...PS, if you have a blog, or even Facebook, please share DrBenway's excellent presentation with your social network.
Thursday, 26 July 2012
Old habits die hard; a crude example of rent seeking down under...
The City of London's contemporaries down under probably lack the sophistication of their old colonial masters. However this presentation, although heavy reading, is essential viewing for anybody who wants to understand the methods the financial sector use to fleece the unsuspecting public - grab a cuppa and enjoy...
...PS, if you have a blog, or even Facebook, please share DrBenway's excellent presentation with your social network.
...PS, if you have a blog, or even Facebook, please share DrBenway's excellent presentation with your social network.
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.
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.
Friday, 6 July 2012
Lucy Tobin summarises...
From The Evening Standard:
Who would want to be leaving school or university this summer? When I finished my education five years ago, the default setting among escapees was optimism.
Sure, we were sad to wave goodbye to friends, fancy dress festivities and — for some of us, at least — studying, but there was a wider world of work we wanted to be part of. Today, that feeling must have turned into despair.
According to research released this week, an average of 73 graduates will be chasing every job. But if the situation sounds dire for the highly educated, imagine how those without letters after their names feel as they fire their CVs off into the abyss. More than one in five 16- to 25-year-olds is currently out of work. They aren’t simply suffering alongside everyone else — the young are being hit disproportionately.
I’ve spent the past three years wondering what it will take for those in power to tackle the problems facing the under-25s adequately. For instead of helping them, this Government seems intent on kicking them.
The Education Maintenance Allowance was abolished. Tuition fees have trebled. And if the Tories stay in power, the young can look forward to having their housing benefits scrapped too. But nowhere does this attitude manifest itself more obviously than on youth unemployment, where the Government’s £1 billion Youth Contract is nowhere near enough.
Perhaps the Conservatives have largely given up on the young, deciding that it’s easier to convince the generations above that the fresh-faced are just shirkers, too hopeless to find work or to deserve homes or help. Certainly, the under-25s are easy to ignore — they don’t, after all, vote in the numbers that the elderly do.
But if there is a political explanation for half-hearted action, there certainly isn’t an economic one...
Who would want to be leaving school or university this summer? When I finished my education five years ago, the default setting among escapees was optimism.
Sure, we were sad to wave goodbye to friends, fancy dress festivities and — for some of us, at least — studying, but there was a wider world of work we wanted to be part of. Today, that feeling must have turned into despair.
According to research released this week, an average of 73 graduates will be chasing every job. But if the situation sounds dire for the highly educated, imagine how those without letters after their names feel as they fire their CVs off into the abyss. More than one in five 16- to 25-year-olds is currently out of work. They aren’t simply suffering alongside everyone else — the young are being hit disproportionately.
I’ve spent the past three years wondering what it will take for those in power to tackle the problems facing the under-25s adequately. For instead of helping them, this Government seems intent on kicking them.
The Education Maintenance Allowance was abolished. Tuition fees have trebled. And if the Tories stay in power, the young can look forward to having their housing benefits scrapped too. But nowhere does this attitude manifest itself more obviously than on youth unemployment, where the Government’s £1 billion Youth Contract is nowhere near enough.
Perhaps the Conservatives have largely given up on the young, deciding that it’s easier to convince the generations above that the fresh-faced are just shirkers, too hopeless to find work or to deserve homes or help. Certainly, the under-25s are easy to ignore — they don’t, after all, vote in the numbers that the elderly do.
But if there is a political explanation for half-hearted action, there certainly isn’t an economic one...
Sunday, 1 July 2012
The Work Programme
Thanks to Bob E and MBK for the various links.
The basic template for the Work Programme, also known as "back-to-work" or "work for dole", is as follows:
1. Two large political parties whose policies once in government are largely identical (it is merely the rhetoric which is different). This ensures continuity for all the people who are milking the taxpayer.
2. A "financial crisis" which is the inevitable outcome of a house price bubble, for which you need a good sold basis of Home-Owner-Ism.
3. This leads to more job insecurity and a climate of fear, which The Powers That Be use to...
4. Create a desperate desire among the populace that the government "do something" to sort all this out, they can get away with outrageous measures that would not be accepted in peacetime, such as massive bank bail outs, which is by and large outright theft, but they can easily sell this to the Home-Owner-Ists on the basis that the banks have to be bailed out and subsidised or else house prices will start falling...
