Homeowners as Currency Counterfeiters: a Parable

In the UK, gains on domestic property values are virtually untaxed. This put renters at a huge disadvantage. But far worse is the damage this does to our competitiveness. Failing to tax gains in property value means that our economy in effect hosts a currency counterfeiting operation with a £50bn turnover. This can be illustrated with a very short story.

Once upon a time a newly crowned king wished to prove his military prowess, and decided to raise a navy to conquer lands overseas. His councillors protested that the royal coffers were empty, but he hit on a brilliant idea. He would licence his councillors to print banknotes, in exchange for them providing sailors and ships. The councillors readily agreed. He ordered royal printing presses to be built, and handed them over to the councillors each with a licence to print money. The councillors set their presses in motion and provided the necessary sailors and ships. The king went to war and returned victorious.

Fortunately the king had wisely limited the speed of the printing presses so the currency would not collapse. Merchants and labourers still worked and traded, but were poorer because the newly printed banknotes meant their money were worth less than before. But the same banknotes made the printing press owners richer.

As time went by a market developed for the printing presses. Some of the king’s councillors had a great fondness for expensive claret, or lost money at cards, so had to sell their presses to repay debts. Successful merchants found the purchase of a printing press was an excellent and safe investment. Unfortunately skilled labourers found they could earn more abroad and started to emigrate. After the king had ruled for many years, there were few skilled shipwrights left in the kingdom and the navy fell into disrepair. Sensing their chance, the neighbouring kingdoms sent an invasion fleet, sank the king’s ships and the kingdom fell.

The moral of this story can be seen every day in the UK. Owning a home in the right part of the UK is like a licence to print money. Properties values increase while owners grow rich in their sleep. Many homeowners in London earn as much from rising house prices as do their from their day jobs. They don’t need to extend or improve their homes, since they benefit from increasing land prices, which is driven by public investment such as Crossrail. Their gain, which amounts to £50bn annually across the UK, is very lightly taxed via stamp duty. This bonanza is paid for by the rest of the country, especially by those who rent rather than own property. As a result investors buy into property rather than building factories, productivity suffers, and Britain has become a low wage economy.

The alternative are stark: Corbyn’s Labour will introduce rent controls and create an uncontrolled black market in subletting. The Tories are the creatures of landowners. But Land Value Tax is part of Liberal Democrat (and Green Party) policy and would recoup this bonanza for society. The UK economy cannot afford to host the equivalent of a £50bn currency counterfeiting operation.

* David Cooper is a member and constituency treasurer of the Newbury Liberal Democrats and has been a party activist for over a decade. He is also secretary of Libdem ALTER (Action for Land Taxation & Economic Reform). The views expressed are his own.

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48 Comments

  • Lorenzo Cherin 4th Oct '17 - 1:11pm

    The whole tone and tendency of this ongoing attention bordering on obsession of some about land and tax , and a land tax , is becoming negative rather than positive.

    If all that is owned is a property and the land that comes with it , a single property and plot, in other words , a person , or family,s home , there is a very significant tax in this country on ongoing basis , higher than in nearly every country and certainly higher , much higher than much of the supposedly much loved EU.

    It is inheritance tax.

    By all means campaign for a land tax.

    Stop referring to home owners as f they were villains.

    I lost my house and home and rent now, after economic bad times.

    My aspiring to home ownership is not a villainess aspiration, so tone it down, you are losing otherwise sympathetic members.

    The emphasis of Corbyn is far more appealing on this.

    Landowners who are landlords are not as common ,with multiple properties, as landowners who are homeowners, with one home, and the aspiration not as noble, or understandable.

    Too many arguments , the EU a typical one, are being drowned out by campaigners sounding too bitter and too much like they have got onto a hobbyhorse.

  • As I have stated in other threads that in principle I support LVT, but we should support the right of every individual to own their own home and in this article, David Cooper wants to increase the tax on homeowners. There is Capital Gains Tax on houses (8% more than other investments) which are not a person’s home and on investors who invest in property.

