Wednesday, September 8, 2010

Happy families

How house prices and debts are building ugly tensions between parents and their children

The gap between baby boomers, who continue to enjoy the wealth-enhancing effects of decades of house price inflation, and their adult children, who are burdened with soaring debts and the worst financial crisis since the 1930s, is growing wider. Several independent reports published today suggest these macroeconomic trends are creating ugly tensions in millions of homes and there may be trouble ahead for many parents and their grown-up children.

Posted by quiet guy @ 01:15 PM (5375 views)
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44 thoughts on “Happy families

  • Very interesting comments below the article as well, I don’t think that there are real tensions between the so called baby boomers and the younger generation. What I do think will happen is that other opposing sections of society are going to turn on each other as this crisis gets worse.

    Couldn’t all of this be solved if we could all afford a decent home at a normal price, imagine the harmony, peace and fairness in that world.

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  • tyrellcorporation says:

    ‘I don’t think that there are real tensions between the so called baby boomers and the younger generation’

    Really? This IS one of the biggest tensions there is in my family. My wife’s mother has a house worth about £700k and it has a large garden she can’t and doesn’t want to keep going while I’m packed with my wife and two kids in a place with a garden the size of a hanky.

    Believe me this is a very big issue for us and it raises it’s ugly head almost daily.

    I’m also not alone in this situation talking to my colleagues. Another friend of mine’s father has 6 properties in Brighton while his son squeezes himself and his family into a 3 bed 60’s semi in Exeter!

    Something will snap soon, it has too.

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  • How exactly will this snap? The British aren’t known for their fondness of riots and violence; unlike e.g. the French. There might be a slight increase in cases of parricide, but national revolution seems unlikely. No, more likely we’ll just plod on as always.

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  • sibley's b'stard child says:

    Exactly drewster, we’re simply predisposed to servitude and the strict observence of heirarchy. Nothing will change. As one of the comments said, they simply lucked-out on the lottery and have done well as a result. However, it does jar when they try to compare their own life-experiences and expectations with the younger generation – get an education, get a job and get a modest house; work up from there. Without realising that the goalposts haven’t so much been moved as dug-up, moved abroad and rented back to us.

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  • The important element is that this is now being talked about in the mainstream media, and importantly, the media that is loyal to the current government; and to whom the government is most likely to listen.

    The generational conflict can only be resolved by accepting that house prices have risen too high, and that the supply side of housing provision has been over constrained.

    Attending to the second issue will provide relief for the first.

    An agenda to stabilise the population size, whilst ensuring adequate housing provision for those that we have, will win broad approval from the government’s supporters.

    Any other course of action would be unwise.

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  • It’s not a generational conflict. We already know that lots of parents lend or give money to their offspring to fund the deposit on a house. By and large, parents are trying to help.

    All this talk of generations is pulling the wool over our eyes. They’re distracting us from the real wealth divide. More wealth (whether property, shares, or cash) is becoming concentrated in fewer hands. Taxing incomes doesn’t begin to fix this – in fact it merely slams the drawbridge shut in the face of people trying to cross that divide. The only solution is to tax wealth; and the best way to tax wealth is through taxing land values.

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  • 100% agree with Drewster

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  • charlie brooker says:

    There’s a simple answer to all this BS. Let’s all become gangsters.

    Stick a loaded gun in someone’s face and all the bolux stops.

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  • As drewster says, the problem is the inequality in wealth; the antipathy towards the older generation is misplaced, as is that towards the public sector and their pensions and all the other scapegoats that the tabloid readers here like to spit at.

    The concentration of wealth into fewer hands has been progressing for the last 3 decades and I see no prospect of this changing. The last govt had little impact on this and the present govt look keen to encourage it, disguised by arguments about the importance of cutting the deficit and encouraging wealth creation. I agree that wealth should be taxed, but I think that includes high incomes, which are really another form of wealth accumulation through economic rents.

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  • There is some solutions:

    a stelth tax in the form of wage inflation which is above savings rates and house price inflation!
    – This will not happen naturally due to globalization and cheap foreign labour.

    Option 1: Devalue the currency.
    Option 2: Crank up inheritance tax and wait for them to die (Not a conservative policy)

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  • sibley's b'stard child says:

    @ 8 Charlie

    The only thing they’ll understand is a wall against their backs…

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  • mark wadsworth says:

    99% agree with Drewster.

    I don’t agree with taxing “wealth” generally, the whole point about taxing land values is that they aren’t “wealth”, they are merely the flipside of somebody else’s poverty or debts.

    For example
    a) somebody building a building or a car or a computer, or painting a good painting, or discovering a cure for cancer = addition to net wealth of society as a whole (whoever owns it)
    b) somebody ‘owning’ land and renting or selling it at a profit to somebody else = transfer of wealth from tenant or purchaser to owner, and modest overally decline in wealth of society as a whole.

