Basic Rental Income

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The Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) published its detailed proposals for a basic income in 2015.

The proposals are based on the Citizen’s Income Trust ‘pure Basic-Income’ model. Disability support and housing costs are not included in the scheme as they are not in the Citizen’s Income Trust’s scheme.

Housing and council tax benefits (and, for the record, disability payments) are an important source of support to those at the bottom of the income distribution.

An option which the RSA proposes for further exploration is the introduction of a ‘Basic Rental Income’. The Basic Rental Income would not be income-contingent and therefore does not have the same disincentive or perverse incentive (eg family break-up) effects as housing benefit and council tax credit. A Basic Rental Income based upon local market conditions would be granted to every individual who rented rather than owned a property. Local authorities would retain their statutory duty to house the homeless and should be given freedom to borrow and invest in new low-cost housing.

A Basic Rental Income would have cost implications. The source of funding for additional cost should be those who have gained the most from increases in housing equity. Philosophically, the justification for this has roots in Thomas Paine’s argument in favour of a ‘basic endowment’. The reason that there have been large gains for some in the housing market whilst others struggle is because our common institutions have failed to provide enough housing to enable affordable rents and housing ownership to be even more widespread. The introduction of a land value tax or similar to fund any shortfall in the Basic Rental Income is therefore justified on the basis of gains received by a few from the institutions of society and its collective action failures rather than through the individual’s endeavour.

This is a means of redistributing the economic rents that have arisen from the institutional structures of land and property. Some such as Adair Turner argues that cooling the housing market should be a primary policy objective from an economic stability perspective.

The Economist this week has an article ‘How to solve Britain’s housing crisis‘. The author writes of

…a growing sense of inequity. Britons over the age of 65, a fifth of the population, own over 40% of the housing wealth held by owner-occupiers. Youngsters with rich parents can buy their first house thanks to the “Bank of Mum and Dad”. Everyone else must resign themselves to renting small properties for life, or to continuing to pay off their mortgage long after retirement. At the election in June half of all private renters voted for Labour and Jeremy Corbyn, up from a third who supported the party in 2010. As home-ownership declines, the Conservatives, in particular, are beginning to worry (see article) —as indeed they should.

Theresa May, the prime minister, has so far failed to show any mettle over housing. Her government has proposed nothing more than tweaks to a broken system. This lack of leadership feeds a crisis that is entirely unnecessary.

Will Libdems step up to the plate in providing the leadership necessary to end the scourge of unaffordable housing and a dysfunctional welfare system?

 

* Joe Bourke is an accountant and university lecturer, Chair of ALTER, Chair of Hounslow Liberal Democrats and PPC for the Brentford and Isleworth constituency.

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35 Comments

  • Nonconformistradical 7th Aug '17 - 6:12pm

    “A Basic Rental Income based upon local market conditions would be granted to every individual who rented rather than owned a property.”

    So what stops landlords bumping up rents? Too much money chasing too few goods – it doesn’t get away from the issue of not enough homes available – and that’s been going on ever since Right to buy started under Thatcher, with local authorities not being allowed to spend the proceeds on new housing.

    You point out yourself:
    “The reason that there have been large gains for some in the housing market whilst others struggle is because our common institutions have failed to provide enough housing to enable affordable rents and housing ownership to be even more widespread.”

    Many people may be struggling to afford housing but the main problem distorting the housing market is not enough homes – which won’t be solved by giving more money to people renting.

  • “So what stops landlords bumping up rents?” Rents are set by the market – supply and demand. The construction industry (as with other industries) is capable of meeting the demand for housing of all kinds within different price ranges if, and only if, there is adequate development land available to build on. This is the point raised in the Economist article cited above.

    Piketty in his well received book ‘Capital’ showed that the proportion of disposable income going to household rents has risen sharply since the 1970’s . The economist, Joseph Stiglitz, who also studies inequality has made the same point and argues for imposing a land value tax, to directly address this source of increasing wealth inequality https://www.bloomberg.com/view/articles/2015-03-03/to-fight-inequality-tax-land .