    A much better way to reduce the increase in the value of homes is to build more of them and meet the demand for both homes to rent and to buy. One way to encourage more homes to be built is to have LVT on undeveloped land as introduced by Lloyd George in 1909 (which he set at 0.21%).

  • In the UK, gains on domestic property values are virtually untaxed.
    What gains? Yes I’m serious, look at a typical homeowner:

    They buy a house on a 25 year mortgage, live in it for 50 years, during which time they pay the mortgage off and retire. During this period of time, the paper value of the property rises from £17,000 to £800,000 (use whatever numbers you want to reflect what has happened over the last 50 years in an area known to you). However, the homeowner has derived no tangible benefit year-on-year from this massive increase in paper value, unless they drop dead (in which case their heirs benefit) or sell and move to a home with a significantly lower value and in so doing typically leave an established community and social network.

    Yes, there are big problems with people who aren’t existing homeowners or who are speculators/investors, but I’m not convinced you have a proposition that homeowners will buy into.

    They don’t need to extend or improve their homes, since they benefit from increasing land prices, which is driven by public investment such as Crossrail.
    Firstly, we shouldn’t overlook all the property and land that is blighted by public investment decisions such as road schemes, HS2 and airport expansion – just because currently the land is ‘countryside’ doesn’t mean it isn’t blighted and thus devalued…
    Secondly, we shouldn’t overlook the role of private investment; Newbury owes a lot to the investment made by Vodafone, Hatfield was prosperous until the death of the UK aerospace industry…

  • Lorenzo Cherin 4th Oct '17 - 2:46pm

    Michael BG , Roland,

    These posts are extending mine but going further, they criticise more than the style of those constantly advocating land value tax, they more or less destroy the substance of it !

    If you examine Michael,s point , that capital gains taxes any gains from property not the main home, or Roland,s , that the private sector also significantly adds to the improvement of an area, the LVT adherents need to do more to convince.

    At least some who I respect even when they do not convince me yet, do not resort to us as a party seeming as if completely unaware of the many ways taxes that already are levied on property and thus land , now, do not sound like they are demonising one of the most natural things on earth, as well as the earth itself, the desire and practice of the ownership of a little piece of it , a home of your own.

  • A real votewinner this!!!!!!!!!!!! How not to gain peoples trust.

  • David Cooper 4th Oct '17 - 2:53pm

    @Michael BG
    I agree with you fully about the right to own a home (indeed I own a reasonably nice one myself). But CGT on 2nd homes does not touch single home owners.

    @Roland
    (a) The profit of just under £800,000 is a legacy to their children. This is a very important factor for some people, and just as much a benefit as a nice holiday or a bigger car. And the kids won’t complain when they get the money.
    (b) I gave one example, obviously there are many others. A key example is the huge number of arts institutions and museums in London, paid for by the whole country, which make London homes more attractive (hence more expensive). Private investment such as the Chunnel also improves property values.
    (c) I am not ignoring bight. The average total property price increase of £50bn p/a since the early 90’s includes some properties that lost value due to blight, and also some years in which prices did not increase overall. Interestingly home owners are compensated when their properties are blighted (e.g. HS2 is paying out c £1bn), but feel no obligation to return profits when their properties gain in value.

  • …………………………..The alternative are stark: Corbyn’s Labour will introduce rent controls and create an uncontrolled black market in subletting. The Tories are the creatures of landowners. But Land Value Tax is part of Liberal Democrat (and Green Party) policy and would recoup this bonanza for society. The UK economy cannot afford to host the equivalent of a £50bn currency counterfeiting operation……………..

    Where to start? ‘an uncontrolled black market in subletting’….utter nonsense.
    The Tories may well be the creatures of landowners but they make up a tiny proportion of home-owners…
    As for a bonanza for society????????????? A 3 bedroom house I paid £12k for in 1975 has recently been sold for £550,000…2 bedroom bungalows (with decent gardens) within the same area are rare but sell for around £100k less…So, in almost 40 years, even by downsizing, my profit would equate to around £2.5k pa (ignoring inflation)…To pretend that somehow I have ‘made’ £538k is nonsense; the £550k tag, in 2016, is as meaningless as was the £12k cost, in 1975…..