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  • charlie brooker says:

    @11 sibley’s b’stard child

    All we seek is justice, nothing more.

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  • charlie brooker says:

    drewster’s argument is entirely reasonable, but since when did reason win the day?

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  • As long as the have’s take the trouble to vote, while the have nots can’t be ars*d to go to the polling station; a wealth tax is as likely as a turkey voting for xmas..

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  • Uncle Tom, the have-nots actually outnumber the haves; and more people would gain from LVT (with a suitably high personal allowance) than would lose. However the debate has been captured by the London-centric media; and I suspect that London-based homeowners would largely lose out.

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  • mark wadsworth says:

    Drewster: “London-based homeowners would largely lose out.”

    Not true.

    It is quite easy to design a simple LVT/CI system that replaces all other taxes on income or wealth and leaves most people in the country (inlcuding people in London) little better or worse off (on a static basis), assuming there are discounts for Cash Poor Asset Rich Pensioners Who Have Worked Hard And Saved All Their Lives And Just Happen To Be Living In A House Worth £1 Million Or Maybe They Inherited It.

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  • UT

    But who are the ‘have nots’ ever supposed to put their faith in at the polling station ? And, how could such a political movement ever be rich & powerful enough to be allowed to take power in Britain?

    Surely you can’t really believe that these problems will ever be resolved ‘democratically ?

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  • Drewster/tick tock,

    If you guys are serious, you need to join the Labour party, kick out the champagne socialists (aka the Milliband Bros) and put together a manifesto that will inspire the 35% who can’t be bothered to vote to get out and exercise their democratic right.

    – But will you?

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  • I don’t go for this land tax Georgist nonsense. Nor taxing wealth. Two wrongs don’t make a right. The real problem lies with having interest rates set by a group of bureaucrats and government support for fractional reserve.

    Remove those problems and the rest disappear. The market would have solved the asset pricing problems had interests risen, as you would expect them to do in a credit crunch.

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  • Mark Wadsworth,
    I’m not convinced. A few years ago, Oxfordshire County Council and the Vale of White Horse District Council created several mathematical models of LVT. [Link to PDF.] It’s worth a read to see what they found; and bear in mind that it’s a semi-rural area.

    uncle tom,
    I’ve considered getting politically active; unfortunately it would be very hard to fit the hours needed around my present job.

    Capitalist,
    Not true. The American writer Henry George wrote his treatise on Land Value Tax in 1879; but the Federal Reserve was only founded in 1913. Land value bubbles existed long before central banking.

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  • Mark Wadsworth says:

    Capitalist said: “Two wrongs don’t make a right.”

    Maybe not. But consider:

    1. Taxation [of incomes] is theft
    2. Land land ownership is also theft
    3. Society generates a surplus which generates land values
    4. In the absence of LVT, land ‘owners’ will collect this surplus privately
    5. If the state doesn’t collect the surplus via LVT it will tax our incomes instead

    So why not make the punishment fit the crime, and tax land values instead of incomes?

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  • mark wadsworth says:

    Drewster, I’m better at maths and know more about taxation that ALTER do (and I’m not hung up on precise valuations like they are). Using two or three variables, you can quite easily replicate the entire tax/welfare system with a LVT/CI system. And a Property Value Tax with a higher CI is exactly the same as an LVT system with a lower CI.

    The point being that housing is a normal good, therefore property values are closely correlated to income (or profits) therefore a flat tax on property values is pretty much like a flat tax on income.

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  • 20. capitalist said…’I don’t go for this land tax Georgist nonsense. Nor taxing wealth. Two wrongs don’t make a right. The real problem lies with having interest rates set by a group of bureaucrats and government support for fractional reserve.

    Remove those problems and the rest disappear.’

    Agreed, a refreshing comment. I fear the problem is more deep rooted than that, but it would be a great starting point.

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  • Drewster

    At the risk of being dragged into a subject that strikes me as abject nonsense, there is nothing intrinsic about land that makes it more or less worthy of tax than any other good. Henry George not withstanding. The price of land can go up and down because of all kinds of externalities. So what? Everything has externalities; you’ll have to start taxing virtually all economic activity if that is your concern.

    It’s unfortunate that the HPC website has so many Georgists on it because land value tax is a total distraction from the real problems in the monetary system.

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  • 23. capitalist said…”It’s unfortunate that the HPC website has so many Georgists on it because land value tax is a total distraction from the real problems in the monetary system.”

    Agreed again.

    What is so difficult about spotting the elephant in the room…. “””And the relevants to house prices is?””” Do’h!

