Home—Blog—A solution to the housing 'shortage' – put a tax on luck
Oct 05, 2011, 04:13
Posted byMerryn Somerset Webb
Comments (47)
As you may know, I am not mad about the idea of a wealth tax. But that isn't because I think it is in any way worse than any other taxes.
Instead it is partly because I don't think we need any more taxes at all. Seems to me that the government should be able to find a way to make do with the 50%-odd of GDP they control already.
It is also partly about the fact that if we do end up with a mansion tax or a wealth tax, we won't get it instead of the 50% rate (which I don't like), stamp duty (which I hate) and inheritance tax (which is pointless because the rich don't pay it). We'll get it on top of them.
And that is just too much – inheritance tax is already a wealth tax (just one collected on the dead instead of the living) so I can't for the life of me figure out why the government won't just cut the loopholes everyone exploits on that and be done with it. However there is one thing that a property tax might be good for – dealing with the housing problem. At a seminar for clients of a wealth management company this week I was asked what I would do about the lack of supply of housing in the UK. Many of the attendees are worried about their children – given how expensive houses are, and how few of them there are about, how will they ever get a place of their own?
I'm not sure I approached the question with that much sympathy. Why? Because many of the people who make up part of the cause of the problem, such as it is (I'm not convinced there is a shortage of housing in the UK), were sitting right in front of me.
There are around a million empty houses in the UK – around 300,000 of which are holiday homes. There are probably many hundreds of thousands more being lived in by people who just don't need all of them – one elderly couple in a four-bedroom house for example.
So when they wonder what the government is going to do about the problem, they are looking at the wrong thing. They should be asking what they are going to do about it. If the affluent all moved out of their big houses into small houses and put their second homes on the market, supply would rise and house prices would fall in a flash. Problem solved.
I can't see anyone doing this voluntarily – it isn't the kind of solution my audience were looking for. However, if everyone agrees that the supply of housing is too low and that Something Must Be Done, then it seems entirely reasonable to chuck a few property taxes into the mix.
Lead indicators for Britain's economy
You could tax spare bedrooms, tax houses over a certain square footage or tax houses over a certain value. And you could put a horribly punitive annual tax on any home not used as a primary residence (not that you'd get that one past the MPs.). It wouldn't be long before most people just had one house with no more bedrooms than they have family members and before most people could afford – should they still want to – to buy a house with said number of bedrooms.
An extra benefit would be that all these taxes would get the non-doms who are currently knocking around in vast London houses and paying not a penny in tax towards the upkeep of the infrastructure around them.
I'm not suggesting we do this (although if we dumped stamp, IHT and the 50% rate, and the government looked to be attempting to live within its means, I wouldn't be against it) but it would be a pretty quick way to get the UK's affluent to solve a problem that both bothers them and which they have at least in part caused.
However I wouldn't call it a mansion tax or a wealth tax. I'd call it a luck tax. Why?
Because most people work hard. But whether working hard turns into being well off or not is often a function of the environment in which you work. And this tax would be primarily paid by those who bought their houses when they were cheap and who made their money during the fabulous years for wealth creation before our great crisis.
And because it sounds nicer.
Published in Blog More articles by Merryn Somerset Webb
By Merryn Somerset Webb, May 22, 2012
By Merryn Somerset Webb, May 21, 2012
By James McKeigue, May 19, 2012
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(05 October 2011, 04:32PM) Complain about this comment
"Seems to me that the government should be able to find a way to make do with the 50%-odd of GDP they control already."Unfortunately the government only taxes at 40% of GDP. To pay for 50% of GDP government spending we run a 10% deficit.
(05 October 2011, 05:44PM) Complain about this comment
Perhaps I'm being dim here, but wouldn't that make the problem worse for young people without a family - the group I understand the initial question relates to. One and two bedroom properties would be in even higher demand due to the lower tax so in the short term they would be harder to come by.
(05 October 2011, 06:23PM) Complain about this comment
"No more bedrooms than family members" is a subtle insight into how Merryn's class live. Nobody shares a room.I suppose you think the 35% of people who live alone will all move in to one-bed houses (of which there are very few),while the rest of us will refuse to entertain friends or family at weekends and holidays due to lack of room. This could be explained as a typical economists answer with the usual grim social consequences ,but I suspect it's just that Merryn has shares in Travelodge.