  • @ David Cooper
    “CGT on 2nd homes does not touch single home owners”

    Indeed. Home owners pay Council Tax and if they don’t have enough income to pay that tax they don’t pay any Council Tax (in a few Council areas only, but that is how it should work.). However as far as I know ALTER believes that if someone does not have enough income to pay LVT then they should pay the tax after they die, while those with enough income can pass on their home without paying any tax to whoever they want to leave it to.

    I wish I could convince ardent LVT supporters that with a few changes LVT could be popular with a majority of the UK population.

  • Interestingly home owners are compensated when their properties are blighted (e.g. HS2 is paying out c £1bn)

    I thought we were talking about Land Value and LVT. If HS2 gets built, based on previous railways, it will be blighting the neighbouring land for 200+ years. Hence with a LVT, HS2, should be paying compensation every year to the landowners for degrading the value of their land. Ie. if a landowner is paying every year a tax based on the increase in value of their land, then a neighbouring landowner should be paying every year their activities limit the value increase of their neighbouring landowners…

  • David Cooper 4th Oct '17 - 6:11pm

    @expats
    £12K in 1975 is equivalent to £92K today after inflation, according to Bank of England inflation adjuster website. So you have made a stonking great profit in monetary terms from your housing asset by selling at £538K, and also got to live rent free for 40 years. If you had rented during that time you would have no asset and would have paid both rent and council tax for 40 years. If that doesn’t sound like a bonanza what does?
    (back to the parable, printing press owners complained that only the feckless didn’t own their own press…)

  • David Cooper 4th Oct ’17 – 6:11pm…You, conveniently, ignore the fact that, when I sell I have to buy another house…If I buy a similar house it’s the same price (maybe even more)…By ‘downsizing’ I make £100k over the 40 years…

  • Tom Paine published his pamphlet ‘Agrarian Justice’ in 1797. This early liberal philosophy asserted “the earth, in its natural uncultivated state… was the common property of the human race”; the concept of private ownership arose as a necessary result of the development of agriculture, since it was impossible to distinguish the possession of improvements to the land from the possession of the land itself. Thus, Paine viewed private property as necessary while at the same time asserting that the basic needs of all humanity must be provided for by those with property, who have originally taken it from the general public. This in some sense is their “payment” to non-property holders for the right to hold private property.

    Since the financial crisis of 2007 we have seen the average home price inflated to 8 times average income in the UK; locking many of the younger generation out from the prospect of home ownership at a time when they face escalating rents that absorb up to 50% or more of their take home pay.

    Rents are largely a function of wages i.e. they can only rise to a level where the average worker can just about subsist on what is left of his net earnings after rent payments. House prices are a function of supply, interest costs and wages. They can only rise to a level where a worker can just about subsist on what is left of his net earnings after mortgage payments.

    Much of the asset price inflation since the financial crash has been induced by near zero interest rates and quantitative easing to provide for recovery of the banking and finance sector coupled with a restricted supply of development land i.e. government policy. Any party that does not seek to address the housing affordability situation these policies have created cannot reasonably expect to be part of any future government.

    The world has changed enormously since the days of Tom Paine. Agriculture and the rents derived from agricultural estates are a tiny fraction of the income and wealth in modern society. Today, much of the economic rents captured by the non-productive rentier sector can be found in the activities of the banking sector, urban land and patents/licenses on natural property rights.

  • When my wife and I first purchased a house we struggled to do so. Many of our friends rented but we worked hard and payed more (substantially) than them. Interest rates forced our home (along with millions more homes) into negative equity. We persevered, breathed easier when rates returned to the manageable(!) 6-8% range and now (having upsized to fit in the kids) are moving into the last years of our mortgage.

    The benefit of the rise in house prices is an illusion. Unless we decide to downsize it is all relative, my younger two kids are unlikely to be able to afford their own places so may be with us for some time so downsizing is unlikely. When we pop off this mortal coil there will be inheritance tax, if we get ill in the meantime we may lose a significant chunk of our home’s value to pay for our care.

