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Tuesday, 19 January 2021

PROPORTIONAL PROPERTY TAX -- PPT

 PROPORTIONAL PROPERTY TAX -- PPT

A brilliant campaign for worthwhile improvements

From their Website Council tax is broken. Help us fix it. - Fairer Share Campaign

Here's the gist of what they propose  (I'll add a version with comments later)

1. Council Tax to be replaced with a simple Proportional Property Tax, charged as a fixed flat percentage of property value of 0.48%, double that for second, empty and non-resident owned homes.

2.  Stamp Duty Land Tax (SDLT) on owner occupied property should be abolished. Stamp Duty should however remain in place for second home and non-resident buyers.

3.  Property tax should be collected directly from owners, not tenants.

4.  A deferral mechanism should be introduced for those owners genuinely unable to pay. 

5. The majority of reliefs and exemptions, including those for single occupants, second homes and empty homes be abolished. The ineffective and unfair “Bedroom Tax” should also be removed.
6.  A revaluation of all residential property must take place as soon as possible, with annual revaluations thereafter, using technology, based on their average value across the last three years.

7.  Property tax should also apply to undeveloped plots of land that have received planning permission to encourage developers to get on with  building not waiting for the value of the plot to increase.


LOOKING AT THESE PROPOSALS IN MORE DETAIL

SEVEN KEY REFORMS

1.  The confusing Council Tax band system should be replaced with a simple Proportional Property Tax, charged as a fixed flat percentage of property value. Based on extensive analysis, we recommend a flat rate of 0.48%, with a higher surcharge rate of 0.96% for second, empty and non-resident owned homes.

--This nationalises CT taking the last vestiges of independent fund-raising away from Local Authorities, a major political power-grab.
--There will be many winners in deprived areas from this, but the main losers will be in the affluent SouthEast and London. In many cases their loses will be huge. 


2.  Stamp Duty Land Tax (SDLT) on owner occupied property should be abolished. This would unleash a wave of housing transactions and help address the ongoing housing crisis. There is clear evidence that Stamp Duty is acting as a barrier to households that want to downsize, hindering the optimal use of existing property and making homeownership more expensive for all.22 Stamp Duty should however remain in place for second home and non-resident buyers.

--SDLT is a very bad tax, economically inefficient, hated by the taxpayers. It's abolition is highly desirable, but is the proposed PPT the best replacement?

3.  Property tax should be collected not from tenants, but directly from owners, who are in a better position to pay. This would bring England into line with international practice, and reduce administration for councils, due to there being fewer owners than individual properties (due to multiple ownership).

--A sop to the local council to make their job of collecting PPT easier! But shouldn't a national tax be collected by HNRC?

4.  A deferral mechanism should be introduced for those owners genuinely unable to pay. Tax and a modest interest charge could be paid at a later date or, if need be, upon sale of the home, thereby avoiding the debt issues that have plagued the collection of Council Tax.

--As always the 'lonely widow' will be used to oppose the change, so sensible to state this early on. 

5. Property taxation should be made simpler and fairer by abolishing the majority of reliefs and exemptions, including those for single occupants, second homes and empty homes. The ineffective and unfair “Bedroom Tax” should also be removed. These reliefs complicate the system and have unintended negative consequences

--Creates another category of losers. Quite right, but wise?

6.  A revaluation of all residential property must take place as soon as possible, with annual revaluations thereafter.23 Improvements in technology make this much more feasible than in the past. Properties should be taxed on their average value across the last three years, to ensure that increases in property value are subject to taxation.

--Annual revaluations are VITAL if the PPT is going to have a beneficial effect on the housing market. It is so easy for politicians to 'postpone' these, especially if big changes are threatened. So all praise to the authors of PPT for going for a smoothed 3-year average (elsewhere it was a 5-year average), so the annual change is gradual. But will this prevent mass-revolts by the home-owning voters?
--The old canard that the task of revaluing all 24 million properties annually is impossible has been blown away! Technology really can do it. I know, because I showed how multiple regression analysis made this possible 27 years ago in a paper in the Journal of Valuation! 