    The RSA in their report on basic income note that they have not modelled the concept of a basic rental income for renters. However, by way of example, if tenants deducted an amount (say 20% of the Local Housing Allowance ) from their rental payments to Landlords; and Landlords offset these deductions against the LVT assessed on their let properties, would this increase the overall level of rents? If the supply of land made available did not increase, theoretically yes – not because Landlords can add the tax to their rent charges, but because there is potentially more disposable income available for tenants to spend on rented property. This may in fact be the result now with tax credits and housing benefit made available to individuals who would otherwise be reliant on the state for housing provision.

    However, if LVT is applied to all land based on its planning use then it is suggested that a great deal more development land would come onto the market – both public and private. Add to this the suggestions in the economist article for easing of planning restrictions on the urban periphery and enabling of local authority borrowing for the development of public housing and you have the makings of a comprehensive housing policy that may well deliver the desired results.

  • nigel hunter 7th Aug '17 - 10:29pm

    If the last paragraph is enacted the development of modular housing could go ahead (they are cheaper to build) and reduce the cost of housing. Rents could be reduced mortgage costs also. It would also produce jobs in construction of said houses If the will is there a Macmillan (1950s housing minister then PM)housing boom could be developed.

  • David Cooper 7th Aug '17 - 10:49pm

    Joe,
    Commercial landlords are charge what the market will bear. The extra money available to renters due to the Basic Rental Income would increase what the market can bear, by exactly the amount given to tenants, and quickly be captured by higher rents. Without LVT, or with a low level of LVT, this would end up in the pockets of landowners, just as housing benefit does today. You don’ seem to address this difficulty.

  • Nigel,

    I think there is a lot of promise in modular housing, particularly when combined with a shared ownership model. I saw this being used many years ago in Riverside, California in what was then a relatively small community on the periphery of Los Angeles County. The state developed the basic infrastructure with roads, utilities and housing lots with foundations that were available for sale or rent and the owner/tenant built a custom or modular home on the lot. This is particularly useful for larger development. The local authority leases the land and the homeowner finances the property build with a private mortgage.

  • David,

    it is a good point but this is also true of any measure that increases the welfare of one section of society e.g. increases in the minimum wage, increases in general wages or increases in welfare benefits/tax credits. Additional funds in the hands of renters may put upward pressure on rents but this can be offset by downward pressure from the clearing of the bottleneck of land available for development.

    The basic rental income, as proposed by the RSA, would need to be funded by an LVT on let property and undeveloped land with planning consent for housing. The Economist article notes that house prices to earnings in England hit 7.7 in 2016. Its highest recorded level. House prices have grown more in Britain over the past 40 years than any other G7 country. Home ownership has been falling for a decade after rising in most of the past century. London is off the scale.

    Libdem policy is to build 300,000 houses a year. To achieve this level the Economist article points to needed changes in planning regulations on green-belt land which surrounds London and other severely affected cities. Other arguments put forward include abolishing stamp duty and council tax. Councils should be allowed to charge taxes that reflect the true value of properties aka Land Value Tax.

  • The article linked to above https://www.economist.com/news/britain/21725801-cannier-tories-have-longer-argued-more-housing-view-becoming-mainstream-housing notes that the Tory’s held a huge lead among owner-occupiers and a slimmer one among voters with mortgages at the last election, while Labour had a 23-point advantage among private renters. As home-ownership falls, such a gap could become an existential problem for the Tory Party.
    The Resolution Foundation says better that better-off young people are most aggrieved about housing and will turn to parties that have credible policies for doing something about it. I would like to think that the party they turn to will be the Libdems.

  • Joe, I think you have failed to make a convincing case for a Basic Rental Income. It appears you are saying that a LVT could be applied to rented accommodation (not sure if this includes Council houses and Housing Association houses) and the same amount given to those who rent, and this would not affect the number of houses available for rent. You seem to state that only LVT on other land (not houses being rented) would create economic pressure to build more houses for renting and I assume buying. You seem also to accept that unless LVT is applied to land not being used for rented accommodation this scheme would just increase rents.

    It seems that a Basic Rental Income and a LVT on rented accommodation will do nothing to reduce rents or improve the lot of those who rent. Therefore I can’t see the point of it. It appears we agree that the only way to reduce rents is to increase the supply of accommodation for rent and it appears even you recognise Basic Rental Income will not do it.

    As chair of ALTER I think you should not claim a benefit from LVT that doesn’t work. It is difficult enough to make LVT understandable to people without these exaggerated claims for it. Also I don’t think LVT should be applied in the UK on housing until it has been seen to work on all other land.

