From The Telegraph:
House prices would be hit and many older people forced to sell family homes (1) by an increase in council tax to “fix the broken housing market”, as proposed by an influential think tank today.
Many homeowners might question in what sense the housing market is “broken”, when property is one of the few assets that has delivered decent returns (2) in a dismal decade or more for stock markets, pensions and other stores of value.(3)
Alternatively, rising numbers of younger people excluded from homeownership and trapped in ‘generation rent’, may feel that anything which tends to cause house prices to fall must be a good thing.(4)
1) So? Poor Widow sells family home and buys a flat; young family sells their flat and buys a family home. By and large and for many people, this might be just a straight swap with their own children or grandchildren (so the “family home” can “stay in the family”, if that’s what makes them happy). Why is that so terrible?
2) Typical Home-Owner-Ist circular logic. Yes, houses are a good hedge against inflation. But what they don’t mention is that it’s Home-Owner-Ism which is the PRIMARY CAUSE of inflation in the first place (and something which I hardly mentioned before):
- Home-Owner-Ism needs credit bubbles to prop up land prices, some of this money spills out into productive economy without increasing output capacity, so this leads to price inflation. For example, a semi-retired person MEWs and buys a new car. This increases demand for cars without increasing amount of work done.
- When Homey bubbles pop, the government quite deliberately and maliciously tries to create inflation in order to mask real house price falls. This trick worked fine in the 1970s when we still had currency controls, it doesn’t actually work without them, e.g. Japan over last twenty years, the UK today.
- Homeys just luuurv those ultra-low interest rates, which of necessity trigger speculative bubbles in commodities which tend to push up price inflation.
- If you can’t tax the rental value of land, you have to tax production and output instead, these taxes tend to push up prices (at least, relative to net incomes) and reduce output.
So what these shits really are saying is “Home-Owner-Ism causes inflation. Inflation is bad unless it’s in house prices. So we need even more Home-Owner-Ism.”
3) Other “stores of value”* have done so badly precisely because of Home-Owner-Ism.
If we’d got it over with and shifted from taxing production and output to taxing the rental value of land ten or fifteen years ago, the dust would have settled by now. Houses would have performed badly, viewed as a speculative investment, but shares would have doubled, interest rates and hence annuity rates would be much higher, price inflation would be more or less non-existent (sure, food is getting more expensive but electronics are getting cheaper, it would cancel out to nothing), fewer unemployed, far milder recession etc.
Once LVT has bedded in (i.e. once all the Poor Widows In Mansions, of whom there are several thousand in the UK have down-sized), everybody will have got used to the idea that land is useless as a speculative investment; that debts will not be eroded away by inflation; that share prices tend to go up; sticking cash in the bank is a good way of saving; and that it’s worth saving up for an annuity, because you’ll get 10% a year.
When we tell our children and grandchildren that people used to believe that you could become rich without working, just by buying a bit of land and keeping your fingers crossed (and that a lot of people did become rich this way) they will think you are mad.
“Yes, but how did you pay the tax on the land if you were not working?” they will ask.
“There wasn’t any tax on land in those days,” you reply.
“Wot? So where did the government get money from?”
“Ah… they used to tax people who went to work instead, and give the money to the people who owned land… Jesus, this sounds really stupid now I say it.”
* We can make an exception for gold, the gold price has done very well because a lot of the measures which governments are taking to
subsidise land owners stimulate the economy spill over into higher gold prices.
4) Well, at least he admits that Home-Owner-Ism is inter-generational warfare. Remember: the person who starts the war doesn’t necessarily win it.