of the tax cut, so handy over. I honestly don’t see this having much of an effect on us vis-a-vis affordability. The better route would be:
    First: to increase affordable housing for rent (council or private social sector) and 2-year minimum assured tenancy contracts for rent in general. That would help us. 1. stability and a home; 2. Fewer people despearate to buy, lowering effective demand for housebuying and therefore prices.
    Second: Force banks to stay within 5-times salary mortgages for the most creditworthy (3 times joint income if two buying together); and 4-times for the lower credit worthy (2-1/2 times for such couples).
    third: End tax incentives for buy-to-let.

    Isn’t a tax cut a waste of time?

    Will any party embrace such things? me being cycnical….How many landowners among them? or how many landlords finance them?

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  • In Ireland –

    A First Time Buyer is a person

    -who has not on any previous occasion, either individually or jointly, purchased or built on his/her own behalf a house (in Ireland or abroad) and
    -where the property purchased is occupied by the purchaser, or a person on his behalf, as his/her only or principal place of residence and
    -where no rent, other than rent under the rent-a-room-scheme, is derived from the property for five years after the date of the current purchase.

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  • In the UK, is there not a specific timescale where one becomes a FTB again?
    I seem to remember it being 3 years in the States.

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  • landofconfusion says:

    23. smugdog said… Anyone care to define “first time buyer” from a legal point of view?

    From what I understand, you are a FTB’er if your name has never been on the land registry. So if one partner brought your current house and the other partner never has…

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  • ontheotherhand says:

    So does this tell all potential buyers of properties between 125k and 250k that they should put off their purchase until this is possibly made law? Good news for us on housepricecrash then as there will be a buyers strike for at least the next 3 months?

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  • Good question smugdog – according to moneysavingexpert.com the definition of an FTB varies from lender to lender…

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  • OTOH

    It comes in from midnight tonight.

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  • tenant super says:

    Elephant and Castle is nearer the Square mile so it has that advantage. The tax would be ‘progressive’ not in the strict sense of the word but by correlation, if you pay a higher rate per square metre the richer you are and therefore move to an area with other rich people when the space you take up is the same.

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  • tenant super says:

    … agin , our disagreement arises from competing ideology as to the purpose and scope of LVT.

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  • mark wadsworth says:

    Purpose of LVT? IMHO,
    – first replace other fiddly taxes on property (like Council Tax, IHT)
    – then replace other taxes on incomes (because LVT has no deadweight costs, easy to avoid but impossible to evade)
    – as an “in your face” tax, it will be harder for politicians to hike the rate
    – it encourages councils and the state to act like a landlord, i.e. to focus spending on things that make an area more desirable to live in – if benefit > costs, they will do it, else not
    – keep house prices low and stable and hence discourage house price and credit bubbles
    – encourage efficient use of housing (it makes owning a bit more like renting)
    – discourage NIMBYism – NIMBYs do it because they want to keep their own house prices artififically inflated – LVT is the punishment that fits the crime – if you want to prevent others from having a house, then go ahead, but be prepared to pay the extra tax.
    – hence ultimately increases the number of home-owners.

    That’s about it, really. The Christian/Georgist “natural justice” argument is all well and good, but I’m not a moralising sort of person.

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  • landofconfusion says:

    32. mark wadsworth said…
    – encourage efficient use of housing (it makes owning a bit more like renting)

    – Help remove BTL from the system. BTL’ers will suffer reduced unearned capital growth and it might just make people ask “if I’m paying society for the use of some land why am I also paying a BTL’er?”

    I have no problems with BTL’ers operating a service business but I do have a problem with them charging either solely or partially for the use of some land. LVT will (hopefully) fix this.

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  • mark wadsworth says:

    LOC, I bear no grudge against BTLers. LVT would protect them from themselves and they’d be less likely to overpay in the hope of “capital growth”.

    As you say, LVT would collect the location rent from them in whole or in part – but neither would they have to pay for “the land” up front, so the whole thing would be break-even from their point of view.

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  • landofconfusion says:

    LOC, I bear no grudge against BTLers.

    Sadly I don’t share your position. I’m all for people providing services, competing etc., but not acquiring a lease on something which is in effect a common asset and then renting it back to others while creating no wealth themselves. What we have now is a structural fault in in both the economy and society and which is dangerously reminiscent of how this country began.

    The last time we were there we ended up with a land reform act and I’d rather not have to get to that point again.

    As you say, LVT would collect the location rent from them in whole or in part

    My discussions with BTL’ers suggest that they would simply up the rent to compensate for the LVT.

    As you probably know BTL is highly area specific – they operate in local markets much like proper companies operate in (sort of) global isolation in a country. This makes it extremely likely that though local demand they would eventually add the cost of LVT to the rent, offsetting it’s effect.

    My approach would be to cut the housing market into two; one would be entirely private while the other would be state-run housing. BTL could continue to operate by doing what they claim to do now (providing a service) while the unearned money that they would of charged for the utility of the land would go back to the state, as it should..

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  • MArk @ 32

    To me, LVT is primarily a tool for rationing. “Private land ownership should be praised, as long as its product was not left to spoil and there was “enough, and as good left in common for others”; when this Lockean proviso is violated, the land earns rental value.

