Tuesday, May 17, 2011

Tax reform mooted, but not LVT

Urgent reform needed to stop boom and bust

Urgent action is needed to tackle housing market volatility to prevent another cycle of boom and bust, according to the Joseph Rowntree Foundation taskforce report "Tackling housing market volatility in the UK".

Posted by greenmind @ 11:00 AM (2235 views)
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40 thoughts on “Tax reform mooted, but not LVT

  • Slow down a bit, we haven’t had the bust part yet.

    Only in the UK!

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  • The root cause of the centuries long cycles of Boom and Bust, is down to corrupt laws which allow banks to create debt out of thin air.

    So the article begins with a false preposition. Then swiftly moves into the real Vested Interest reason for its publication:

    Developing Alternatives to Ownership

    “More social rented housing with secure tenure is required as it is the most suitable option for households which seek long-term security but cannot access the mortgage market”

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  • ontheotherhand says:

    Well it sort of does moot LVT, “There is a strong case for the reform of Council Tax. It could be made fairer both by extending the number of bands and by moving towards a point value system based on a fixed percentage of property value; these changes should be considered as a matter of urgency. However, for Council Tax to have a significant countercyclical impact, it would have to become a national property tax, under which revenues would rise and fall with property values, independently of the current Council Tax take, which is set to raise a fixed sum required to finance local services. Such a change would be both controversial and far-reaching”

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  • In the main, quite a laudable report; but goes slightly off the rails with the ideas for reforming council tax.

    By far the best way to stop the boom-bust cycle is to build more homes..

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  • ontheotherhand says:

    UT, building more homes seems to be a necessary, but not sufficient condition of avoiding booms. The US built as fast as it could (and it also has LVT, but it has MIRAS) and it didn’t stop the speculative boom. Cheap freely flowing credit getting cheaper and freer is what fuels a boom and that is what needs to be monitored and curtailed.

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  • mark wadsworth says:

    UT: “By far the best way to stop the boom-bust cycle is to build more homes.”

    Well, the example of Germany shows that this is possible.

    But they are a more ‘collective’ society than ours, NIMBYism is more or less non-existent, yer German is intelligent enough to accept that “I have a house, so I’d be a hypocrite to deny others a house” and they have a deeply rooted fear of price inflation, in which they include house price or rental inflation. And their society is also centrally managed to the n-th degree, they have subsidies or taxes and regulations on all economic things (wages, incomes, rents), they have sensible mortgage lending limits (so average first time buyer age is 45 or something ridiculous) and by and large they are happy to rent and happy to live in flats.

    None of this applies in the UK, we’ve spent the last thirty years being brainwashed into thinking that if a single acre of The Hallowed Green Belt is “lost” to housing that somehow the world will come to an end “Pressure on local services” and all that jazz.

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  • European-bear says:

    Building more homes would help. But as oth(3) says it is more complex. The availability of credit is a huge driver. Without credit there are only cash buyers, and even with the present credit squeeze, most homes are brought with a mortgage. Both Ireland and the USA have loads of land and had a huge building boom. But speculation, due to cheap credit, hoovered up everything that was built, regardless of need and the prices still went up. Ireland and its ghost estates are testimony. A huge proportion of the houses built in Ireland in the last 5 years are unoccupied. Free availability of credit fueled the boom and builders built even more in response to easy profits. In the UK there are huge numbers of unoccupied houses (many brought for speculation and charged a discount on the council tax). In Switzerland (where I am based), there is relatively low property inflation (currently there is a “boom” at 5% per year). But less than 1% of residential property is unoccupied at anyone time. But to buy a house here you need a 20% minimum deposit and there is capital gains tax on any increase in value of your property when you sell it. There is also a wealth tax on your house. In real (inflation adjusted) terms Swiss real estate is actually cheaper than in 1970.

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  • I’m all for stopping boom and bust but you can’t do it just after the biggest boom in history when prices are at an unsustainable level. We’ve had the boom, let the bust happen, THEN do whatever to stop it happening again.

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  • MW,

    I think the Germans’ early 20th century history has left them scared of anything that has the makings of a national obsession; and for the last 66 years they have signed up happily to the principals of prudence and caution.

    We, on the other hand, have no such hang-ups.