  • Michael,

    there are two distinct issues here – increasing the supply of land and a welfare/redistribution issue,

    The first – increasing the supply of land is effected by two principal measures. An LVT on land held out of use (principally brownfield sites in Urban locations) and second a relaxation on planning restrictions that constrict the natural expansion of major cities and towns where the population is concentrated.

    The second issue is reform of the current welfare system. The RSA paper cited deals with proposal for a basic income based on the Citizens Income Trust pure basic income model (that excludes housing benefit). They advocate various options for reforming housing benefit, one of which is a Basic rental income payable to renters in addition to a pure basic income. The pure basic income is funded largely by conversion of existing personal tax and national insurance allowances to a negative income tax. The RSA has not modelled how the Basic rental income would be funded. My argument here is if it is to replace housing benefit (which does have the effect of increasing funds in the market available for rental) then it needs to be funded by a tax that cannot be passed on i.e. LVT. To the extent that LVT replaces Housing benefits there are no additional funds being made available to the rental market. To the extent that additional funds are provided in excess of what is currently available via housing benefits there is a redistribution to renters that is funded by taxation of the owners of land.

  • Bill Fowler 8th Aug '17 - 9:24am

    Given the terrible state of the government’s finances despite the huge amount of money it takes in taxation it would be political suicide to implement unfair taxes based on notional wealth from housing and ignore that many people in those houses are on a lower net income that those on benefits. This is almost the definition of unfair taxation and would be political suicide. The only fair way to get that wealth from housing is to tighten up the inheritance tax systems, perhaps treating it as taxable income as it flows to the individual but again not popular.

    Citizen’s income financed by closing down the benefits system, pensions and gutting out all the tax allowances and loopholes would be a good idea as it would be seen as fair as everyone would get a cut so no more whining about people on benefits and no more stigma… but it would be at 60-65 percent of the suggested 400m cost so less than 4000 for adults, half that for kids and the current pension level for those over 67 or perhaps older… it would be an age related bonus rather than pension for those who had been resident for a minimum of 50 years. Let the Inland Revenue run it and close down huge chunks of government, that at least would be popular. Housing benefit would remain for the moment to give the new system a chance to bed in and disability benefit would be merged with the new system at a higher level.

    Phasing out council tax, a very unfair tax as it is not based on income, would be a huge vote winner. I would combine that with phasing out business rates and employer NI contributions (employeee NI already rendered pointless by the citizens incomes and combined into the new tax rates to help those on lower incomes), the whole lot financed by a variable rate turnover tax on companies, with the ability to charge higher rates on companies that go against the common go. Finance companies that charge 1000 percent interest rates would pay a very high turnover tax, for instances, as would energy companies who raise prices for their own greed. You could even have a petition type system where citizens can vote on the merits of such a rise.

    Above is all doable and political winner.

  • Bill Fowler 8th Aug '17 - 9:25am

    common go should be common good, of course…

  • Joe, putting the first point aside and getting back to the Basic Rental Income. Housing Benefit is related to income and therefore together with a person’s income assuming they are in work (no benefit cap) would pay that person’s rent. If a Basic Rental Income is given to everyone who rents and is topped up by housing benefit to ensure no one losses out it does not provide anything meaningful to the person renting who has to have the BRI topped up. For those not receiving Housing Benefit it would provide them with extra money which is not given to the rest of the population.

    You have failed to demonstrate that a LVT on rented accommodation would not be passed on to those who rent the accommodation. It could create pressure on rents as landlords tried to keep their profits the same as before the tax. You have already conceded that it is only a LVT on non-accommodation land which would create pressure for more homes to be built for renting or buying and so put pressure on rents to decrease or not increase so fast.

    Your scheme does not guarantee that there would be a redistribution from landowners to renters and even where it might it is not the poorest who benefit but those who either receive no housing benefit or their housing benefit is less than the new Basic Rental Income. I don’t understand why liberals should support a scheme that if it worked transferred resources from those who rent property to those renters rich enough not to need Housing Benefit.

    It still seems that using some of the money raised from an LVT on undeveloped land to build council houses would be a much simpler method of trying to fight increasing rents.