    In the main, I see most of your points. However, I still don’t agree with you that “it encourages councils and the state to act like a landlord, i.e. to focus spending on things that make an area more desirable to live in – if benefit > costs, they will do it, else not”.

    As I said, even if a council did have the nouse to do this, it would make sense to focus on gentrifiable areas only at the expense of other regions. My sister is a teacher and claims that when she worked in a school with a very ambitious head, they were told to focus most of all on the C/D borderline students as getting a C grade is the stat that matters for the tables. Never mind the A students, it doesn’t matter if they slip to a B (and they probably won’t) and ignore the E grade students, they’ll never amount to anything anyway.

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  • Smugdog, a FTB would appear to be a person who has not previously been registered as an owner of a property at the land registry. Simples. Er, well, until you consider the position of a non owning spouse who has an interest transferred to her by a pre owning partner. On divorce is ex Mrs Spouse a FTBer when she susequently buys new home of her own? What if she was a cohabiter with a transferred interest? What about an beneficiary inheriting a property who immediately sells and buys own first place with proceeds of sale?
    Of couse, in reality there will be no checks at all nor any system of checking. Think of the cost! And it isn’t accidental that the door is left wide open to all and sundry (including cash purchasing BTLers) precisely because, in case no one noticed, the declared intention of the measure is to stimulate the market. Does anyone reading this site still believe, after years of increasing disparity, that Nu Lab are interested in social justice, for goodness sake? Puh-leeeze

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  • landofconfusion says:

    As I said, even if a council did have the nouse to do this, it would make sense to focus on gentrifiable areas only at the expense of other regions

    The town where I live has almost 2 halves. My half has the relatively well-off, mostly retired types whereas the further you go to the other side of town, the less wealthy they get until, at about half-way you hit social housing. The other towns around us also use my town as a dumping ground for their social problems and as a result enjoy a nicer environment than we do.

    LVT would work in this instance as those living in the more upmarket towns would be forced to pay for those living in my town, who would pay less. The council would therefore have two choices: spend on improving this town or let those in nearby towns subsidize us.

    Either way seems fair to me.

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  • mark wadsworth says:

    Tenant @ 36: ” it would make sense to focus on gentrifiable areas only at the expense of other regions.”

    I’m not sure that’s true. I’m talking about simple things like sacking a few five-a-day advisors and getting more bobbies on the beat. There’s little point sending out more bobbies in nice areas where crime is low, as the incremental crime reduction would be small. But if you open a police station slap bang in the middle of a big sink estate and have a couple of bobbies prowling round at all times, then crime might be halved.

    Or look at local schools – we know that there is a huge premium on land values and rental values if the school has a good reputation – what’s easier – making an already good school even better, or sorting out a cr*p school by expelling a few trouble makers?

    Conversely, if your council does a sh*t job and spends all your money on gold plated pensions and inter-agency liaison initiatives, while leaving the streets full of potholes, hooligans roaming the streets and the bins uncollected, your tax bill would rapidly plummet to zero.

    You get what you pay for and pay for what you get.

    I don’t think your school analogy holds, as that is a binary thing – pass/fail – so of course they focus on marginal C/D pupils.

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  • tenant super says:

    Good point, well made … but Peckham, or Walworth will never be desireable. There are Ofsted Outstanding schools that I wouldn’t send my children to because of my ‘Surrey-fied predjudices’ as Mr TS calls them. Often the classes are very transient with kids arriving and disappearing all through the year, many children arrive with no English. I don’t believe there is any point in getting good exam results if your accent and/ or mannerisms hold you back so expelling a few trouble makers is not going to help. In our borough the vast majority of new social housing is in Peckham, Walworth with a few flagship developments like Bermondsey Spa because they’d rather keep the oiks in an already crummy area than sully Dulwich!

    I think your point is valid in more homogenous towns, but in London, they might just ghettoise the problems that depress value.

    Put a police station in the middle of an estate, crime might fall but it is still not going to be a desireable area. A real example is that the crime rate on the Aylesbury estate in SE17 is now lower than the borough as a whole as a result of the dedicated police and community warden patrols, the local primary , Michael Faraday school is Ofsted ‘outstanding’ and this has not improved the estate reputation, nor improved the value of nearby properties. When they knock it down, values in neighbouring properties will increase by a small factor but only because they are increasing the percentage of privately owned homes in the area.

    I appreciate my exam analogy falls short but my point is that it is easier and perhaps more lucrative to improve an area that is borderline nice anyway. If a nice area say Dulwich Village has a crime rate of X and a nearby area say East Dulwich has a crime rate 2X and Nunhead has a crime rate of 3X and Peckham 4X, I’d bet my bottom dollar it is cheaper and easier to improve Eeast Dulwich to X than Nunhead to 2X which in turn will be easier to improve than Peckham. This is because crime, poor schooling, mistrust of police, and various indicators of deprivation are far more entrenched in places like Peckham. Also, if there is some provision for LVT exemption for the unemployed/ low paid then Peckam with its very high unemployment and social housing would reap less than improving an area with more privately housed/ employed households.

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