    An ample supply of homes, coupled to statutory restrictions on maximum LTV and income multiples should serve to dampen oscillations in house prices, but as tt points out; we are not currently at the starting point for price stability..

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  • Re U.T. Building more homes did not stop the boom and bust in Ireland, nor Spain.

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  • The idea of constantly building homes as countercyclical policy strikes me as plain wrong, since the business cycle is orthogonal to housing needs. I’m getting tired of disputing the assumption of many that there is a shortage of buildings in the UK. Look at Ireland, clearly no shortage there, but the shortage argument was used to fuel the credit bubble during the upswing. Why is it any different here? A better idea would be public spending to retrofit existing stock e.g. to better energy efficiency standards. Green collar jobs.
    N

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  • mark wadsworth says:

    Well I’ve read the 6 page summary, the comments on council tax make a lot of sense, which he says would be overlayered with a % national property value tax to dampen swings (all well and good so far). Then he says that the downside of this is that receipts would fluctuate so it wouldn’t be a good source of revenue for local councils.

    So what? Who says you have to earmark it like this? We know that the UK govt has run up massive debts (public sector debt, public sector pensions) which will have to be paid off gradually over several decades, they could take this National PVT and use it to pay off these debts, so a lot gets paid off in the good years and nothing gets paid off in the bad years.

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  • mark wadsworth says:

    Nick B: ” I’m getting tired of disputing the assumption of many that there is a shortage of buildings in the UK”

    So am I, to be honest, but the issue is not the number of homes (in absolute terms) but how unevenly they are distributed. To use a crude analogy, there’s not much point in having enough food for everybody if half the people come and grab twice their share – the other half will still starve.

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  • 5. timmy t

    We wouldn’t have a problem otherwise. The irony.

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  • Well said MW – so if the issue is not the number of homes then why build more when they will just be bought by BTLers? As Nick said, focus energy on sorting out the houses we have and tweaking the rules so owning more than one house doesn’t make financial sense.

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  • There is unquestionably a shortage of good quality housing in this country. Sure we could refurbish old factories and heavily tax empty houses but that would not cure our quality problem. We have the smallest houses in Europe and the condition of many of these houses is poor by the standards of a first world country. We need to build far more decently spacious, high quality homes, so that our people can have a standard of living that matches that of competing countries.

    Landlords tend to gravitate towards our shittier properties. If we build high spec spacious homes, then these shittier properties would struggle to achieve the current rent levels.

    As an aside, nearly every recent independent report in existence has come to the conclusion that there is a dire shortage of homes. I haven’t really read these reports in detail but their consistent and unequivocal conclusions would make me at least think twice before I firmly said that there was no shortage of houses. I’m undecided but I’ll keep an open mind

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  • 11. flashman said…There is unquestionably a shortage of good quality housing in this country.

    ~ There is also a shortage of good quality Molex watches.

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  • Flash,
    Please reference the ‘independent reports’ you refer to. Do they take into account changing living patterns and stock left empty because of speculation / the value of the option to sell?
    My main beef is that people lazily infer from rising prices that there is a shortage. But the main determinant of prices seems to be credit supply.
    N

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  • mark wadsworth says:

    NickB: “the main determinant of prices seems to be credit supply”

    Yup. That’s about two-thirds of your explanation right there; the rest is this belief that prices can only go up, myth about shortage of land, light taxation and heavy subsidies etc etc.

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  • nick: My personal point was that our homes are notoriously small and of a poor quality by the standards of other first world countries. We therefore have a shortage of GOOD quality homes. The relative size of our homes (compared to European averages) is empirically documented, so there cannot be too much argument on that point

    I only said that I was undecided but open minded about the remarkably similar conclusions from bodies like: Joseph Rowntree Foundation, Institute of Public Policy Research, NHPAU and many, many others that can be turned up by a few minutes of Google time. I also said that I had not read these reports in detail, so I am unable to answer your specific questions on their contents. Mind you, there do seem to be so many reports that say roughly the same thing, so who knows, there might be something in it? If you have the time to read the reports from these bodies, then you might like to make a post on the subject and we can get stuck in

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  • Flash,
    I only asked you to reference the studies. You say that IPPR and NHPAU have published some and are asking me to read them.
    Nick

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  • (and find them, though not specific ones)

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  • aforeigner says:

    @flashman @crunchy

    Absolutely agree with Flashman. UK homes are notoriously small, and the standard of finish is extremely poor by the first world standards. Grated they are way better than the 3rd world slums, but housing in Germany/North America is infinitely that what is available here. Most people who travel on business/holidays tend to stay at hotels and are not aware of the residential housing standards. I am talking from first-hand experience having lived in various counties.