    So tell me again why you want more tax off of me and not those who didn’t go without to buy a house, who had more disposable income when we were younger, and who will not have to contribute to their elderly care?

    I accept house prices are too high, but it’s all relative once you’re on the house ladder.

    It all sounds a bit like the politics of envy to me.

  • To be honest I think LVT is a rather complex, and potentially unfair way of raising extra taxes. The Dutch have a far better system which is the worldwide wealth tax, where on all significant assets except your main residence are subject to an annual tax. Assets include second homes, cash and other investments. So depending on the value of the these assets on a certain day (say 6th April), let’s say it is £100,000 a percentage tax is applied, let’s say 3%, resulting in a tax payment of £3000. Simple!

  • Surely the moral of the story above is that if there are no funds in the treasury, the king should not be wasting money on waging war to prove his military prowess.

    Try eliminating the need for ever increasing taxes.

    I thought that this was a LibDems site – not an offshoot of the church of Jeremy.

  • Peter Martin 4th Oct '17 - 8:14pm

    The way to level the playing field is to reintroduce what used to be known a ScheduleA tax which is a tax on property and land. Then make everyone pay it on everything, including their own home too.

    So if I own my house which has a notionally rental value of £500 pcm I would pay say 50% of that in tax or £250 pcm. If my neighbour rented his house he would pay nothing. Of course the higher the rate of tax the less advantage there is in owning a home. Purchasers buying on a mortgage would be entitled to some tax deduction on interest payments because they didn’t own the house outright.

    Of course the snag would be that no party would dare do anything like this for obvious electoral reasons, even if it offered a considerable scope for income tax reductions.

    So it’s a non starter I’m afraid!

  • Steve Way,

    “The benefit of the rise in house prices is an illusion.” I think this is an important point.

    Irresponsible lending against speculatively inflated property prices has brought us to where we are today. Most taxes are “welfare negative”, meaning they are bad for the economy, because they add to the cost of production, employment, sale price or living. Collecting the “unearned increment” that arises from possession of title to land (or airport landing slots or other natural “commons”) cannot add to the costs of any economic activity. It is a “welfare neutral” tax. The generic term for such a tax is Land Value Taxation (LVT).
    Society as a whole, in particular those of working age now and their children, would gain through the more efficient use of land and the reduction in tax on economic activity. Jobs would be created, both in construction (on under-used high-value sites) and by the reduced taxes on earnings and profits making all UK production less costly and more competitive. Instead of being locked up in land values, surplus capital would
    be released for investment in things that add value to the real economy.
    It is the most vulnerable in society and those not yet in the workforce who suffer most when an economy goes into decline. There is nothing fair about making the diminishing workforce pay more tax, or condemning generations to come to endless ‘boom-bust’ cycles.

  • Peter Martin 4th Oct '17 - 8:29pm

    Economically the story doesn’t make any sense. Just a few points:

    1) Currency is an IOU of the issuer. So Pound Banknotes, usually, are the IOU of the BoE. No-one else by definition can create BoE banknotes. The Treasury can issue treasury notes. The Post Office can issue postal orders. All can and have at times served as money.

    2) All money is either printed or created in a computer.

    3) If we have more money in existence it may or may not make everyone poorer in real terms. More money doesn’t necessarily mean more inflation. It depends on how much and how quickly it is all spent. More spending can create more inflation if the productive capacity of the economy is exceeded. Or it can create more growth.

    4) The demand for money is defined by the need to acquire money to pay tax bills. Tis is what gives a value to a fiat currency. So taxation needs to be a part of the story too.

  • Andrew McCaig 4th Oct '17 - 9:11pm

    Expats,
    I think the bit of the equation you are missing is that you will be able to set your children well on their way to owning their own home by using some of the windfall equity you have received, whereas the unfortunate children of people who have rented all their life will have little or nothing. Inherited wealth from property inflation is now a huge divide between the haves and have nots in our sick society..

    And I must admit that words fail me when I read on here that people can “only” pass on £1million in windfall wealth to their children tax free (and 60% of everything above that). Just how much wealth do our children need to get on the ladder of life??
    In my view the threshold on inheritance tax should be lowered to the 40% income tax threshold BUT that money should be used to pay for care in old age for all who need it.