5. To distract the electorate's attention from this massive 'bezzle, The Powers That Be have to play divide and conquer, which means pitting those who still have jobs against those who don't. The number of unemployed increases during a "financial crisis" so the cost of the welfare state also goes up, so it is not difficult to somehow convince people still in work that the recession is all the fault of people who have lost their jobs (or never had one). This is a bit like blaming the First World War on those who died in the trenches, but hey.
6. The Powers That Be can't all be bankers of course, so we have another group of people who realise that they can cash in on the anti-welfare claimant mood by setting up back-to-work schemes. The idea is that by spending a few hundred quid up front, they can somehow get people back into work, thus saving thousands of pounds a year in future. Which would be fine if there were any jobs available, but there aren't, but let's gloss over that.
7. They in turn need cheerleaders in the fakecharity sector, for example the Social Market Foundation who recommended something along the lines of the Work Programme back in 2009. That little report was of course funded by yet another taxpayer funded body called Remploy.
8. None of these back-to-work schemes actually work of course, the number of people on the schemes who find work is only about 3%, which is lower than the natural rate which would happen anyway of about 5%.
9. Even some of the politicians realise that this is all a complete waste of money and that it cannot possibly work, and the Public Accounts Committee mumbles about there a) not being enough jobs for the back-to-work people to fill and b) the whole thing being riddled with fraud.
10. At which stage the fakecharity cheerleaders suggest that maybe the back to work providers aren't successful because... the bar was set too high. All it needs for them to be successful is for the pass mark to be lowered, which is referred to as "grade inflation" when the same technique is used with GSCEs and A Levels.
11. So people on the dole are averse to going on the schemes. At which stage the lovely river of taxpayers' cash dries up a bit. No problem - all these private firms need is to be able to impose criminal penalties on claimants who refuse to go along with the charade.
12. At this stage, the back-to-work providers have achieved the same glorious positive feedback loop as the bankers: the bail outs (and the Quantitative Easing and so on) are supposed to help the economy recover, but this doesn't work of course, so a few months later, the banks come back and ask for another, bigger bail out. This doesn't work either, so a few months later, etc.
This is again similar to the tactics used in the First Word War - sending ten thousand men over the top to be slaughtered didn't work, so next time let's send twenty thousand.
No sane person would keep doubling up each time if something isn't working, unless of course he is the beneficiary of the doubling up rather than the person paying for it. Which applies to the back-to-work scheme, it doesn't work, but instead of just shutting them down, what they recommend is lowering the bar, increasing the payments to the scheme providers and allowing them to impose criminal penalties on those who refuse to play along.
13. While we're in the mood for harsh measures, the old give them vouchers instead of cash idea has reared its ugly head again.
The basic template for the Work Programme, also known as "back-to-work" or "work for dole", is as follows:
1. Two large political parties whose policies once in government are largely identical (it is merely the rhetoric which is different). This ensures continuity for all the people who are milking the taxpayer.
2. A "financial crisis" which is the inevitable outcome of a house price bubble, for which you need a good sold basis of Home-Owner-Ism.
3. This leads to more job insecurity and a climate of fear, which The Powers That Be use to...
4. Create a desperate desire among the populace that the government "do something" to sort all this out, they can get away with outrageous measures that would not be accepted in peacetime, such as massive bank bail outs, which is by and large outright theft, but they can easily sell this to the Home-Owner-Ists on the basis that the banks have to be bailed out and subsidised or else house prices will start falling...
5. To distract the electorate's attention from this massive 'bezzle, The Powers That Be have to play divide and conquer, which means pitting those who still have jobs against those who don't. The number of unemployed increases during a "financial crisis" so the cost of the welfare state also goes up, so it is not difficult to somehow convince people still in work that the recession is all the fault of people who have lost their jobs (or never had one). This is a bit like blaming the First World War on those who died in the trenches, but hey.
6. The Powers That Be can't all be bankers of course, so we have another group of people who realise that they can cash in on the anti-welfare claimant mood by setting up back-to-work schemes. The idea is that by spending a few hundred quid up front, they can somehow get people back into work, thus saving thousands of pounds a year in future. Which would be fine if there were any jobs available, but there aren't, but let's gloss over that.