7.  Property tax should apply to undeveloped plots of land that have received planning permission from the local council. This would discourage developers who purchase land and refrain from building while they wait for the value of the plot to increase.

--Whacking the likes of Carillion is always good fun. But why do they hoard land? Not just for the fun of it, so this proposal doesn't solve their underlying difficulties.

Friday, 8 January 2021

CREDO FOR FIXING THE HOUSING MARKET

 “To fix the Housing Market, take Plot-Price out of ‘house’-prices using LVT”

Firstly, to be affordable, ‘house’ prices must be driven down. The cost of building a house (and   additional modern built-in features) has added a bit to the purchase price of houses, but the main locus of the force which drives up ‘house’-prices is on the price of the plot on which they stand.

Inherent Plot Value:

Owners can add some value to a plot by drainage, fencing, etcetera. It is axiomatic that owners are entitled to keep (not be taxed on) the fruits of their own labour.

Nature may provide more value to a plot with views, freedom from floods, soil and bedrock conditions. We can claim that the gifts of Nature are God-given and belong to all of humanity, equally. This is one of the motivations for a LVT.

A serviced plot in an affluent city has extra value created by communal effort. This could be called the ‘Jubilee Line’ effect. A major new, publicly-funded Tube line boosted plot prices near local stations, to a far greater extent than the cost of construction of the railway. This is a motivation to levy LVT to capture some of the private landowners’ gain from public expenditure. More generally all of the value created by community efforts could be subject to an LVT.

 

Monopoly rent price

Plot-prices soaring above inherent values are due to a combination of politically designated factors:

               - intentional restrictions on plot supply and usage, due to Planning Laws. This can be traced in the main to the 1947 TCPA. This creates a monopoly premium on all available plots, not just those recently given planning permission. Attempts were made to capture the newly created premiums through Betterment Levies, and latterly by S106 agreements. No attempt to capture the monopoly premium on plots already in use. This could be achieved by an LVT. 

               - full exploitation of the monopoly premium was restricted from 1947 to 1970 by limiting the finance (building society and bank) sector’s ability to lend on mortgages. After that date successive financial de-regulation has led to a lending frenzy on the collateralized value of housing plots (plus a small amount for the value of the building). This business could expand continuously in the confidence that government bail-outs will always be available however reckless the lending.

The proximate cause of soaring house prices is the incontinent lending by banks using the security of plot-prices. This enables buyers of houses new and old to bid up the plot-price to the maximum they can afford.

House-plots have become an asset, and anticipation of future capital gains adds to the price. Costs of holding this asset are minimal so there is little incentive to sell, either. One could argue that the banks have acted like ‘the canary in the mine’ in discovering the maximum amount of monopoly rent that can be extracted from a mortgaged property.

One obvious way to fix this situation is to constrain bank lending, but failing that (and we can be confident that trying to control banks will fail), there is only one solution. Take away house-plots as a form of collateral. Remove the price of the plot from the price of a house. This can be done in one of two ways:

Take land, in particular all plots used for housing into public ownership (as in Singapore or Hong Kong). Socially responsible entities can then decide what price to charge for plot use. By definition social charging will be lower than bank profit-maximising mortgage cost. Thus ‘house prices’ will be driven down.

or

House plots could be devalued as a collateral asset by levying a charge equivalent to its value. Since this levy operates continuously and evenly throughout the home-buyers tenure then initially they will pay much less than today’s front-loaded mortgaged house+plot-payer. Over the lifetime of the tenure the total paid should be less than the bankers’ maximizing monopoly rent amount. By this means ‘house-prices’ would be driven down, and total lifetime payments probably less than currently.

Of these three options, only Plot Value Charge seems like a potentially practicable idea. Even so it made need further adaption if it is to survive practical politics.

