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)
15 thoughts on “Euro think-tank declares LVT is essential for the UK economy”
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mark wadsworth says:
Yeah! Good find.
libertas says:
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
G0nzilla says:
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.
mombers says:
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
libertas says:
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/
libertas says:
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.
quiet guy says:
@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.
libertas says:
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.
libertas says:
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.
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.
Chugger says:
@ wwa: State Communists do.
mark wadsworth says:
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.
mark wadsworth says:
@ 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?
hpwatcher says:
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.
nickb says:
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