Author Archives: Jock Coats

Opinion: Liberating the land – prosperity through Rigorous Liberalism

The central tenet of what I call “Rigorous Liberalism” is that a truly liberal state would seek to eradicate economic, social and class barriers to equal opportunity before creating more government programs to subsidise people at a disadvantage in markets distorted by decades or centuries of privilege and rent-seeking.

Nowhere is this need more obvious than in land, planning and housing policy. Artificially restricting land supply drives up land prices and drives down housing quality. If customers can only afford so much and most is sunk into land costs there’s not a lot left for competition to drive up …

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Opinion: The FSA’s mortgage credit proposals v. Land Value Tax

Have you heard about the Financial Services Authority’s ideas for restricting mortgage credit? One is to ban 100% Loan To Value mortgages, and clearly in a time of uncertainty that would be prudent – you don’t want to be in negative equity by the time you collect the keys to your new home. The other is to restrict all mortgages to three times earnings.

You may also have seen a report on the housing market in the Daily Telegraph recently where Edmund Conway canvassed the opinions of four leading economists. The most shockingly bearish response in “Do not pass go – or expect house prices to rise soon” was from Citigroup’s UK Chief Economist, Michael Sanders, who argued that

everything depends on the amount people can borrow. At the moment the average loan to value for first time buyers is 76pc, compared with the more recent norm of 90pc. If LTVs stay where they are, or are regulated by the Government, you’re talking about an even more severe fall. If you want to get the deposit and mortgage burden for a first-time buyer back to the average of the last 35 years with the current level of LTVs, then house prices need to fall another 65pc from their current level.”

So, the act of restricting mortgage credit could provoke a massive write-down in the value of property in order to enable buyers to afford anything. And if there’s no “new blood” coming into the housing market at the bottom end in the form of first time buyers there can be little turnover further up the market.

Now, one of the biggest objections to a significant Land Value Tax has always been the predictable (and intentional) effect it would have of removing the land value from existing property values. Yet the government is now suggesting just such a massive write-down with no compensation to the households that lose out.

With LVT, however, replacing pound for pound as many as possible of the other taxes people currently pay, they would at least be seeing some benefit from their capital loss in the form of abolishing, say, NI, Council Tax, Inheritance Tax, Capital Gains Tax and some at least of their Income Tax.

Further, those of us who campaign for LVT say that switching the tax base away from incomes and trade and onto land values will encourage enterprise, will encourage people to maximize their incomes from work. Just at a time when anyone and everyone actually creating wealth in this country needs every encouragement to continue doing so to help the economy recover.

Longer term it will also prevent the sort of speculative land value bubble we have seen over the last decade from happening again, leading to more economic stability – a much better way of doing so than trying to regulate bubbles out of existence.

There’s one additional, timely, benefit.

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Opinion: The Opportunity of a Lifetime to “Build Anew, to Build Better”

I watched with some discomfit Nick Clegg and Vince Cable’s Harrogate conference speeches. Discomfit because, whilst there was rhetoric a-plenty about how the economic crisis affords us an opportunity to, indeed demands that we must, build a new order from the very foundations, I can’t help feeling that our policy makers have not even got the keys to the JCBs yet.

Banker-bashing is all very well, and seemed popular at least in the conference hall. Yet just strengthening the new building with high-tensile regulations and restricting openings for excess while leaving the old foundations will miss the biggest opportunity of all: to redesign the very footings of the system behind this crisis and others before it. And it is a system which also underpins the entire divide between those we desire to help, currently eking out their living in the basement, and the fabulous wealth of the penthouses.

Our well-meant policies about redistribution and raising opportunity and aspiration will ultimately be utterly futile without understanding this; realizing that the building’s escalators are running the wrong way. Yes, we can and must assist those are unable to scramble out of the rubble themselves, but we must also level the site before we rebuild if that is to bring permanent benefits.

But unlike previous economic crises, the opportunity this time is not merely to rebuild familiar institutions, but establish an economic structure plan for a world radically different from that which applied in previous melt-downs. A truly globalized world of opportunities for real people; a whole new market paradigm in which we can move freely around the world; trade freely with people directly in other countries; reduce the power and influence of the intermediaries made necessary by the difficulties of communication and commerce in earlier centuries.

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