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."
How about explaining to them all the future benefits?
– So you’ve lost your comforting
ever-inflating equity, created by the increase in the value of your home (less whatever
you still owe on to the mortgage.) But
look at all the benefits you’ll reap (sometime in the future
1. Pay less to own your house over your lifetime
of home-owning. (probably, but maybe not by much)
2. Pay much, far less in the early years. (Although
still paying something in later life)
Conventional
house-buying with a mortgage means huge up-front payments, usually at a time
where income is low but rising, commitments to family cause surprising if
pleasant surprises! The mortgage payments very gradually subside so that as
retirement beckons maybe to zero.
3. Instead
of all that Mortgage interest going into the banks, it now goes to taxman, so
lower taxes, especially on income are feasible.
4. The real but intangible value of being classed
a ‘home-owner’ will continue. Best of all it will become easier for your
children to accede to this state, to become part of ‘the great home-owning
democracy’.
5. Remember there is no more Stamp Duty to pay,
Council Tax is also covered. That bugbear of the middle classes, Inheritance
Tax is no more.
6. When you go ga-ga and they cart you off to a
home, the state will pay. Never again will your children see their inheritance
wiped out to pay for your dribbling incontinence. (But that’s no big deal
because there is no inheritance. LVT has wiped it out?)
NOW TELL ME MR. & MRS.
HOMEOWNER, WHAT’S NOT TO LIKE ABOUT THAT?
Did I mention, no Capital Gains? Your house
would actually be worth less when you come to sell. After all it is second-hand,
and has depreciated a bit.
Oh dear! This is a dilemma. So the choice is
(a) build up a tidy capital amount to leave the children when I die, or (b)
make it much easier for them to get on the property ladder now?
[Note? The capital value you accumulate in
today’s market can be used by yourself, dear homeowner. Equity withdrawal is one
way (hint: it’s a bit of a swindle) or you could downsize in later life and
have the life of Riley in old age. Surprisingly few trade-down, despite this
being the only way live homeowners can get real money into their hands]
Don’t be surprised when today’s Home-owners
all speak as one “We will never vote for any politician who even suggests
we investigate LVT. Our mouthpieces, newspapers like the Daily Mail must alert
us to the faintest whiff of such dangerous talk.”
Think I’m making this up? Look at my previous
postings about The Garden Tax, ( http://housescheaperbettermore.blogspot.com/2017/06/)
and Poor
George (http://housescheaperbettermore.blogspot.com/2019/07/poor-george-he-discovers-that-some-of.html), the sad case of Monbiot who wrote a very
moderate and well-reasoned case for LVT.
POLITICIANS
DREAD FALLING HOUSE PRICES
‘Affordable
housing’ ‘Help-to-Buy’ — these are just some of the ways politicians pretend
to tackle the housing crisis. They know that there is a crisis — too few
homes available to buy, and the price of houses spiralling beyond the reach of
many hard-working, just-about-managing families.
The
one obvious political solution to the crisis would be to engineer a crash in
the housing market. What happened in 1988-97 would do nicely! Instead of the
average house costing FIVE times average earnings (1990) it dropped to a much
more ‘affordable’ THREE times earnings.
Of
course the 1990s were a time of woe for home-owners. Repossessions soared. No
politician wants to held to blame like the hapless John Major, especially after
the debacle of ‘Black Wednesday’ in 1992 (when the UK was ejected from the
European Exchange Rate Mechanism). All through this time the price of houses fell.
The average house price was at a peak of £140,000 in 1988 and then it
dropped to about £90,000 by 1996, a 40% drop. (At lot of this drop in real
prices was masked by steep rates of inflation.)
So
did this put people off buying houses? Was this the end of the dream for the
‘Great Home-Owning Democracy’? Not really, if you look at the picture:
Ownership
is becoming less possible especially for the younger, first time buyers. Now
it’s not 71% that are owners, currently less than 64% own the home they live
in. Or back to 1986 as the dotted line on the chart shows.