  • So you have made a stonking great profit in monetary terms from your housing asset by selling at £538K, and also got to live rent free for 40 years. If you had rented during that time you would have no asset and would have paid both rent and council tax for 40 years. If that doesn’t sound like a bonanza what does?

    Got it! (and thanks to Peter Martin’s reference to ScheduleA tax)

    The proposals only make sense (or sound reasonable) if you accept the viewpoint that only those paying rent are paying the true cost of having a ‘home’ – and everyone else who choose to pay less aren’t being financially prudent and astute but are evading paying their share of what? to whom?

    Next people will be suggesting that those who buy a car outright with cash, are getting a bonanza compared to those who have to lease their car… I see some have already been arguing exactly this case with respect to tuition fees/student loans…

  • expats,

    But you don’t have to sell these kind people will help you out too live a life of holidays and treats

    What is equity release?

    Equity release refers to a range of products that let you access the equity (cash) tied up in your home if you are over the age of 55. You can take the money you release as a lump sum or, in several smaller amounts or as a combination of both.

    https://www.moneyadviceservice.org.uk/en/articles/equity-release

    I rather expect a lot of heirs are going to be very disappointed when they find out their parents have been using the house as a piggy bank.

  • So you have made a stonking great profit in monetary terms from your housing asset by selling at £538K

    Yes in your terms, a stonking great profit in monetary terms could be made; unfortunately – for your argument, much of the profit will be spent on buying another home, as local authorities don’t provide housing to those who deliberately make themselves homeless… Obviously, a homeowner in this situation could relocate from say Newbury (where they have friends and family within 1~2 hours travel time away) to some distant part of the country where property prices are significantly lower and where friends and family can’t just drop by etc.?

    I’m just not buying this concept at all, particularly when you also take into consideration that many ‘young’ people will be buying homes at todays prices ie. the £550,000 expats sold their house for. Now rerun your argument and see if it still makes sense – as we are beginning to see what parts of Japan have been experiencing, a generation who will not pay off their mortgage in their lifetime.

  • @franke – Have you actually explored equity release? Because if you had you would know that as a rule of thumb expats would have been able to get circa £60,000 in return for signing over circa 60% of the market value of the property – the difference being the cost of compound interest on the £60,000 loan…

    So expats by ‘downsizing’ did substantially better because their got £100k in the bank and retained full ownership and control over circa £450,000 of capital. I think David Cooper would use the word ‘bonanza’ to describe expats results.

  • paul barker 4th Oct '17 - 10:12pm

    I think some people are missing the point here, which is that there are subsidies to Mortgage payers which dont exist for people renting & it is certainly is possible to make money out of owning property.
    Lots of Professionals get mortgages on places that are bigger than they need & then rent out the spare rooms. The Renters will probably get some Public subsidy in the form of Tax or Rent benefits & that money helps the Owners to pay off their Mortgage & build up Capital. For the Renters, the money just comes in & goes out again, they get no help to build their capital.
    The effect of the whole system of Taxes & Benefits is to give money to those who already have some while keeping those at the bottom locked out.

  • Roland,

    Why would I explorer equity release it’s a stupid idea, but I bet many a person is being suckered in. You only have to look at the TV ads, happy people signing their houses away; the next mis-selling scandal I would suspect.

    Just for info

    https://www.asa.org.uk/rulings/age-partnership-ltd-a17-387125.html

  • Roland

    “Obviously, a homeowner in this situation could relocate from say Newbury (where they have friends and family within 1~2 hours travel time away) to some distant part of the country where property prices are significantly lower and where friends and family can’t just drop by etc.?”

    You need to watch more daytime TV because that is what a lot of people are actually doing and driving up the prices in places like Cornwall, much to the detriment of young locals,

    Apply to be on ‘Escape to the Country’

    Alistair Appleton, Jules Hudson, Nicki Chapman and Jonnie Irwin help house buyers who want to swap city living for a home in the country.

    http://www.bbc.co.uk/programmes/b006vb2f

    or even further afield

    http://www.channel4.com/programmes/a-place-in-the-sun-2016-2017

    Invariably in these programs the people looking to move are selling up in London or the commuter belt and are moving somewhere nice. Always looking for big houses to allow friends and families to visit.