7. They in turn need cheerleaders in the fakecharity sector, for example the Social Market Foundation who recommended something along the lines of the Work Programme back in 2009. That little report was of course funded by yet another taxpayer funded body called Remploy.
8. None of these back-to-work schemes actually work of course, the number of people on the schemes who find work is only about 3%, which is lower than the natural rate which would happen anyway of about 5%.
9. Even some of the politicians realise that this is all a complete waste of money and that it cannot possibly work, and the Public Accounts Committee mumbles about there a) not being enough jobs for the back-to-work people to fill and b) the whole thing being riddled with fraud.
10. At which stage the fakecharity cheerleaders suggest that maybe the back to work providers aren't successful because... the bar was set too high. All it needs for them to be successful is for the pass mark to be lowered, which is referred to as "grade inflation" when the same technique is used with GSCEs and A Levels.
11. So people on the dole are averse to going on the schemes. At which stage the lovely river of taxpayers' cash dries up a bit. No problem - all these private firms need is to be able to impose criminal penalties on claimants who refuse to go along with the charade.
12. At this stage, the back-to-work providers have achieved the same glorious positive feedback loop as the bankers: the bail outs (and the Quantitative Easing and so on) are supposed to help the economy recover, but this doesn't work of course, so a few months later, the banks come back and ask for another, bigger bail out. This doesn't work either, so a few months later, etc.
This is again similar to the tactics used in the First Word War - sending ten thousand men over the top to be slaughtered didn't work, so next time let's send twenty thousand.
No sane person would keep doubling up each time if something isn't working, unless of course he is the beneficiary of the doubling up rather than the person paying for it. Which applies to the back-to-work scheme, it doesn't work, but instead of just shutting them down, what they recommend is lowering the bar, increasing the payments to the scheme providers and allowing them to impose criminal penalties on those who refuse to play along.
13. While we're in the mood for harsh measures, the old give them vouchers instead of cash idea has reared its ugly head again.
Thursday, 28 June 2012
"The Great Myth of Urban Britain"
From Mark Easton's blog at the BBC:
What proportion of Britain do you reckon is built on? By that I mean covered by buildings, roads, car parks, railways, paths and so on - what people might call "concreted over". Go on - have a guess...
The 80% of us who live in towns and cities spend an inordinate amount of time staring at tarmac and brick. On most urban roads, one can be tricked into thinking that the ribbon of grey we see reflects the land use for miles around. But when you look out of a plane window as you buckle-up ahead of landing at a UK airport, the revelation is how green the country appears.
So what is the answer to my question - have you got a figure in your head?
Until recently, conflicting definitions have made the calculation tricky but fortunately, a huge piece of mapping work was completed last summer - the UK National Ecosystem Assessment (NEA) (pdf). Five hundred experts analysed vast quantities of data and produced what they claim is the first coherent body of evidence about the state of Britain's natural environment.
Having looked at all the information, they calculated that "6.8% of the UK's land area is now classified as urban" (a definition that includes rural development and roads, by the way). The urban landscape accounts for 10.6% of England, 1.9% of Scotland, 3.6% of Northern Ireland and 4.1% of Wales.
Put another way, that means almost 93% of the UK is not urban. But even that isn't the end of the story because urban is not the same as built. In urban England, for example, the researchers found that just over half the land (54%) in our towns and cities is greenspace - parks, allotments, sports pitches and so on.
Furthermore, domestic gardens account for another 18% of urban land use; rivers, canals, lakes and reservoirs an additional 6.6%. In England, "78.6% of urban areas is designated as natural rather than built". Since urban only covers a tenth of the country, this means that the proportion of England's landscape which is built on is...
Click and highlight to reveal: 2.27%.
What proportion of Britain do you reckon is built on? By that I mean covered by buildings, roads, car parks, railways, paths and so on - what people might call "concreted over". Go on - have a guess...
The 80% of us who live in towns and cities spend an inordinate amount of time staring at tarmac and brick. On most urban roads, one can be tricked into thinking that the ribbon of grey we see reflects the land use for miles around. But when you look out of a plane window as you buckle-up ahead of landing at a UK airport, the revelation is how green the country appears.
So what is the answer to my question - have you got a figure in your head?