This
is a cluster of policy failures which surely means that any politician wanting
to be re-elected would need to fix it. The solution seems so obvious — we need
a period of falling house prices. Great hopes and expectations were raised
after the Great Financial Crash in 2008. Now at last we would see HPC — the
housing price crash. The website www.housepricecrash.co.uk attracted huge attention. And yes, for a while the
market stuttered. But then Gordon Brown “saved the world” (he meant to say ‘the
banks’). Chancellor Darling introduced Quantitative Easing, which stuffed the
banks with lots of money to lend. The result? House prices started rising
again. Ownership rates carried on declining.
House
prices resume their inexorable rise, this time with ultra-low interest rates
They
knew that this was exactly what would happen, and yet the politicians, Brown,
and Cameron after him, allowed it to happen! Where was the statesmanship from
the leaders who would Do The Right Thing and let house prices crash?
According
to Keohane & Broughton [1] in The politics of Housing
“The problem is the extent of the asset bubble that’s been created around land
in the UK and particularly in the South of England is such that it cannot
easily or quickly be unwound – so much of it is linked to the health of our
banks, and to individual's long term financial security. There is no way of
addressing this problem in the short run – housing officials and ministers are
operating within almost impossible constraints, which pushes them into short
termism. It’s easier to announce another package of 'help for hard pressed
homebuyers' than to seriously address chronic issues of undersupply and
affordability. They can’t deal with the long term strategic stuff”.
K&B
tell us that there are 3 factors to bear in mind
1.
Is housing a pressing problem? Do we really want to fix it?
2.
What are the voters’ aspirations and financial interests?
3.
Ideology of the Parties? All capitalists now.
Judging
by the half-baked ideas coming out about the ‘need to build more house’ and
such gimmicks as ‘help to buy’, the politicians clearly don’t want to fix it.
But won’t the voters punish these reckless politicians for their fecklessness?
Not
the existing home-owners. They are still a comfortable two-thirds majority of
the people, and these are people that vote, mostly for the Tories. They value
their ‘hard-earned’ build-up of equity in the value of their house. (In truth
it is unearned capital gain!) But woe betide any Chancellor who would deprive
the owners of their anticipated pension fund.
But
the non-owners join in this self-enriching dream. Even though the prospect of
becoming a home-owner is receding for many, they still rather like the ‘free
lunch’ of rising prices. Again one effect of QE is to keep interest rates at
rock bottom. This appears to make the cost of buying a lot more affordable.
In
ideological terms there is little that sets the parties apart. All, even
Corbynistas, pay lip-service to the home-owning democracy. It has been a
wonderful ride. Property owning has expanded from being the privilege of the
very few — about 10% were home- or property-owners in 1910. To get this up to
70% is a real and I think highly desirable policy goal.
At
some point the balance will tip, and falling house prices will become the only
solution. But for now the owners think that ever-rising house prices will go on
for ever, and no politician could get elected disabusing them of their
money-for-nothing fantasy.
Reference Keohane,
Nigel and Nida Broughton (2013) The politics of Housing Social
Market Foundation.
Keohane and Broughton suggest that the best thing to do is to
promote the rental sector. Once a critical mass of renters builds up, then the
power of the owner-occupiers’ lobby is weakened. No, not really, because many
renters aspire to be home-owners too. The Chancellor (Osborne) has not helped
either by penalising buy-to-let. Pressure is building to give tenants security
of tenure. A very good thing too, but it does make BTL less attractive. You can’t
have rented accommodation without landlords. It comes to something when Tories
crack down on landlords (but how many votes do they have?)
The only hope for LVT Because of the home-owners’ power as a resolute
majority of voters LVT will NEVER happen unless extreme caution is exercised. I’ve
suggested one small step, the conversion of a greatly-hated tax, namely Stamp
Duty into a small lvt, letting it settle in for a few (ten?) years, and then
widening the scope of LVT. Even for this baby step some form of sweetener is
advisable.
We are forced to use the standard mendacious language perfected
by Cummings (and earlier used by the Thatcherites). “No extra taxes” “Your home
is safe with us”. Never admit your final goal of 100%LVT. That only hands your
opponents the free pass to say “Abolish the hated Garden Tax (LVT)”
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