    Make a cup of tea, relax and watch ‘The Wonder of OZ’ on youtube and ‘Money Masters’ if you must.

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  • mark wadsworth says:

    Capitalist: “.. there is nothing intrinsic about land that makes it more or less worthy of tax than any other good. Henry George not withstanding.”

    OK, for a given level of taxation (separate debate), if you are faced with a choice of

    a) taxing incomes or profits or economic value added or output (which is wholly bad, on an economic or moral level) and

    b) taxing the actual or notional income from government-protected quasi-monopolies and/or things that are in fixed supply and have to be rationed somehow (primarily land, but also radio spectrum, mining and drilling licences, cherished number plates, airport landing slots etc),

    you tell me which is more ‘capitalist’?

    Further, taxing rental values from land is simple, there’s no evasion (so all things being equal, honest people come out ahead); LVT has little or no deadweight costs (in any event, the deadweight costs are far lower than with income tax, VAT and so on) and LVT would tend to dampen property price bubbles/credit bubbles. Plus it’s an IN YOUR FACE tax and politicians find it difficult to increase the tax burden when it is quite plain to all and sundry how much tax they actually pay (unless the money raised is spent so wisely that the overall benefits to the payers exceed the cost – which can and does happen).

    This is not hypothetical, there is a close correlation between the success of an economy and how the tax burden is split between land and incomes.

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  • the number cruncher says:

    It’s unfortunate that the HPC website has a few single mined monetarists on it, because the creation and extinction of money is a total red hearing and a distraction from the real problems of people investing in unproductive activities, centred on monopolies, land and resources and the waste of productive minds and effort that goes into these activities. What is even more galling is that the seem to think that the taxation of free trade and the labour of our minds and bodies is fine, but the taxation of private monopolies is somehow sacrosanct.

    I think some people need to avail themselves of what constitutes Georgism, including the movements thoughts on monetarism, before making statements that demonstrate the limited scope of their understanding.

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  • capitalist,

    No, there are intrinsic differences between land and other goods or assets. You can build more cars, you can mine more copper, and you can start a new business; but you can’t create more land.

    In terms of economic efficiency, land value tax is the most efficient tax. If you tax incomes, people will work less. If you tax consumption, people will consume less. If you tax wealth, people will move their cash out of the country. But if you tax land values, all that changes is the cash which previously flowed to wealthy landowners is instead diverted to government; which can then cut all other taxes.

    Finally there’s the question of fairness. Is it right that landowners in e.g. central London should receive a government-funded windfall everytime a new tube line or crossrail is opened? Land value tax would capture these windfalls neatly.

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  • mark wadsworth @12

    Land being the flipside of another’s poverty is an interesting way of looking at it. However, land must be a store of wealth, and a valuable “commodity” to its owner, in that one can reside on it, grow crops, etc. And more generally I think it is the case that all wealth can be viewed as the opposite pole to poverty, given that wealth is distributed so unevenly.

    Tax serves two purposes. One, to raise funds for collective expenditure on public services and infrastructure; and second, to ensure that the proceeds of activities that exceed its value (economic rent) are returned to society. Of course, the second does not really happen. LVT would go a long way to restoring a balance in wealth, but I’m not convinced that it alone would be enough.

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  • Mark Wadsworth

    Well, I can see from your post that we are more or less on the same plane in important areas, given that you’ve pointed out that taxation is bad on a moral level (check) and you agree that taxation, if it has to exist, should be in your face (check). I agree with you on those points.

    However I simply cannot get excited about taxation in general – the whole area is the province of theives – and certainly not about the “efficiency” of one tax over another. What’s good about theft being carried out efficiently? The point about government protected quasi-monopolies is that the government protection should be taken away, not that some new distortion should be introduced to try and mitigate another one.

    The bubbles you are talking about in land values occur because of monetary inflation and government restrictions over the use of land. The former creates asset price bubbles generally, and the latter which exacerbates the degree to which the supply of land can be said to be “fixed”.

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  • “Finally there’s the question of fairness. Is it right that landowners in e.g. central London should receive a government-funded windfall everytime a new tube line or crossrail is opened? Land value tax would capture these windfalls neatly.”

    The government shouldn’t, and historically didn’t, fund such projects in the first place.

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  • the number cruncher says:

    capitalist @ 32

    I am fascinated as to which projects you refer to and which period: I cannot think of one major infrastructural project that has not been organised by state action whether it is by direct state funds or the creation of a state protected monopoly for its private investors (which amounts to much the same in economic terms)

    From the Pyramids to the East India Company, to trains, to the 3G network, everything has been a state protected monopoly of one form or another, guaranteeing the profits/benefits for those that can control the ‘state’

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  • Number Cruncher

    “From the Pyramids to the East India Company, to trains, to the 3G network, everything has been a state protected monopoly of one form or another, guaranteeing the profits/benefits for those that can control the ‘state'”

    Do you think that is a good thing?