(05 October 2011, 10:23PM) Complain about this comment
The intellect of man is forced to choosePerfection of the life or of the workAnd if the latter take must forsakeA heavenly mansion raging in the dark.When all that story's finishedWhat's the news? In luck or outThat old perplexity... an empty purseOr the days folly, the nights remorse.WB Yeats : The Choice Merryn is always trying to perfect the life (of the State),not realizing that our intellect and energies should be directed to the perfection of work. Only hard productive work will get us out of the present economic mess. But too many in the nation want something (their heavenly mansion) for nothing. Luck.The perplexity of all governments is always an empty pursebecause during the days of the boom they did not consider the approaching night of the next bust. Such spendthrift folly. And Labour exhibits no remorse.So what's new? The slow realization that Governments should neither a borrower nor a lender be.. then we shall all live more happily.
(06 October 2011, 09:35AM) Complain about this comment
Merryn,Eminently sensible and wholly fair, and of course it hasn't a snowball in hell's chance of getting on the statute.This would be a tax on luck, a tax on being born at the right time. Those born in that cohort enjoy an electoral majority and so economic policy is geared to their needs and vested interests.Somehow we have created a society which believes that taxing good luck is not fair; work hard for thirty years to build a business from which you start taking a good income and the state demands over half of it. At the same time, someone who has lived off state benefits all his life can get lucky on the lottery, win £5m, and the state demands not one pence of it.We are sending a dangerous message to our children; work hard, play by the rules, and we'll take it all off you. Live as a chancer, get lucky, and you keep the lot. There'll be consequences.
(06 October 2011, 09:40AM) Complain about this comment
Boris, have you got a battered fish on your other shoulder?Jaw well put.
(06 October 2011, 10:09AM) Complain about this comment
You unfortunately made the mistake of confusing "land value tax" with "wealth tax". Nearly all existing taxes are on "wealth" or "wealth creation" (from income tax to inheritance tax), but a tax on land is not a tax on wealth, because land (as distinct from buildings) is not wealth, it is merely a legal mechanism whereby land owners can collect wealth from non-land owners, or enjoy wealth created by society in general and nobody in particular (roads, railways, good state school, a nice view etc). Land is no more wealth that the legal entitlement to welfare or pensions, these are not wealth in themselves and are merely a claim on other people's wealth (via redistributed income tax etc).
(06 October 2011, 10:10AM) Complain about this comment
... As an acid test, with proper wealth taxes (income tax, inheritance tax) there is never a problem with 'ability to pay'. Now, the excuse that they always use for not having LVT is that poor widows in mansions wouldn't be able to afford it, well of course not, because these poor widows aren't wealthy, they are just lucky.
(06 October 2011, 11:00AM) Complain about this comment
You could look at it the other way.It's a tax on bad luck.The kind that saw successive governments allow house prices to inflate to a point where your family cannot afford to live in their home area, without you being forced out of the home that you have lived in and loved for perhaps 30 years to fund it.Likewise, no property tax can work in the UK without some variance for the massive regional inequality in prices.It is grossly unfair to penalise a family that has suffered from an accident of geography and poor Government economic policy. You can live in a £2m house in London, or the commuter belt, and have much less income than someone in a £500,000 home in Yorkshire. A £10k a year tax could be a quarter of your pension income.Would supporters of a property tax happily force people in this position out of their much-loved and long lived in family homes.
(06 October 2011, 11:20AM) Complain about this comment
#6 No fish, just huge chips.#9 SL. Incredible misrepresentation of "fairness". You say someone in a £2million London home "suffers" from an accident of geography. Some suffering when they could sell it and have £2million to spend whereas the fortunate northerner has only £500k.Yes, I would force the rich out of their homes if necessary. They have had it too good for too long and finally (even in the USA) things are turning against them. Ordinary people finally grasp fairness.
(06 October 2011, 11:25AM) Complain about this comment
If you live in a house that is too big for your needs, but you can afford to maintain yourself there is no incentive currently to sell it.Property outside London is not selling,and unless you can find a genuine cash buyer you will get stuck in a chain.And having realised your £100k plus after buying a new home - what do you do with your cash? Apart from gold bars what else is remotely secure - banks with their low interest rates, shares??I'm sticking with my house as is my 80 plus year old dad with a large house
(06 October 2011, 11:49AM) Complain about this comment
All pie in sky anyway. The government is committed to trying to maintain house prices at the current level or at least manage a painless decline through inflation.The solvency of our banks depends on house prices remaining at their current levels. Had we let the banks suffer the full consequences of their actions, the government could allow house prices to fall to where they should be and let the interests of the country prevail over those of zombie banks.