So.

The best way to fix the Housing Market Crisis is by Plot Value Charging. The closer the charge approaches to the full value of each plot the more the housing market will be fixed.

We will know that the housing market is fixed when there is an abundance of good quality homes available at prices most can afford (as in 1930s England) .

Tuesday, 6 October 2020


 Chloe Bright New Star of GenerationRent
 

There’s a bright new star writing about the crisis in the housing market, and specifically the lost ‘Generation Rent’. Because of sharply rising house prices far fewer youngsters can afford to buy a house, and are forced to carry on living with their parents or try their luck on the for-rent market. Chloe isn’t just reporting the generally horrid facts about the reality of renting in England today, she has got out there and interviewed many of the ‘players’.

But Chloe doesn’t stop at the ‘point-and-sigh’ stage, she wants to know what is causing the problem, and why. The main cause of the crisis is that prices have been allowed (by politicians) to get completely out of hand, rising to absurd levels. She gives a very good explanation of how we have arrived at this sorry state through the liberalisation of credit and mortgages, pushing up prices. The alternative public rental sector has been starved and shrunken via sale of council houses. Governments respond by Help-to-buy schemes which only make things worse.    Read on 

Thursday, 11 June 2020

THE POLITICS OF HOUSING A report from the National Housing Federation NHF By Keohane & Broughton, published in  2013

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Now this should be useful! And it starts well:

“The affordability problem dominates England’s housing market: an increasing proportion of disposable household income being consumed by housing costs; difficulties for younger generations seeking to access the housing ladder, despite aspirations and expectations to do so; and, very long waiting lists for social housing.

Brilliant! They get it. Houses are too expensive. Prices must fall. 

Friday, 29 May 2020

THE OWNER-OCCUPIERS’ VIEW
Why would they ever love losing their Wealth as a result of LVT ?
Here’s our proposition: We've decided that wrapping up all of the current taxes on property -- Council Tax, Stamp Duty, IHT, ga-ga Granny Tax, Housing Benefit etc. -- and  transform them into LVT. But how on earth are the politicians going to sell that idea to the 60% of the population who are owner-occupiers and their families? Think of the reactions:

"Watch the price of your house drop to one-third of its present value."

"Be forced to pay tax even if you don't earn a penny."

"Pay the State for something you thought you owned outright, or have the very land under your house nationalised, just like they did in Soviet Russia."

Sunday, 24 May 2020


A (THE?) POWER IN THE LAND? 
BANKS ‘Too Big to Fail, Too Big to Jail’ 
The Politics of BANKING and LVT:
During the Great Financial Crash of 2008, caused by the reckless behaviour of the bankers, our government rushed in with our money to rescue them. In the aftermath very little was done to change the way banks operate, and not a single banker went to jail for their crimes. (Big Short ref). A more stunning example of power over the political system is impossible to imagine (unless you include a virus like CV19!).

LVT would threaten to wipe out 75% of the banks favourite retail business – mortgage lending. To break another side of the Iron Triangle that is clamping the Housing Market, namely Banks and Finance, we are up against a formidably well-connected political force. Money power sometimes seems greater than political power, so can the banks be persuaded or compelled to go along with LVT?

Monday, 18 May 2020

POLITICS AND THE HOUSEBUILDERS
Can they change? Might they WELCOME LVT?
So the housebuilding industry, working to its current business model is a failure. It is certainly not producing enough houses. Those that are built are of poor quality. But the greatest criticism is the price of these new houses increases year-on-year. Who is to blame for this mess?
It would be wrong just to heap all the blame the builders, as Liam seems to do. They are compelled to follow this business model, which only politicians could fix.
But the builders are not completely blameless. Their lavish funding of the Tory Party reaps its rewards, and sways the actions of government ministers. (Liam seems to find it especially reprehensible that Tony Gallagher a successful property developer hosted the 50th birthday party for David Cameron).