Until recently, conflicting definitions have made the calculation tricky but fortunately, a huge piece of mapping work was completed last summer - the UK National Ecosystem Assessment (NEA) (pdf). Five hundred experts analysed vast quantities of data and produced what they claim is the first coherent body of evidence about the state of Britain's natural environment.
Having looked at all the information, they calculated that "6.8% of the UK's land area is now classified as urban" (a definition that includes rural development and roads, by the way). The urban landscape accounts for 10.6% of England, 1.9% of Scotland, 3.6% of Northern Ireland and 4.1% of Wales.
Put another way, that means almost 93% of the UK is not urban. But even that isn't the end of the story because urban is not the same as built. In urban England, for example, the researchers found that just over half the land (54%) in our towns and cities is greenspace - parks, allotments, sports pitches and so on.
Furthermore, domestic gardens account for another 18% of urban land use; rivers, canals, lakes and reservoirs an additional 6.6%. In England, "78.6% of urban areas is designated as natural rather than built". Since urban only covers a tenth of the country, this means that the proportion of England's landscape which is built on is...
Click and highlight to reveal: 2.27%.
Monday, 18 June 2012
House prices and immigration
When you complain that the Home-Owner-Ists deliberately pushed up house prices in the UK over the last ten or twenty years, their favourite excuse is that it was purely down to large scale immigration under New Labour and they deny that it is down to their deliberate attempts to restrict supply, i.e. NIMBYism.
Now, there is plenty of evidence to say that recent immigrants are given priority in the allocation of social housing, but let's stick to the central issue: the purchase price of houses.
We know that most countries* had a house price bubble over the last ten or twenty years, same as the UK, and a different ostensible reason is given each time, for example:
1. Ireland. The narrative is that interest rates fell after they joined the Euro, fuelling a speculative credit bubble, most of which went into land. It is noteworthy that in the boom years, the Republic of Ireland, with a population of 4.5 million, completed 75,000 new homes a year.
2. Spain. The narrative is that they had a bubble after they joined the Euro (same as for Ireland), and that this was exacerbated by Germans pouring in their untaxed money from supposedly secret accounts. Spain, with a population of 47 million completed 400,000 new homes a year during the boom.
3. Norway, where "property prices have tripled since the mid-1990s, up nearly 30% since the Great Recession as the oil-rich nation rode the coattails of the commodities bubble and has benefitted from the same “flight to safety” capital flows that have benefitted (and inflated bubbles in) other Nordic countries."
4. The USA, where the house price bubble is traditionally blamed on political interference, i.e. Clinton and Bush after him encouraged banks to advance mortgages to low income households, where house prices doubled since the mid-1990s. It is believed that there was also a construction boom, but on a national level, this is not actually true. Nationwide, with a population of 294 million, housing completions have been around 1.5 million a year since 1968, which per capita is not much more than in the UK (population 62 million, 200,000 - 250,000 new completions per year until the credit crunch). There are states with strict zoning laws with little new construction (which had the biggest house price increases) and states with liberal planning laws (which had the smallest house price increases).
5. Canada's economy is pretty similar to that of the USA, but there were no efforts to increase the level of home ownership (such as encouraging lending to low income families) and their system of banking regulation is much better than in most countries. Interestingly, the level of owner-occupation has now outstripped that of the USA. Prices there more than doubled over the last twenty-five years.
6. And so on and so on, there is always an excuse, the Home-Owner-Ists are always ready to blame specific local factors: Canada and Australia shared in the commodities and raw materials price booms, the same as Norway; in China they are building like topsy, they are building whole ghost cities but most homes are bought as 'investments' and stand empty; in the Eastern European countries, prices boomed after they joined the EU in 2004.
7. For example, prices in Poland went up by a third in the first few years after joining. Interestingly, while the English like to blame high house prices on immigrants from e.g. Poland, their excuse is the equal and opposite: "Joining the EU prompted purchases by foreigners, who are however limited to one dwelling each, and encouraged remittances by Poles working abroad. As the money flowed in, the Zloty gradually moved up against major currencies, encouraged also by lower inflation..."
8. The fact that other countries had construction booms and still had bubbles (Ireland: 2 new homes per 100 people; Spain: 1 new home; USA: 0.5; against UK: 0.3) seems to exonerate the NIMBYs slightly (as malevolent as their motives are); the fact that so many countries had house price booms seems to rule out immigration as a factor - if people were emigrating from e.g. India to the UK, then wouldn't house prices be falling in India? Nope. But they then have a similar excuse to Spain/German hot money: "The Indian Property Market is purported to be in bubble territory since March 2005, when the current UPA government decided to open FDI in Real Estate. This "FDI" rules ensured that Indian money stacked in Switzerland and other tax havens can be brought back to invest in high yielding Indian property market, away from low-yielding dollar assets."