(06 October 2011, 12:00PM) Complain about this comment
SL: "Likewise, no property tax can work in the UK without some variance for the massive regional inequality in prices."Well of course, that's why it's called Land VALUE Tax and not just "land tax". People seem to have little grasp of the fact that the ratio between the highest rents (Bond Street in London) and the lowest rents (grouse moor in Scotland) is about a million-to-one, it's £5,000/sq yard/year in the former and about 0.5p/sq yd/year in the latter.
(06 October 2011, 12:09PM) Complain about this comment
Please could you stop this "inheritance tax is a tax on the dead" line. It's false. The dead don't pay taxes. They don't do anything at all. That's because they are dead. Inheritance tax is effectively paid by those who inherit. They are the ones who forego the money. The rest of it is semantics.In any case it would be much fairer to give people an inheritance threshold, say, £325k per person, with 40% due on any total amount inherited over that. It would also recognise the true situation, that inheritance tax hits those who do the inheriting and not those who are, how should one put it, stone dead and no longer even vaguely nailed to their perches.
(06 October 2011, 12:10PM) Complain about this comment
(06 October 2011, 01:06PM) Complain about this comment
"Well, i happen to think its a great idea anhd all those who don't are probably those who are either already home and dry or those who are instintively greedy and sefish in nature anyway!
(06 October 2011, 02:34PM) Complain about this comment
Mark,Sorry, I'm ignorant on this, please explain. So how would your land value tax work. ie is it theoretically adjusted for the fact that a £400,000 London two bed flat lived in by a young family may equal a five-bedroom detached home in the North lived in by an executive with much more money?Boris, you have a weird concept of fairness if you'd actively use tax to force a family out of the home they've lived in for 30 years - or is that just collateral damage to you?
(06 October 2011, 03:41PM) Complain about this comment
It's not my invention. The basic idea is, tot up the total site-only rental value of each residential plot* (probably in the order of £140 bn a year), decide how much money you want to raise (i.e. how many other taxes you want to replace), let's say you go for £42 billion (to replace C Tax, SDLT, TV licence, IHT, CGT and IPT) well that's then a flat rate of 32% on the £140 billion a year, job done. If you want to have exemptions for pensioners, fair enough, the rate on everybody else goes up to 45% or whatever. For the bottom two-thirds of homes by value, the LVT would be much the same as C Tax + TV licence, for more expensive houses, teh tax would be very approx. 1% of its current selling price.* i.e. you work out the total annual rental value of each home and then knock off the rental value of the bricks and mortar.
(06 October 2011, 07:17PM) Complain about this comment
#17 SL. Tax has been actively used to force all orts of changes. Smoking, drinking , driving, air travel, landfill..... I said" if necessary". That is if it means a fairer distribution of housing stock, so be it.
(06 October 2011, 10:12PM) Complain about this comment
Agreed. But why a new tax and not just simply apply council tax even if the property is empty. If there is such an under supply of property then we should discourage hoarding as it is as the expense of people with real needs.
(07 October 2011, 09:41AM) Complain about this comment
The flipside of the 'just because I have a big house doesn't mean I have a big income' is 'just because I have a big income doesn't mean that I can lose an enormous amount of it in tax'. I make a nice salary well into the higher rate of income tax, but I also have a lot of rent to pay. Should I be forced to move further away, lose even more of my life to commuting, turn my daughter's walk to school into a drive, etc.? Even for the lower paid, the assumption that just because you have an income you can afford to pay tax is damaging to the economy. If my wife's potential salary of ~£20k was taxed less heavily, we could afford childcare for two kids. But the government panders to landowners and the economy suffers a deadweight loss of a productive worker. Not a chance we're paying for one of us to work.
(07 October 2011, 10:10AM) Complain about this comment
@Mark Sorry, am being thick. How do you do this? 'you work out the total annual rental value of each home and then knock off the rental value of the bricks and mortar.'In real life charging, what eventually happens with a £400k two bed London flat vs a five bedroom detached house in Yorkshire - do you go on the council tax band, as the former might be band C or D and the latter band H?