    Crunchy google a term “macMansion” on Google pictures. in the US/Canada these are mass produced homes that middle class people buy. To afford something of a similar standard in the UK you would have to be a billionaire.

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  • @ Mark W at 7

    It’s not quite like that. I’m half German.

    What you say that is correct is that the lending criteria are very stable. For me, some important other factors are: (1) The estate agents don’t really exist – banks sell the property and have to provide sound financial advice or face litigation (2) Capital gains are taxable – a home is not a tax-free pension (3) Germans have never been comfortable with borrow-till-you-bust mentality. You buy a car with saved money.

    I think because German property has to play on an level playing field with every other investment, the “no brainer” that property is in the UK (by and large) simply does not apply in Germany. In the UK, the UK taxman subsidises it, the banks feed yet more money into it unsustainably and the sales persons are long gone when it all goes wrong. That all leads to an intoxicating mixture and means property in the UK is not a place to live, but a state-funded consumer boosting vehicle that has “got too big to fail”.

    Not an easy one to fix. But taxing revenues and enforcing stable lending criteria are the key to a slow winddown.

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  • “We have the smallest houses in Europe ”

    CORRECTION: We have the smallest NEW homes in Europe.

    The size of our existing homes are roughly in line with the European average (about the same as Germany or Belgium).

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  • mark wadsworth says:

    Growler 25, I too am of the half-German persuasion, yes of course what you say is true as well, so add it to the list. Whenever one compares two countries, it is always simplification, generalisation and so on.

    Further, the area I lived in is not necessarily representative of the whole country, so I piece the rest of it together from newspapers and articles, the same as anybody else.

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  • If we build ourselves a modest excess of property, and tax that which is left empty; we will gradually move to a position where the least desirable real estate has its value driven down to zero, thereby making re-development very much easier than it is at present.

    Yes, we have the smallest new homes in europe. We also have millions of older houses that have exceeded their design life, and a pitiful rate of renewal.

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  • 24. aforeigner

    Conversing with me is strickly prohibited.

    ~ These are testament to an America that was once the greatest place in the world to live.

    Now the FORTH amendment has gone. Keep chipping away at the last armed powerhouse of freedom and liberty.

    “Have a nice day” aforeigner! BTW, you may need a name change soon.

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  • “Crunchy google a term “macMansion” on Google pictures. in the US/Canada these are mass produced homes that middle class people buy. To afford something of a similar standard in the UK”

    There are also completely disgusting, looking at the pictures produced. We need bigger homes, but we don’t need huge, energy-consuming, space-wasting homes that will be pretty much redundant when it costs your entire yearly salary to heat it and to pay for the petrol to drive through the 30 miles of sprawling suburbs to your job.

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  • River Man

    “The size of our existing homes are roughly in line with the European average (about the same as Germany or Belgium)”.

    Not true. The average size of existing (not new) UK homes is:

    12 percent smaller than the average Spanish home,
    14 percent smaller than in Germany and
    16 percent smaller than in France.

    Funny enough new homes in Britain are not smaller than existing UK homes. New homes average 76m2, which is coincidentally the same size as existing homes. However, the gap between the UK and the continent is widening with new homes in France, Germany and Spain getting bigger. On average, newly built homes in France and Germany have over 100m2 of usable floor space, while in Spain modern homes have 95m2. In Britain, new homes remain the same size as existing properties at 76m2.

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  • Where are you getting that data from? The latest copy of the European Housing Statistics shows that the average size of a property across the whole housing stock is 86.9 sq m, compared to 81.3 sq m in Belgium and 89.9 sq m in Germany. It also shows that the average size of an English new build is 82.7, smaller than the existing stock. THis is also based on figures from 1981-2001 – I imagine the size has got smaller since then!