This is not to deny that inwards immigration to the UK must have had some impact - if we hadn't had this, maybe house prices would "only" have doubled in ten years instead of trebling. And while New Labour's immigration policies were questionable for many other reasons, it is also true that most immigrants did come here in good faith and found a job (their unemployment is lower than for British born people of the same age) and most are not in social housing, so as individuals they are not to blame (and are welcome to join YPP!).
10. So... once you rule out all the equal and opposite excuses (it's funny how these special local factors all seem to push prices up - nowhere are there special local factors keeping a lid on prices*), what you are left with is the same basic reason everywhere: the easiest way for banks to make money is to expand mortgage lending; they make twice as much profit if they can get house prices to double, enabling them to siphon off rental income; politicians like house price bubbles because it creates the illusion of wealth and gets them re-elected; existing owner-occupiers like it because it makes them feel rich etc, it is a vicious circle.
NB: bankers are in fact indifferent whether there's new construction or not. If the NIMBYs prevail, then they can lend more on the rising price of existing houses; if there's a lot of new construction, they can lend the money to "property developers" instead.
11. And there's something else which is the same everywhere: it's the same people who end up paying for all this; that's the next generation, assuming they're "lucky" enough to get a job. Residual unemployment is racked up each recession, and never returns to its old pre-recession level. Back in the 1970s it was headline news when unemployment in the UK hit half a million and then a million. Nowadays it'll be headline news when it hits three million. And The Daily Mail will continue to blame this on the 'welfare culture' while simultaneously saying hooray to house price inflation (and boo to immigration).
* The only noteable exceptions are Germany and Switzerland, but this is probably down to the fact that their houses were so stupendously expensive to start off with - even back in 1990, pre-unification, the average house in Germany cost seven times the average household's income at a time when the average ratio in the UK was three or lower.
Now, there is plenty of evidence to say that recent immigrants are given priority in the allocation of social housing, but let's stick to the central issue: the purchase price of houses.
We know that most countries* had a house price bubble over the last ten or twenty years, same as the UK, and a different ostensible reason is given each time, for example:
1. Ireland. The narrative is that interest rates fell after they joined the Euro, fuelling a speculative credit bubble, most of which went into land. It is noteworthy that in the boom years, the Republic of Ireland, with a population of 4.5 million, completed 75,000 new homes a year.
2. Spain. The narrative is that they had a bubble after they joined the Euro (same as for Ireland), and that this was exacerbated by Germans pouring in their untaxed money from supposedly secret accounts. Spain, with a population of 47 million completed 400,000 new homes a year during the boom.
3. Norway, where "property prices have tripled since the mid-1990s, up nearly 30% since the Great Recession as the oil-rich nation rode the coattails of the commodities bubble and has benefitted from the same “flight to safety” capital flows that have benefitted (and inflated bubbles in) other Nordic countries."
4. The USA, where the house price bubble is traditionally blamed on political interference, i.e. Clinton and Bush after him encouraged banks to advance mortgages to low income households, where house prices doubled since the mid-1990s. It is believed that there was also a construction boom, but on a national level, this is not actually true. Nationwide, with a population of 294 million, housing completions have been around 1.5 million a year since 1968, which per capita is not much more than in the UK (population 62 million, 200,000 - 250,000 new completions per year until the credit crunch). There are states with strict zoning laws with little new construction (which had the biggest house price increases) and states with liberal planning laws (which had the smallest house price increases).
5. Canada's economy is pretty similar to that of the USA, but there were no efforts to increase the level of home ownership (such as encouraging lending to low income families) and their system of banking regulation is much better than in most countries. Interestingly, the level of owner-occupation has now outstripped that of the USA. Prices there more than doubled over the last twenty-five years.
6. And so on and so on, there is always an excuse, the Home-Owner-Ists are always ready to blame specific local factors: Canada and Australia shared in the commodities and raw materials price booms, the same as Norway; in China they are building like topsy, they are building whole ghost cities but most homes are bought as 'investments' and stand empty; in the Eastern European countries, prices boomed after they joined the EU in 2004.
