Thursday, February 21, 2013

Euro think-tank declares LVT is essential for the UK economy

Why British prosperity is hobbled by a rigged land market

Simon Tilford, of the Centre for European Reform, bloggs on the rigged property market as being the UK's biggest economic problem with an economy in which speculation is rewarded and wealth is increasingly concentrated in the hands of those with property. His Solution would be to implement Land Value Tax

Posted by pete green @ 11:40 AM (2431 views)
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15 thoughts on “Euro think-tank declares LVT is essential for the UK economy

  • Yeah! Good find.

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  • Yes, all the Communists everywhere are jumping on the band-wagon, because they want a piece of the pie.

    It is a tax most regressive, since it redistributes capital from the most local aspect of the economy, private houses, to the most centralized part of the economy, central government, who then redistribute a good proportion of that to global corporations via bankster bailouts and wars of aggression. Yes, it taxes landlords, but they will pas on that cost to their tenants in the form of both higher rents and a shortage of rental properties. Or maybe, you simply don’t get the same level of maintenance you were once used to.

    Since housing bubbles are caused by inflation, not a lack of taxation (we are swimming in that), a land value tax will not solve the problem that a lack of tax did not cause. It will make it worse by providing a perverse incentive for government to blow more bubbles, since they will have more ways to skim off the top.

    The solution, as ever, is to adopt a sound money policy. If interest rates simply rose to 5 or 10%, where they should be, suddenly, house prices would normalize, and first time buyers would be able to earn enough interest to save for a deposit.

    “What You Should Know About Inflation” Henry Hazlitt (1964) mises.org/story/2914

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  • Whatever Libertas.

    You are forgetting the point of LVT.

    By making property a less attractive investment class many people may well be incentivised to start investing in the productive economy while at the same time exert downward pressure on houseprices, improving affordability and therefore putting more money in FTB;s pockets. This way the wider economy benefits. At the moment due to high debt levels brought about by over valued property too much cash is being wasted servicing mortagage debt.

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  • Yes Libertas, the solution is for house prices to come down by people paying more to the banks, who do not build roads, provide a police service, etc. The productive economy can supply these things for free to the banks and those with with low leverage

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  • Mombers, your complete numerical illiteracy is so astounding that I’m almost lost for words.

    A little lesson in economics. When interest rates are higher, people with savings get more money from banks. When interest rates are lower, people borrow money for less. This does not determine how much cash banks get, it determines the time preference of money. A true market rate protects the stability of the banking system. The actual profits of banks would, under a free market system, depend on their ability to attract savers and, their ability to invest loans in the right types of business. Yes, banks do not build infrastructure, they invest excess saved capital in those who do build infrastructure. Having to explain this to you makes me feel like I am talking to a five year old, but unfortunately that is the reality for most of the public today.

    When interest rates are low, the time preference is short term, whereas when interest rates are higher, the time preference is more long term. Government call on business people and banks to take a more long term approach whilst with the other hand, they reduce the time preference of money by holding rates artificially low.

    When the market is in control of rates, interest rates float to a level most appropriate for market conditions. Rates rise when asset prices are too high and when there is not enough savings to satisfy the borrowing needs of businesses and house buyers, etc. Rates fall when borrowers are more satisfied and when savers have saved enough money to satisfy borrowers but are not spending enough to sap up supply in the economy.

    When government get in the middle and manipulate rates low, to satisfy their spending excesses, they shift rates from the true market rate. This creates asset price bubbles and, when government then moves to tighten, to avoid hyperinflation or high inflation, they over-reach the other way, causing a credit crunch for business.

    This is what causes the housing bubble. It has nothing to do with a lack of any type of taxation.

    This podcast explains it:
    http://www.lewrockwell.com/lewrockwell-show/2008/08/12/17-austrian-theory-of-the-business-cycle/

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  • So, Mark Wadsworth claims that taxing rental / land values will reduce housing bubbles, yet the only reason house prices are high, is because government created a bubble buy decreasing the time preference of money, by artificially lowering interest rates so that they could spend recklessly.

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  • @Libertas

    “The actual profits of banks would, under a free market system, depend on their ability to attract savers and, their ability to invest loans in the right types of business. Yes, banks do not build infrastructure, they invest excess saved capital in those who do build infrastructure.”

    That’s a way too simplistic (5 year old’s) view of the ways loans work in the real world.

