Saturday, 21 July 2012

Good comment at The Telegraph

By Dreadnought On The Slipway, our only quibbles are that he doesn't go far enough:

There is a lot of rent seeking in the UK. This is only natural and very understandable in a society where the population is aging and retiring people seek to live off the accumulated assets of their lifetimes. One might say that it is a good and positive thing that large numbers of people have saved enough to have an income in retirement and indeed it might be good, if it were wholly true.

But the fact is that the large numbers of rentiers now retiring from paid work and
hoping to live off their rents have been the most fortunate recipients of inflationary benefits
[and transfers of wealth via the tax system] who have ever lived. Their inflationary gains over the years have been simply an accident of demographic, social and financial history. From the point of view of effort expended they are completely undeserving of their fortunate position.

Looked at from the point of view of a thinking, forced renter, and there are many, the situation is completely unacceptable. These people, who are mostly of working age, rightly perceive a future where they will work to pay for the retirement of the current generation without any chance ever to enjoy their good fortune. They feel that they will never be able to buy houses because prices are too high, because deposits are too high and because the high rents they pay prevent them saving a deposit anyway.

They see a direct connection between their work and the idleness of others. They have also noticed a further malign historical conjunction. They have to pay student fees that the previous generation did not pay just at the same time as the previous generation needs funds so that they can be looked after in old age.

If this situation is not remedied it will have incendiary social consequences. But what can be done?

To diffuse this worsening problem we need more homes and we need more jobs. This can only be done by shifting capital from unproductive sectors to productive ones. If rent seeking is to be made less attractive there is only one simple way to do this and that is to tax rents at a higher level than at present
[an even better solution is to tax the rental value of all land, whether owner-occupied, tenanted or vacant/second home]. The resulting revenue should be put to work building homes for use by workers and building and renewing only infrastructure that makes the economy more competitive[and cutting taxes on work, profits and output].

There will be the usual howls from the self-interested that this tax will not produce revenue, that it will have unintended consequences, and that it will not benefit the people it is intended to. In any taxing decision there are risks. I think that if rents are taxed more some property owners will sell. This will increase housing supply for sale and reduce prices. If more houses are built this will provide
jobs, satisfy demand for houses and reduce rents and prices. If infrastructure is improved it means more jobs and the economy will be more competitive.

The capital locked up in property is simply being hoarded
[actually there is no capital locked up in 'land', what happens is that income and profits are diverted from the productive economy to the unproductive sector, i.e. land owners]. We have to liberate it and use it for production and growth. It will be painful as the deadwood is culled out of the economy.

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