7. For example, prices in Poland went up by a third in the first few years after joining. Interestingly, while the English like to blame high house prices on immigrants from e.g. Poland, their excuse is the equal and opposite: "Joining the EU prompted purchases by foreigners, who are however limited to one dwelling each, and encouraged remittances by Poles working abroad. As the money flowed in, the Zloty gradually moved up against major currencies, encouraged also by lower inflation..."
8. The fact that other countries had construction booms and still had bubbles (Ireland: 2 new homes per 100 people; Spain: 1 new home; USA: 0.5; against UK: 0.3) seems to exonerate the NIMBYs slightly (as malevolent as their motives are); the fact that so many countries had house price booms seems to rule out immigration as a factor - if people were emigrating from e.g. India to the UK, then wouldn't house prices be falling in India? Nope. But they then have a similar excuse to Spain/German hot money: "The Indian Property Market is purported to be in bubble territory since March 2005, when the current UPA government decided to open FDI in Real Estate. This "FDI" rules ensured that Indian money stacked in Switzerland and other tax havens can be brought back to invest in high yielding Indian property market, away from low-yielding dollar assets."
This is not to deny that inwards immigration to the UK must have had some impact - if we hadn't had this, maybe house prices would "only" have doubled in ten years instead of trebling. And while New Labour's immigration policies were questionable for many other reasons, it is also true that most immigrants did come here in good faith and found a job (their unemployment is lower than for British born people of the same age) and most are not in social housing, so as individuals they are not to blame (and are welcome to join YPP!).
10. So... once you rule out all the equal and opposite excuses (it's funny how these special local factors all seem to push prices up - nowhere are there special local factors keeping a lid on prices*), what you are left with is the same basic reason everywhere: the easiest way for banks to make money is to expand mortgage lending; they make twice as much profit if they can get house prices to double, enabling them to siphon off rental income; politicians like house price bubbles because it creates the illusion of wealth and gets them re-elected; existing owner-occupiers like it because it makes them feel rich etc, it is a vicious circle.
NB: bankers are in fact indifferent whether there's new construction or not. If the NIMBYs prevail, then they can lend more on the rising price of existing houses; if there's a lot of new construction, they can lend the money to "property developers" instead.
11. And there's something else which is the same everywhere: it's the same people who end up paying for all this; that's the next generation, assuming they're "lucky" enough to get a job. Residual unemployment is racked up each recession, and never returns to its old pre-recession level. Back in the 1970s it was headline news when unemployment in the UK hit half a million and then a million. Nowadays it'll be headline news when it hits three million. And The Daily Mail will continue to blame this on the 'welfare culture' while simultaneously saying hooray to house price inflation (and boo to immigration).
* The only noteable exceptions are Germany and Switzerland, but this is probably down to the fact that their houses were so stupendously expensive to start off with - even back in 1990, pre-unification, the average house in Germany cost seven times the average household's income at a time when the average ratio in the UK was three or lower.
Saturday, 9 June 2012
How much tax would you like to pay?
Our policy is to shift from taxing incomes and output to taxing the rental value of land. We all know that the Home-Owner-Ists always wail on about "Poor Widows In Mansion being forced to downsize", but who would be the winners under such a tax shift, and by how much?
If we wanted to replace all existing taxes (see footnote 1) with ad valorem National Domestic and Non-Domestic Rates, the tax would be seven per cent per annum on the current selling prices of UK land and buildings (see footnote 2) and the following charts show the break even points (see footnote 3).
To give an example:
- A single earner with no children who earns £16,740 a year and lives in a median value home worth (currently) of £150,000 currently pays £7,000 in tax. Some of this - the Employer's National Insurance and VAT - is stealth taxes which people aren't really conscious of, but they still reduce that person's income/spending power.
- The same single earner on the same wages in the same house would also pay £7,000 in tax (£150,000 x 7% = £10,500 NDR minus £3,500 Citizen's Income).
- So a single earner who owns a median value home who earns more than £16,740 would be better off.
- If he or she earns (say) £30,000, then the chart also gives a guide as to how much they would be better off. These calculations are tricky, but broadly speaking the gain would be between half and three-quarters of the difference between the current income and the break even point, so such a single earner would be at least £7,000 a year better off (half of £30,000 minus £16,740).