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  • mark wadsworth says:

    Capitalist 31: “The point about government protected quasi-monopolies is that the government protection should be taken away, not that some new distortion should be introduced to try and mitigate another one.”

    Sure, some enforced monopolies (like asbestos extraction) can be simply scrapped. But there’s only so much radio spectrum, and there are only so many licence plates that spell somebody’s name, and there are only so many airport landing slots. Price rationing is the best form of rationing, end of.

    And how on earth can you take away the most fundamental role of the state – to protect people’s exclusive possession of land and buildings? You simply can’t. Even the maddest Georgist would never suggest such a thing. Not even the Communists did this (although under Communism, the state was legal owner of the land, people still had, by and large, exclusive possession of their homes as long as they kept their noses clean).

    So there will always be this quasi-monopoly. Although society in general benefits from it (we all have exclusive possession of somewhere or other, even tenants), the benefits to some land ‘owners’ are vastly greater than the benefits to others in society (who contribute just as much, and who abide by the restrictions), so LVT is just a “user charge” for the benefits that accrue to specific individuals which can be spent on [whatever you want to spend it on*].

    * Cutting other taxes, paying off the national debt, increasing government spending, dishing out as a Citizen’s Dividend, or anything else that takes your fancy.

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  • capitalist

    So taxation is the province of theives [sic]. Not sure there is much to argue about with someone who confuses crime with fiscal law.

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  • the number cruncher says:

    I am reminded of one of MW’s favourite paraphrases (respect MW I have used that one a few times)

    “All property is theft, all taxation is theft – So make the punishment fit the crime…”

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  • 36. the number cruncher said…quoting markW, “All property is theft, all taxation is theft – So make the punishment fit the crime…”

    Even i woudn’t be bold enough to say that, but I respect the sentiment.

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  • mark wadsworth says:

    TNC, thanks, but what I said was “LANDOWNERSHIP is theft, taxation is theft”.

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  • Mark Wadsworth

    We must be speaking at cross-purposes because I never suggested taking away property rights?? Quite the opposite in fact. That’s the one of the only proper roles of the state.

    And, price rationing is what markets do. There is only so much radio spectrum, so get the damn thing into private hands, permanently, and let the market do its work. The market can trade, subdivide, aggregate or sublet property rights as it likes. The State’s role is simply to protect those property rights and associated private contracts.

    (Incidentally, it’s not relevant to this point of principle, but the radio spectrum is not ultimately a finite resource. Technology advances mean that an ever-increasing amount of data can be squeezed into a unit of bandwidth).

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  • letthemfall

    Obviously I was talking about theft in moral terms, not criminal terms. You can make anything legal if you’re in charge of government. If you want to be pedantic then call it “legalised theft”.

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  • Capitalist: “The State’s role is simply to protect those property rights”

    That radio specturm truly “belongs” to nobody and was created by nobody, it’s just there. In a completely free market it would be worthless because everybody would just broadcast at any frequency he wanted so all you’d hear is gibberish*. Ergo, by restricting and protecting broadcasting rights, the state is CREATING value out of nothing. Is it so terrible to expect those people who BENEFIT from this fine service to pay for it, and thereby indirectly compensate those people who’d like to be able to broadcast but are hindered from doing so?

    * I take you point about the technicalities. Maybe one day there really will be infinite frequencies – but you still need a state to prevent other people from jamming your broadcasts.

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  • For avoidance of doubt, things like radio frequency, land ownership are COMPLETELY different to other “property” (cars, furniture, skills, personal efforts, private contracts, shares in a business, whatever) that are created by people working hard and trading with each other.

    The cost to the state (i.e. to the taxpayer) of protecting such property rights (as patchy as it is – if your car is stolen, you seldom get it back in one piece and you claim on the insurance) is absolutely minimal, but the state does not CREATE those assets in the first place, it is merely a referee between individuals.

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  • Adam Smith Fan says:

    @31 Capitalist asks:
    What’s good about theft being carried out efficiently?

    The answer is straightforward. The efficient thief picks your pocket and disappears into the night without you noticing. The inefficient thief shoots you in the leg and then picks your pocket while you’re lying on the ground. The difference is that the efficient thief only takes your wallet whereas the inefficient thief takes your money and reduces your ability to earn more. If someone is going to rob me, I want them to do it efficiently.

    So if you think that all tax is theft, as apparently you do, then remember this. Income tax, VAT, Council tax and their various brethren are inefficient thieves. LVT is an efficient thief. That’s why Adam Smith gave it the thumbs up. Efficiency is better.

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