  • I cant back this point up with the headlines over the years at short notice. However when the ecominsinst states 20% of the population own 40% of the wealth. I have seen headlines stating the top 10% (if I am honest that is in reality middle class rather than the truly rich)anyway the top 10% have around 47% of the wealth. That figure has hardly changed in 17 years. I saw an article in the Guardian in 2000 when it was give or take more or less the same and so it was 4 years later in another headline I saw and so in essance it remains the same today. To my mind the real inequality is in the top 1% (or even 0.01% the top 1% are said to own around 15% so the top 10% only 5x the % they represent where as the to 1% around 15x is considerably more as a % than the top 10%

  • Simon McGrath 8th Aug '17 - 12:16pm

    @JOeBourke – ‘household rents’ in the way economists use it doesnt mean the amount paid in rent to landlords. This is how the Ecomist defines it:

    “Rent
    Confusingly, rent has two different meanings for economists. The first is the commonplace definition: the INCOME from hiring out LAND or other durable goods. The second, also known as economic rent, is a measure of MARKET POWER: the difference between what a FACTOR OF PRODUCTION is paid and how much it would need to be paid to remain in its current use. A soccer star may be paid $50,000 a week to play for his team when he would be willing to turn out for only $10,000, so his economic rent is $40,000 a week. In PERFECT COMPETITION, there are no economic rents, as new FIRMS enter a market and compete until PRICES fall and all rent is eliminated. Reducing rent does not change production decisions, so economic rent can be taxed without any adverse impact on the real economy, assuming that it really is rent”

  • Simon McGrath,

    you make an important distinction between contract rents as charged by a Landlord and tenant and economic rents that relate to the income and gains accruing to individuals and firms from the grant of an exclusive right. Such income and gains include such things as the exclusive right to occupy land by virtue of a land title, the exclusive right to drill for oil in the North sea, the exclusive right to use of the radio spectrum by mobile phone operators and internet service providers, landing rights made available to airline companies and implicit guarantees given to the banking sector with a grant of a banking license.

    A landlord renting a property is providing three services, his time (labour), capital (the building including foundation, utilities and landscaping) and land. Economic rents are derived from the land element only.

  • Michael BG,

    you cannot put the first point aside. Any redistribution of income whether it be Basic rental income, citizens income, progressive taxation, tax credits
    etc., has a macroeconomic impact on economic rents that is seen predominantly in increases in the value of land held by landowners renting property and owner-occupiers.

    Whether a basic citizens income only or citizens income with basic rental income is introduced the issue of land supply needs to be addressed to ensure that these benefits are not simply absorbed by increases in contract and/or economic rents. An increase in the supply of development land (to allow for building of 300,000 houses per year) to match demand is a necessary corollary of income redistribution.

  • Sam,

    this is a link to a Guardian article https://www.theguardian.com/uk-news/2014/may/15/britains-richest-1-percent-own-same-as-bottom-55-population
    that notes that Britains’s richest 1% own as much as the poorest 55% of the population.
    The article concludes “Unless policymakers adopt a clear goal of reducing the gap between the richest and the rest, they will have to govern an increasingly dysfunctional nation.”The report comes after French economist Thomas Piketty has ignited international debate about inequality by documenting the rapid accumulation of assets by the top 1% over the four decades since the 1970s.”

    Much of the accumulation of wealth is in property and pension and financial assets invested in residential and commercial property (real and intellectual) and mortgage lending.

  • Bill Fowler,

    lot’s of good points there. I do not agree however that gains from increased land values are notional. They are tangible and there is a close correlation between income levels and housing wealth. Many people have and continue to access such gains via remortaging. Those without land do not share in these gains eventhough such gains are created by the community collectively through their taxes and economic activity. There does not need to be a cash flow issue as LVT taxes on asset rich income poor householders can be collected on sale or on death in the same way that inheritance taxes or loans for residential social care are collected now.

  • Bill Fowler 8th Aug '17 - 1:33pm

    Again, if you want to hit the really rich change inheritance tax and also heavily tax trusts and companies that are used to avoid IHT (the latter handing over assets by changing directors). I can understand why the Conservatives don’t do it as it would affect them personally but the Lib Dems are all about fair taxation so step up. No chance of winning seats if you are going to bring in a new land based tax that is not related to real incomes as it is patently unfair as explained before.