    Generally, banks create loans when:
    1) There is a party that wants to borrow
    2) The lender is happy the the borrower is creditworthy
    If 1) and 2) are satisfied, the bank will create a loan (i.e. magic up new money) and worry about reserve requirements later. One major reason for this is that freshly issued loan money usually goes straight back into the banking system which tends to deal with reserve requirements. Even if a bank considers itself to be cash impaired, it has other options such as overnight borrowing or borrowing from the central bank.

    Have a look at this for a much more detailed explanation:

    http://www.businessspectator.com.au/bs.nsf/Article/money-supply-economics-economy-bank-reserves-infla-pd20121022-ZAS44

    Note that professor Keen stresses the imprtance of looking for emperical evidence that illuminates real world economics – not theory. The idea that banks depend upon capital formation by savers misses out important parts of the overall picture.

    Also, in the UK, most bank lending is against property, not business or infrastructure.

    Lastly, I think you missed the point of Mombers comment somewhat.

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  • Quiet Guy. Under a free market system, interest rates represent the cost / rewards of lending and borrowing. Absent government manipulation it is determined by the supply and demand and the relationship between lenders and borrowers and, the reputation of the lender.

    If interest rates rose, property prices would fall, less would be borrowed to buy housing and more would be available to businesses. The imbalance between mortgage and business lending is not cultural, it is a symptom of artificially low interest rates. It does not need to occur.

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  • In addition, if government were not issuing so many Gilts, more lending would be available for private enterprise to provide said infrastructure at lower cost and higher quality than government could ever provide.

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  • watching with amusement says:

    “Yes, all the Communists everywhere are jumping on the band-wagon, because they want a piece of the pie.”

    Forgive my lack of knowledge, but don’t communists believe in the state ownership of the means of production, which includes land. If so, how could they possibly have a Land Value Tax? The government taxing itself does seem rather pointless.

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  • @ wwa: State Communists do.

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  • Piddly, I don’t “claim” anything. I observe and report actual real life facts.

    FACT: we have something close to LVT on commercial land and buildings in the UK, it is called “Business Rates”. The bubble in commercial land and buildings prices was very short-lived (from 2003 to 2007), quite small (prices up 30%) and it popped very quickly, prices are now back at pre-bubble levels.

    FACT: Council Tax is a joke and closer to a Poll Tax on houses, so it has no effect on prices. We had a massive housing bubble from the mid 1990s up to 2007, it was very big (prices up 300%) and it is nowhere near popping yet.

    You can look all this up at the usual sources, HM Treasury, Nationwide and so on.

    Do you have the slightest scintilla of a shred of some vague scrap of evidence to support any of your contentions or to suggest that a high-ish tax on the rental value of land does NOT depress price bubbles?

    No, I thought not.

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  • @ QG, good answer. How come it takes a normal sane person about half an hour to work out how banking works and what the majority of loans relate to, but still 99% of people insist that it works differently?

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  • FACT: Council Tax is a joke and closer to a Poll Tax on houses, so it has no effect on prices. We had a massive housing bubble from the mid 1990s up to 2007, it was very big (prices up 300%) and it is nowhere near popping yet.

    This is the bit I am interested it.

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  • This article is good on LVT, but biased and myopic on most other agendas it lumps it in with. This stands out particularly:
    “Spain and France suffer from inflexible labour markets, Germany from over-regulated product and services markets, Italy from both.”
    Germany’s regulated product and services market pays dividends in high quality, more recycling and less packaging. The CER does not like this, I guess, becuase of its long list of corporate funders – from its website:

    Accenture
    AstraZeneca
    BAE Systems
    BAT
    Barclays Bank
    Barclays Capital
    Bayer
    BG Group
    BNP Paribas Fortis
    The Boeing Company
    BP p.l.c.
    BT plc
    Citi
    Clifford Chance
    Daily Mail and General Trust
    Deutsche Bank AG
    Diageo plc
    The Economist
    EDF
    Finsbury
    Ford
    G3
    Goldman Sachs
    H. Lundbeck
    HSBC
    JP Morgan
    KKR
    KPMG
    Mars
    Montrose Associates
    Morgan Stanley
    Nokia
    Nomura
    North Asset Management
    Open Society Institute
    Rio Tinto
    Shell
    Standard Chartered
    Tesco
    UBS AG
    Vodafone

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