Footnote 1: Total revenues for 2012-13 according to the Public Sector Finances Database from income tax, National Insurance, VAT, corporation tax, Business Rates, Council Tax, TV licence, capital gains tax, inheritance tax, Insurance Premium Tax, Stamp Duty and Stamp Duty Land Tax, bank asset tax = £497 billion.
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Footnote 2: If we retained the extra rate of corporation tax on North Sea Oil and increased the bank asset tax to something sensible like 2%, National Domestic & Non-Domestic Rates would need to raise £447 billion. The total value of UK residential land and buildings is currently £5,600 billion, and commercial land buildings are a seventh as much again. £447 billion divided by £6,400 billion = 7 per cent*. So the tax on a home currently worth £200,000 would be +/- £14,000 a year (before deducting Citizen's Income); the tax on a supermarket currently worth £10 million would be £700,000 a year, and so on.
* Strictly speaking, Rates would apply to the "site only rental value assuming optimum permitted to use" which is more subtle concept, so the 7% figure is only a rough guide and an average. On some homes, the tax would be more than 7% and on others it would be less.
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Footnote 3: A household's current tax bill takes into account income tax, National Insurance, Working & Child Tax Credits, an estimate of 7% of earned income for VAT and 1% of the value of the current home for other taxes such as Council Tax, Stamp Duty Land Tax and Insurance Premium Tax. A household's tax bill under the system proposed here assumes that the entire welfare system is replaced with a Citizen's Income of £3,500 per annum for each adult and £1,750 for each child, which would be deducted from the households NDR bill or paid out in cash if it exceeds it.
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If we wanted to replace all existing taxes (see footnote 1) with ad valorem National Domestic and Non-Domestic Rates, the tax would be seven per cent per annum on the current selling prices of UK land and buildings (see footnote 2) and the following charts show the break even points (see footnote 3).
To give an example:
- A single earner with no children who earns £16,740 a year and lives in a median value home worth (currently) of £150,000 currently pays £7,000 in tax. Some of this - the Employer's National Insurance and VAT - is stealth taxes which people aren't really conscious of, but they still reduce that person's income/spending power.
- The same single earner on the same wages in the same house would also pay £7,000 in tax (£150,000 x 7% = £10,500 NDR minus £3,500 Citizen's Income).
- So a single earner who owns a median value home who earns more than £16,740 would be better off.
- If he or she earns (say) £30,000, then the chart also gives a guide as to how much they would be better off. These calculations are tricky, but broadly speaking the gain would be between half and three-quarters of the difference between the current income and the break even point, so such a single earner would be at least £7,000 a year better off (half of £30,000 minus £16,740).
Footnote 1: Total revenues for 2012-13 according to the Public Sector Finances Database from income tax, National Insurance, VAT, corporation tax, Business Rates, Council Tax, TV licence, capital gains tax, inheritance tax, Insurance Premium Tax, Stamp Duty and Stamp Duty Land Tax, bank asset tax = £497 billion.
Back to Top
Footnote 2: If we retained the extra rate of corporation tax on North Sea Oil and increased the bank asset tax to something sensible like 2%, National Domestic & Non-Domestic Rates would need to raise £447 billion. The total value of UK residential land and buildings is currently £5,600 billion, and commercial land buildings are a seventh as much again. £447 billion divided by £6,400 billion = 7 per cent*. So the tax on a home currently worth £200,000 would be +/- £14,000 a year (before deducting Citizen's Income); the tax on a supermarket currently worth £10 million would be £700,000 a year, and so on.
* Strictly speaking, Rates would apply to the "site only rental value assuming optimum permitted to use" which is more subtle concept, so the 7% figure is only a rough guide and an average. On some homes, the tax would be more than 7% and on others it would be less.
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Footnote 3: A household's current tax bill takes into account income tax, National Insurance, Working & Child Tax Credits, an estimate of 7% of earned income for VAT and 1% of the value of the current home for other taxes such as Council Tax, Stamp Duty Land Tax and Insurance Premium Tax. A household's tax bill under the system proposed here assumes that the entire welfare system is replaced with a Citizen's Income of £3,500 per annum for each adult and £1,750 for each child, which would be deducted from the households NDR bill or paid out in cash if it exceeds it.
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