    The tax and benefits system is already mind-bendingly complex so using citizen’s income as a starting point for simplification and fairness is a good idea. An awful lot of people are gaming the benefits/tax credit system to maximize their income and most would do fine if it was a nice simple system where everyone gets a few grand to keep them from destitution but are expected to top it up with work. Abs do fine if it was a nice simple system where everyone gets a few grand to keep them from destitution but are expected to top it up with work. Ridiculous to go from one complex system to an even more bizarre one based on notional income.

  • Bill,

    these are extracts from the recent election manifesto’s:

    Conservative – “we [the Party] will work with private and public sector house builders to capture the increase in land value created when they build”.

    Labour – : “…initiate a review into reforming council tax and business rates and consider new options such as a land value tax, to ensure local government has sustainable funding for the long term”

    Libdems – “We will also consider the implementation of Land Value Taxation.”

    Greens – “Action on empty homes to bring them back into use and a trial of a Land Value Tax to encourage the use of vacant land and reduce speculation.”

    SNP – “must include exploring all fiscal options including ways of taxing the value of undeveloped land”

    As noted in this article there is a growing sense of inequity among the younger generation. At the election in June half of all private renters voted for Labour and Jeremy Corbyn – we are talking rent controls and potential land nationalisation here.
    The penny had dropped with the Conservatives that fewer homeowners/more renters means less Conservative voters.

    The Libdems will need to get on board with the direction of travel here if we are to survive as a credible party of government. Our manifesto offering was based around: • a new national Housing and Infrastructure Development Bank,
    • increasing housebuilding to 300,000 homes a year
    • allowing councils to end the right to buy, lifting the borrowing cap and targeting “buy to leave” empty homes with a 200% council tax.
    • penalising land-banking with with a penalty on failure to build after three years of winning planning permission.
    • a “community right of appeal” in cases where planning decisions go against the approved local plan.
    • a “rent to buy” model, where rental payments give tenants an increasing stake in the property, leading to outright ownership after 30 years.

    It is a good program but not radical or immediate enough to address the urgent problem of housing inequality that has developed in recent decades.

  • Hi Joe,
    The greens unfortunetaly also want to remove what they call ‘tax breaks’ to buy to let landlords. Which given the only tax breaks they get as far as I can tell is for repairs/replacements. I think that would be unfair given how much ‘decent’ landlords can fork out not inconsiderable sums on having high standards which incidentally politicians bemoan that landlords sometimes do not bother with. Meanwhile the same greens have nothing to say about social landlords (ie housing assocations) not being even obligated to pay tax on the rents received. Plus for all the talk about profiteering private landlords a national audit report this year said outside london social rents have increased faster than private since 2006!.

    Whats your opinion on the rights of tenants/landlords? I would wager it is not fit for either landlord or tenant when things go wrong. For example for a person who lost their job and so goes into arrears it can be very bad. But on the landlord side (remember 2/3rds are basic rate tax payers) it cannot be right they have to put up with an eviction process for a tenant who deliberately does not pay reasonable rent and said landlord has to go through the expense and around 40 weeks eviction process. In essance I would say bad tenants are subsidized by good tenants and same goes with good landlords are subsidized by bad landlords whom do not bother with say licencing (which politicians say is to get the bad ones) but the good ones being decent do. So it may be a over simplification but as a tenant I would say tenants need less rights BUT those that remain need to be aware off which to be frank most are not.

    The thing about Thomas Piketty is a couple of years ago he thought IHT in the uk needed hiking further whith no reference to trusts/etc so I dont fully think him reliable. If he was talking about introducing some form of that kind of tax in x country in europe I could see his point but here not so much. In many ways if you ask me IHT/punitive tax on middle class wealth fears is just about the last pillar standing for people to vote tory.

  • Sam,
    Sam,
    I think private Landlords provide a useful social service. Many of the quite reasonable tax deductions that Landlords could make have been removed including a 10% of rents allowance for furnishing properties and interest deductions are being phased out leaving highly leveraged landlords in a negative cash flow position after tax.

    Landlords do face considerable risks from non-paying tenants and the costs of eviction can be crippling for small landlords perhaps relying on the income from their investments for their pensions. This is why many Landlords will not accept Housing Benefit tenants especially when local councils are telling tenants to stay put until they are evicted. This is a dysfunctional situation that is detrimental to landlords and tenants alike.