    THe figures can be found on page 51 of this: http://abonneren.rijksoverheid.nl/media/dirs/436/data/housing_statistics_in_the_european_union_2010.pdf

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  • Agree with Flash @ 17 and others. Yes we need better quality houses – bigger, better insulated, generally better overall.

    What’s the best way of encouraging people / builders to build better and bigger homes?

    One possibility might be LVT. When you buy your house, you’d only be buying the bricks & mortar. This would lead people to focus more on the quality of the building, not the value or potential value of the land underneath it. With more stable house prices, money spent on improvements would more directly affect the property value. This would encourage more people to improve their homes.

    The biggest change needed though, is the scrapping of a large amount of existing legislation about what people can or can’t to to their existing houses; as well as what new houses can or can’t be built.

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  • Flashman – that doesn’t concur with the figures in here, on p51. http://abonneren.rijksoverheid.nl/media/dirs/436/data/housing_statistics_in_the_european_union_2010.pdf

    Interestingly if you look at the government’s english housing survey you’ll see that the older a house is, the larger it is. Pre-1930 houses are, from memory, on average 110 sq m +

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  • mark wadsworth says:

    Uncle Tom: “If we build ourselves a modest excess of property, and tax that which is left empty…”

    Yes, that sounds fine in principle, but while there are some houses which are clearly ’empty’, there is a huge great grey area – what about holiday cottages visited once a year, large houses where a single person lives part of the year when they are not in their second home, what about voids between occupation – after how long is it ’empty’ – a month, six months, a year, what about building plots where nothing has been built, but could be, what about old wrecks that are uninhabitable? It all gets terribly fraught. It’s far easier just to tax all of them, and cut other taxes or increase old age pensions or welfare payments or whatever to balance it out.

    IMHO, if somebody owns several houses and visits each one only a few months a year, then no harm is done, PROVIDED he or she is prepared to stump up the tax for each and every one.

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  • MW,

    Empty is currently defined as six months, after which no council tax is paid.

    I have previously advocated double council tax on empty property rather than nil; but there are core legal issues that might make that open to challenge.

    One can argue that empty property should carry the same council tax as single occupancy; as streets still have to be cleaned, and general facilities provided. One could also impose a policing surcharge of perhaps £10 pw per house; as it can be demonstrated that empty property tends to beget crime – slightly tenuous – a justification rather than good science!

    Whatever; we need first to ensure an adequate supply of homes, and then divert the resources of the construction industry into ensuring an adequate rate of renewal of our existing sub-standard stock.

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  • 30. River Man

    Right, those homes are only for the green policy makers.

    Stop the wars then talk to me about a greener planet and why I should be ripped off via green taxation and regulation.

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  • River Man: The majority of older UK homes were absolutely miniscule – 2 tiny beds up and two tiny rooms down. You only have to look at the miles of Victorian terraced cottages in every part of the country to realise that the average older home is nothing like 110 m2. The majority of the population lived in these tiny homes and many still do. The document you cited has accidentally lumped the Swedish figures together with the UK figures. They are not the same. There are many data companies who make a living out of ‘cleaning’ documents like that and they are able to charge quite a lot for their services. Even terraced houses are much bigger in Sweden: For example, the average terraced house built in Swedeb in 1982 is a whopping 107 sq.m

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  • Flashman, look at SST1.1 on this spreadsheet:

    http://www.communities.gov.uk/documents/statistics/xls/1750447.xls

    Average useable floor area

    Pre-1919 house: 104 sq m
    1919-1944 house: 94 sq m
    1945-1980 house: 85 sq m
    1981-1990 house: 84 sq m

    Of course there are a lot of small terraces around, but also a lot of huge edwardian houses. The size of terraces varies around the coutnry too: my 3-bed London terrace is much, much bigger (with higher ceilings) than the 3-bed semi I grew up in. Most London terraces are like this, I think, and that’s before you get to the massive 6-bed 4-storey terraces in Central London, Brighton, Bath etc.. Maybe different if you go to Leeds or Manchester. Being a southerner I’ve always thought of terraced housing as being bigger and of better quality than poky 3-bed 1930s semis.

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  • “Right, those homes are only for the green policy makers.”

    I don’t give a toss about green policies, I’m just saying that running a house that size will cost more and more as fuel prices carry on going in one direction. Driving to work ain’t going to get any cheaper either.

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