  • Roland,

    “as we are beginning to see what parts of Japan have been experiencing, a generation who will not pay off their mortgage in their lifetime.”

    When I left Japan in 1995 banks had already introduced the 100 year mortgage on the assumption the debt would be passed on from Father to son to grandson. The economy has been moribund ever since.

  • Andrew McCaig 4th Oct '17 - 11:46pm

    You don’t have to do “equity release” to release equity…

    When my daughter needed £30k to put a deposit on an apartment in Southampton 7 years ago we simply borrowed the money at the same mortgage rate and extended the term on the mortgage. We agreed with her that this was “an advance on inheritance”. Once the children have left home there is generally plenty of spare monthly cash to increase mortgage payments if necessary.
    With the ongoing pension crisis owning your own home (and hence avoiding rent) is pretty much the only way of ensuring a comfortable retirement for most people. I have done that for my daughter and I have no shame about helping secure her future. If I was renting I would not have been able to do that. But she does not “need” a big inheritance when I die.

    I don’t say everyone who owns a home can do this, but many certainly can, and do

  • As I wrote earlier, instead of taxing home owners to try to reduce the price of homes, a much better way would be to build more homes so young people can afford to buy them.

    @ Andrew McCaig

    When a couple both die say age 80+ their children might inherit the family home which might be worth £300,000 where I live, but these “children” are likely to be at least in their 40’s and might be in their 50’s. We have heard about the bank of Mum and Dad helping children in their 30’s find the money for a mortgage, but this is unlikely to have come from the sale of the family home, but it might have become possible because Mum and Dad have paid off the mortgage.

    I think everyone should have the right to own their own home and leave it to whoever they wish when they die up to the value of the average price of a London home (£485,000 in May and £482,000 in June). As a Liberal I am interested in controlling power and I don’t think inheriting part of an average priced home increases a person’s power enough for the state to take a slice. However bringing in a gift tax to stop the super-rich getting round inheritance taxes would be a great idea.

    @ Paul Barker

    The state does not subsidise mortgages and tax those who pay rent more than those buying a home. If a person buys a larger home and rents out a room to another person they are providing a service to that other person. Of course it is possible to make money from renting property. That does not make it wrong. In a Capitalist society it is not wrong for the owners of capital to make money from their capital and the state should tax the income from the capital.

  • Thanks for explaining how I’m a property baron and ‘technically’ living off the backs of poor renters…Some seem to believe that buying my house (when a £10k debt at a double digit mortgage rate was a millstone) was a like buying a painting which magically became worth a fortune…
    Strangely this ‘asset’, should I need residential care, will be ‘confiscated’ to pay for that care whilst my renting friends will get taxpayer assistance…

  • The problem is more than housing. It’s debt. Debt on a spread sheet can look like profit until the loans are recalled or someone gets the jitters. The banking system and property basically collapsed in 2008. What has happened since has been a slight of hand. QE to disguise devaluation, low interest rates to minimise the effect of everyone being in hock for more than they can pay back and so on. We are now at a point where letting the natural ebbs and flows of the property market take their course exposes lenders and debtors alike to too many risks.

  • Richard Underhill 5th Oct '17 - 9:59am

    “Many homeowners in London earn as much from rising house prices as do their from their day jobs”. Yes, but only if they cash it in and move somewhere where property is cheaper. France anyone? Spain? Italy? Portugal?
    UK citizens are currently citizens of the EU and lose their rights if the UK leaves, destroying many people’s hopes and dreams for retirement somewhere warmer.

  • David Evershed 5th Oct '17 - 11:25am

    What we don’t want is a tax on the increase in house values if it discourages house movers from moving.

    To prosper our economy needs people to be mobile – and this means being able to buy and sell houses in different parts of the country without it costing too much money in the move.

    Similarly, as people’s needs change as their families grow or as they downsize, we should not discourage people moving to the right property size by increasing the costs of moving house.