    Land Value Tax does not seek to penalise such Landlords, many smaller landlords will be better off. In addition to the removal of tax deductions, buy-to-let landlord face higher stamp duty on purchases of property, council taxes during void periods, a 28% capital gains rate on disposal or a 40% inheritance tax rate.

    With sensible and streamlined tax reform many of these unnecessary and burdensome taxes that inhibit work and enterprise can be scrapped. There are even Green party members that get it, like Martin Farley who has put together the Transformation deal https://transformationdeal.org/about/

  • @ Joe Bourke

    I think you misunderstood what I meant. My whole point was not that the first point was problematic, it was that the second point was not liberal or redistributive to the poorest section of the renters. I do accept that a LVT on undeveloped land would encourage landowners to develop their land. However I do not think we should abandon the green belt to development or make the planning process any easier for developers than it is already.

    You have not convinced me that your redistribution to the richest renters is a good idea, nor that it is needed to provide the millions of new homes needed so that everyone who wants a home of their own can have one.

    I dislike the idea that individuals are taxed on their land and if they don’t have enough income they run up a huge tax bill to be paid after their death.

    @ Bill Fowler

    A good thing about Council Tax is that the ability to pay it is based upon income and it is not rolled up to be paid after death.

    I agree with you that inheritance tax should be based on what is received and not the size of the estate and that people should not be able to use trusts to get round paying inheritance tax. (Perhaps the assets put into a trust need to be taxed at the inheritance tax rate as if the trust was one individual.)

  • Michael,

    this New Statesman article may be of interest to you http://www.newstatesman.com/society/2010/10/land-tax-labour-britain quoting Vince Cable:
    “It will be said that in a world of internationally mobile capital and people it is counterproductive to tax personal income and corporate profit to uncompetitive levels. That is right. But a progressive alternative is to shift the tax base to property, and land, which cannot run away, [and] represents in Britain an extreme concentration of wealth.”

    The RSA have, in my view, produced a good piece of work on basic income and made some interesting proposals on reform of housing benefit with a basic rental income. The basic rental income is not intended to incentivise the building of millions of new homes, that is achieved by increasing the supply of land via an LVT on land held out of use and relaxation of planning restrictions on land bordering major towns and cities.

    What a basic rental income can do is begin to address in part the unaffordability of renting property for so many ordinary people today. Funding such a program would be achieved by an LVT on the economic rents derived by landlords from let property not owner occupiers. As long as this is accompanied by a corresponding increase in the supply of housing tenants will reap the economic benefits.

    LVT on owner-occupied property is intended to fund the transport infrastructure and capital spending on hospitals, schools and public amenities that account for a major element of increases in Land values. This may also put a cap on property prices and the levels of debt that the next generation face in trying to finance the purchase of a family home.

    The author Fred Harrison in his book ‘Ricardo’s Law’ notes that families that rent their homes are locked into a vicious spiral of deprivation. Wages are now tied closely to the rate of inflation. As the value of residential land has increased at many times the rate of core inflation over the past two decades, this gave incomparable buying power to people who owned home, setting them apart from the tax-financed bonanza of the property market http://www.sharetherents.org/articles/targeting-rich-self-defeating/

  • Hi Joe,
    You seem to know your brief and are seemingly reasonable. Sadly most proponents of LVT seem to not be so much. I looked at the website for the transformational deal they seem to suggest having a flat 25% tax on everthing with no allowance for either IHT/personal allowance. As with another supporter said we should levy it so high to force bankruptcy on private landlords, and when I tried to point out similar things I have to you, they never replied. Your approach regarding LVT would be best at garnering a wide support across the spectrum but the other approaches would have to seriously think (putting it lightly) before putting x in support if it was say a referendum on the matter.

  • Sam,

    I feel individuals and families should be able to pass on the savings they have made from their earnings and endeavours to their next of kin without facing confiscatory taxes like Inheritance tax. If LVT was introduced there would be no real need for Inheritance taxes.

    This critique of Piketty’s thesis https://www.bloomberg.com/view/articles/2015-03-27/piketty-s-three-big-mistakes-in-inequality-analysis makes the point:

    “Urban economists believe that as density increases, productivity increases. This is what is known as an “agglomeration economy.” But as it becomes more valuable for people to work and live near each other, the value of central locations — of land — goes up. Land owners, who are producing no more than they used to, but who were sitting on advantageous locations, reap huge benefits.

    In general, this will mean cities tend to be too small — the incentive to cluster together for higher productivity is choked off by the high price of land. The drain of urban income to land owners will tend to increase as the economy grows and the productivity advantage of cities increases. To see this in action today, just look at San Francisco, where the soaring price of land, and the accompanying surge in rent, has absorbed much of the wealth created by the new tech boom. Of course, this has been heavily exacerbated by the city’s refusal to allow more housing construction, which may be a reflection of the political power of landlords and homeowners.

    Rognlie’s results, and the theory of agglomeration economies, suggest that to fight wealth inequality, what we really need to do isn’t to redistribute income from corporations, but to redistribute income from land. How do we do that? Well, allowing more development in urban areas is a good start. But the real weapon here is the Henry George tax, or land value tax (LVT). This is like a property tax, but it taxes only the value of land, not the value of the structures built on the land. It encourages efficient use of land, while providing the most efficient method of wealth redistribution. Milton Friedman called it the “least bad tax.”

    Rognlie shows that if we really want to counter the inequality that Piketty warns about, we will probably need tools like the LVT. Most importantly, our cities will need to find ways to counter the political power of landlords and homeowners The most important redistribution policy may now be urban land-use policy.

  • @ Joe Bourke

    Again you make a claim, “What a basic rental income can do is begin to address in part the unaffordability of renting property for so many ordinary people today. Funding such a program would be achieved by an LVT on the economic rents derived by landlords from let property not owner occupiers. As long as this is accompanied by a corresponding increase in the supply of housing tenants will reap the economic benefits.”

    A Basic Rental Income does not help affordability of rents for those already receiving Housing Benefit, as I have already pointed out. It only helps those not receiving Housing Benefit assuming (and this is a big assumption) the landlords don’t increase rents to pay their extra tax (LVT on individuals who own property and rent it out). You argue that LVT on undeveloped land would increase supply (which I agree is most likely). However it is this and only this element which will increase the supply and if supply increases faster than demand bring down rents and make renting property cheaper (I expect as rents fall demand would increase putting pressure on rents to increase). Therefore a Basic Rental Income does not improve the situation for those renters on Housing Benefit. It is only the LVT on undeveloped land that does.

  • Michael,
    The welfare state has become increasingly complex, bureaucratic, and intrusive. This direction has been reinforced in the benefits system in recent years by a coercive and arbitrary sanctioning system which leaves many of the least fortunate in dire straits. These stresses are intrinsic to the post-war settlement and they have become greater over time.Tax credits and housing benefits have marginal withdrawal rates near 80 percent at some (low) income levels. .
    It will be important for housing benefits to work with, rather than against, the rest of a basic income system. The problem is that these benefits are withdrawn in accordance with a taper which will continue some of the disincentive effects of the current system should these benefits not be reformed.
    As noted in the article, unlike Housing benefit, the Basic Rental Income would not be income-contingent and therefore does not have the same disincentive or perverse incentive (eg family break-up) effects as housing benefit and council tax credit. This is a means of redistributing the economic rents that have arisen from the institutional structures of land and property, not just to those qualifying for housing benefit but to all renters without the means of acquiring a property of their own i.e. those who are excluded from the increases in land values that are funded by all taxpayers.
    A land value tax and the Basic Rental Income together could provide for even more creative living spaces. Co-operatives could come together by aggregating Basic Rental Incomes giving power to individuals acting collectively to design these new creative living spaces. This opportunity could be open to all. The beauty of this system, in principle, is that the imposition of land value tax would release further land for development. The Basic Rental Income therefore becomes empowering in a way that Housing Benefit is not given its stigma and the lack of security it provides. This proposal could revolutionise the way many people live further enhancing freedom, creativity and security.

  • @ Joe Bourke

    I think you will find that the highest withdrawal rates are where Universal Credit (Tax Credit), Housing Benefit and Council Tax Benefit are all withdrawn together. As your Basic Rental Income is the really the final part of Housing Benefit, it will not help reduce the withdrawal rates. If you don’t like the withdrawal rates of Housing Benefit and Council Tax Benefit the answer is to advocate changing them, not proposing something that helps those not getting Housing Benefit more than those on Housing Benefit.