    Solicitor costs, estate agent costs, removal costs and stamp duty already discourage people from moving house.

    Whatever new taxes are introduced they should be designed to avoid discouraging people moving hosue. Putting a tax on the capital gain on your home would be a big block on people moving house.

  • @franke You need to watch more daytime TV because that is what a lot of people are actually doing and driving up the prices in places like Cornwall
    @Richard Underhill France anyone? Spain? Italy? Portugal?

    There was a time I thought this was a good idea, until ‘older’ members of the family went from being circa 60+ to being 75+…
    At 60+ some people can, provided they are prepared to work, move to provincial France and do up a small holding and have a nice life. However, the fun and games start when they start to decline into being ‘elderly’ and hence begin to suffer from all the ailments of old age including the death of their partner… at which point the family basically have to repatriate the surviving relation and dispose of the property (its France, the laws are slightly, but significantly different – it is helpful if the surviving relative is compos mentis and so can sign the paperwork)…

    I also look at those who own their own home and after the death of their partner continue to live in the family home with friends and family around. It is noteworthy that the vast majority of these aged 80+ people are still capable of independent living, with family and friends (of similar age) helping out with trips out, shopping, handyman tasks etc. . In my network, only 3 out of 20+ have had to be moved into a Care Home.

    @Franke – in my comment I was unable to reliably identify a significantly ‘cheaper’ part of the country with respect to Newbury ie. property prices are 25% or less of a typical Newbury house.

  • The problems described here are experienced by us all, up and down the country. Young people with high levels of student debt that cannot afford to get on the property ladder and see much of their disposable income going out in taxes and rents. Homeowners and highly leveraged small landlords that have bought property facing the prospect of a severe financial squeeze as interest rates return to normality. Renters experiencing stagnating wages and increasing rents. The Elderly discouraged from downsizing in their local area due to stamp duty and relocation costs and facing care home fees of £1000 per week.
    Inflated land prices are of little benefit to most homeowner. The beneficiaries are the providers of interest bearing capital that finances these inflated assets and those that own land debt free and have benifitted from the rapid inflation of recent years.
    Shifting the basis of taxation (in part) from income to wealth is one measure that can deflate land prices and incentivise the release of development land. Redirecting capital from inflated land prices to actual property construction to increase the supply of housing is another.

  • @ JoeB

    I have no problem with taxing the wealth of rich people, but I object to taxing the homes of people who don’t have enough income to pay the tax. I like the idea of LVT on non-residential land and I could even support LVT on residential land if the same level of Council Tax Benefits which existed but which we abolished in 2013 would be applied and those hard line supporters of LVT accepted the justice of such benefits and give up the idea that once a person dies their estate should pay LVT if the decreased person didn’t have enough income to pay the tax when they were alive.

  • Peter Martin 6th Oct '17 - 8:51am

    I have no problem with taxing the wealth of rich people, but I object to taxing the homes of people who don’t have enough income to pay the tax.

    OK. But, isn’t the solution to just treat all income, either in reality or notional, which is derived from the ownership of land and property in the same way as any other income?

    Then someone who isn’t earning very much when all the calculations are done wouldn’t have to pay much tax either. If if they were required to pay some tax, and that might still cause them some hardship, it could be deferred indefinitely. Until after death in effect.

  • David Pearce 6th Oct '17 - 9:40am

    House prices are too high, and are only limited by people’s ability to pay. This is crazy in an age where it has never been cheaper to make things, even houses. There is no shortage of land in the UK, 95% is undeveloped. But what we have is a regulatory framework which stops people developing it. A system of regulating the growth of towns (or indeed housing in the countryside) has become one to prevent the growth of towns.

    The planning system is the problem, it needs to be much easier to get permission to build. Growing towns, new towns, individual homes on the corner of a farm.

    Ok, we have a problem right now of developers sitting on land banks. But this is really only a symptom of the shortage of supply of development land, so that it becomes possible to corner the market. Make planning consents expire in a short term and issue many more than needed, so it is first to build who gets the right to do and fill a local quota for development. Give individuals the right to fast track one off planning consent for a home for themselves. There must be no (or very few) blacklisted areas where development is not permitted. Presently councils use all sorts of excuses to stop development which must not be allowed.