    The RSA report also talks of renters coming together to form co-operatives, without stating how this would happen as people only receive the Basic Rental Income once they are paying rent.

    The reason I like the Universal Basic Income is because it is not conditional and is universal. A Basic Rental Income is not universal and only those who rent will receive it, it is unlikely it could be set at a high enough level to make Housing Benefit redundant. I believe it is much more important to build more homes so that market forces reduce the need for Housing Benefit.

  • Michael,

    the UBI removes tapering for non-housing benefit. Housing benefit will normally cover the full rent for tenants in social housing or housing association accommodation. However, tenants renting in the private sector receive Local Housing (LHA) which does not generally cover the full rent. It is not proposed to set basic rental income at level that makes housing benefit/LHA redundant. The basic rental income (at 20% of LHA) makes up the shortfall for many private tenants on benefits and is not tapered in the same that LHA. This automatically resolves much of the work disincentive with LHA as the basic rental income is not income-contingent.

    A basic rental income is universal to those renting, who do not share in the gains that Landowners enjoy as a result of infrastructure investments funded by all taxpayers, landowners and tenants alike. Even tenants paying no direct taxes pat indirect taxes on their consumption.

  • @ Joe Bourke

    UBI requires that the withdrawal rates be reduced. I discovered this when working out an example of a married couple on Universal Credit with two children receiving £1607.64 a month where one of the adults gets a 37 hours a week minimum wage job. It required reducing the withdrawal rate from 63% to 43% to make them a penny better off under the new system.

    It seems you are now suggesting Basic Rental Income on top of Housing Benefit for some renters but not all. The problem is the level of LHA. The solution is fixing the level of LHA and abolishing the Benefits Cap. I would be interested in knowing how income affects LHA when LHA is not enough to pay the whole rent.

    Your argument about Basic Rental Income being fair because all private landowners make infrastructure gain on their property is false. I am sure some private renters do, but I expect most don’t. The rise in the value of the property and its rent are due to lack of supply not government infrastructure provision

  • Michael,

    this is a research paper which sets out to quantify the effect of public investment on house prices (in this case street paving in Mexico) https://www.rand.org/content/dam/rand/www/external/labor/seminars/adp/pdfs/2010/gonzalez-navarro.pdf

    Hong Kong has financed its new Metro system on the back of increases in land prices resulting from extension of the Metro system of the New Territories. It should be patently obvious that sustained investment in public infrastructure and investment adds value to the locations where it is concentrated and enables economic activity that develops and sustains land values in the locations benefitting from such investment.

  • @ Joe Bourke

    I was not denying that the provision of services does increase property prices. It is possible that a home which has access to both gas and electricity would be worth more than a home that only had access to electricity. We tax homes via Council Tax which is based on home values which must take account of the services in the area. I would not be against a Land Value Tax to replace this tax if there were not huge increases in tax on any individual and there was still an income based benefit system linked to it. No individual should have to pay a tax on their home when they don’t have the income to pay it from. (Council Tax is payable on second homes and empty homes after a certain period of time has lapsed.) I think LVT should be introduced on non-domestic land first and especially land which has planning permission to encourage the development of it.

  • Colin Keppel 28th Aug '17 - 8:50pm

    Michael BG 8th Aug ’17 – 9:26am
    You wrote above:
    “You have failed to demonstrate that a LVT on rented accommodation would not be passed on to those who rent the accommodation. It could create pressure on rents as landlords tried to keep their profits the same as before the tax.”

    MY comment on this would be that pressure on rents arises solely from the landlord’s effort to maximise his return as much as the market will bear. The pressure will be the same with or without the tax. He wouldn’t have settled for less than the market would bear before any new tax . Thus the LVT burden can’t be passed on to the tenant. It already has been.

  • Colin Keppel 28th Aug '17 - 9:05pm

    Michael BG 14th Aug ’17 – 2:31am
    “No individual should have to pay a tax on their home when they don’t have the income to pay it from.”

    Could LVT on a high value home owned by someone on a low income be wholly or partly deferred until the owner dies, and be paid off from their estate before it is valued for inheritance tax?

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