  • But what we have is a regulatory framework which stops people developing it.

    The planning system is the problem, it needs to be much easier to get permission to build.

    Clearly not had to deal with the planning system then. The current system is basically permissive – you can build provided no one has a valid reason for objecting. The list of valid reasons is relatively short and well defined…

  • Ed Shepherd 6th Oct '17 - 6:05pm

    Among the extremely wealthy it is becomng fashionable to rent a home not buy one, apparently. It always was the case that the very wealthy often preferred to rent or to live in a hotel rather than buy houses or apartments.

  • Peter Hirst 6th Oct '17 - 6:55pm

    It seems fair that income received from property should be taxed like any other investment.

  • @ Peter Martin

    I don’t think the state should tax imaginary (or notional) income and if a person does not have enough real income to pay the tax turn the tax demand into a debt.

  • @Peter Hirst – That is currently the case, with the sole exception of a person’s main residence. Are you suggesting that any cash taken out of a main residence ie. monies not used to purchase another main residence, should be taxed as income or capital gains?

  • Peter Martin 7th Oct '17 - 10:54am

    @ Michael BG

    “if a person does not have enough real income to pay the tax turn the tax demand into a debt.”

    Agreed. It can be a future demand to be settled when the property is sold which may not be until after death. Neither should there be a high level of interest charged. Just about the same as it costs the Government to borrow the money in the gilt markets.

  • “if a person does not have enough real income to pay the tax turn the tax demand into a debt.” …

    @Peter Martin & Michael BG

    The problem with this idea is that it combines equity release with Student Loans…

    Equity Release: The annual tax demand is effectively being paid by a loan on the property. With no repayments the interest being accumulated simply compounds.

    Student Loan: The government ie. politicians determine the interest rate and other parameters, which they will naturally change over time. Also like Student Loans, monies are paid out today, as whilst collection of the taxes may be delayed, payment for the services those taxes buy must be made today.

  • @ Peter Martin

    We do not agree. I am sorry that you appear to have misunderstood what I wrote.

    I was saying that it is wrong for a tax demand that cannot be paid out of income to be turned into a debt. This debt includes a demand for the tax to be paid when the asset is sold or when a person dies. (This does not mean I am against separate taxes on Capital Gains and Inheritances).) This is my major problem with the supporters of LVT on residential property. I have called this a death tax. It is unfair because it only affects those with low incomes and those who inherit the property from those with low incomes.

    I don’t see anyone wanting to tax the value of a person’s other assets. If someone owns a painting worth £2 million no one is calling for that person to pay a percentage of its value to the state every year. When it is sold it would only be subject to 20% of the gain in value (minis £11,300 of the gain in value).

  • David, very good article highlighting the anomalies in property ownership.

    It does need to point out though that property values can rise and fall – indeed whilst London is booming other areas saw price reduction. But rising and falling house (asset) prices are not an argument against LVT. As the tax will be calculated from ‘the value’, the tax will be rising and falling with the house price.

    The issue is different here: do we structure the housing market as a consumable utility or will we structure the market as an investment commodity? For utility the price will fall with the usage – nobody expect 2nd hand car to have higher value than a new car: you use it and you pay for the use through the price reduction (I can live with the exceptions). Some consumables have zero residual value by nature (food).

    For the investment commodity it is a different matter – if you purchase gold, you are purchasing it with the expectation to maintain or improve your investment. Not automatic, granted, but that is how it works.

    At present we ‘buy’ houses as a defense against inflation, as a pension, as a security, as tax efficient saving, as an investment asset … indeed the actual utility value (to have somewhere to live) form only a tiny proportion of our ‘purchase decision’. Combination of ‘investment’ and ‘commodity’ decision.

    Not surprising even the current Housing Minister accept the ‘housing market is broken’. It is – as a place to live. It is not all the other things taken into account.

    It is people who make the markets – not the other way around. It is up to us to decide how we create and define the housing market. LVT is the step in the right direction.

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