(07 October 2011, 11:07AM) Complain about this comment
@ SL: "How do you do this? 'you work out the total annual rental value of each home and then knock off the rental value of the bricks and mortar.'"For example, I live in a semi and pay rent of £9,500 a year plus £1,500 council tax, the total rental value is thus £11,000. Let's say rebuild costs are £80,000 x 5% cost of capital and routine repairs, insurance of £1,000 a year. So the rental value of the location = £11,000 - £4,000 - £1,000 = £6,000. You then do this exercise for all homes in the UK (HM Land Reg can do this automatically), total them up to arrive at the 'tax base' (let's call it £140 billion) and we divide required receipts (£42 billion in my example) and that gives us a rate of 30%-odd, so the LVT on the semi I live in = £1,800 a year (much the same as Council Tax + TV licence fee).
(07 October 2011, 02:01PM) Complain about this comment
Merryn, Have you ever tried to live in a one or two bedroom house? It's hell. I'm sure that 99.99% of them are just as nasty as the ones I've seen (and lived in). Cramped, claustrophobic, unhygienic. Nobody should ever be forced to leave their family home to free up bedrooms. There is a solution, I'm sure, but that's not it.Our government is way too expensive. Isn't it time we cut taxes and had a cheaper government?
(07 October 2011, 04:01PM) Complain about this comment
A solution to the housing shortage, it doesn't exist so it doesn't need a solution? Seems a bit strange, but ho hum!Getting unproductive capital working is definitely beneficial to the economy. Not sure cleansing the old from large houses will go down particularly well Mezza. Have you tried to pass this by the older generations in your family? I know my mother wouldn't be greatly enamored by the idea of moving out of the the house and therefore village which she has lived in for 40 years. Surely, this would be an attack on the very communities that we are trying to preserve.Why not build some more houses, even if we don't have a shortage there are plenty of people who would buy them. Getting the market working correctly to provide this essential good at a price people can afford is the issue.
(08 October 2011, 10:32AM) Complain about this comment
A tax on unused rooms would be avoided like the 'window tax' - people would knock internal walls down to make less rooms and as their families grew rebuild them - like windows were bricked up in the past...Agree with the taxing of second homes and investment properties though - although the lack of CGT on principle residences is also a problem and encourages speculation and tax avoidance - houses should primarily be regarded as homes, and the fairest way I can see of taxing them is via a Land Value Tax.
(08 October 2011, 10:43AM) Complain about this comment
Stupid champagne socialist ***!
(08 October 2011, 11:37AM) Complain about this comment
I agree with number 27.But there is a solution.All our problems stem from years of poor government, after poor government, after poor government.So bring back Guy Fawkes and show him how to do the job properly.
(08 October 2011, 11:44AM) Complain about this comment
I agree with number 27.But there is a solution.All our problems stem from years of poor government after poor government.So bring back Guy Fawkes, show him how to do the job proerly.
(08 October 2011, 02:38PM) Complain about this comment
Where does SL get the figure of a house tax of £10k? Or the extra-ordinary idea that £10k could be quarter of your pension income? I have a nice house, bought from a comparatively low salary, but I am "asset-rich, income-poor", and my professional pension and my state pension together come to about £18k per annum. Not enough for my wife and me to live very comfortably, with Council Tax, utility bills, house insurance, life insurance, car insurance and tax, petrol and, of course, food. Holidays are spartan. We need our extra rooms for our children and grandchildren and other guests.
(08 October 2011, 08:33PM) Complain about this comment
Boris MacDonut.I don't believe it, you are actually talking some sense and I actually agree with what you have said, wonders will never cease.Yes this is just another idea that will affect everyone apart from the rich, who can afford to have any amount of rooms empty. FTBers will not be able to get on the ladder, middle classes getting ripped off yet again and stately homes that have been passed down for generations, falling into disrepair.
(08 October 2011, 09:53PM) Complain about this comment
We are all born into this world with nothing some of us are lucky enough to have had rich parents. I was not my dad work all week then all weekend, my mum cleaned other peoples homes as well as ours. I left home with nothing borrowed £2000.00 (i was earning £52 a week) to buy my first home since then i have worked hard, only ever borrowed what I can afford, not lived an extravagent life style paid my taxes and now because I have got somthing behind me the goverment want to tax my hard work. The way to solve the property market is to force the banks (that we have a large stake in) to lend or give us our money back! Mr Osbourne need to get a back bone and make the banks do their job!
(08 October 2011, 10:44PM) Complain about this comment
#32 to 36 Always helps to say things five times.£52 a week was a lot of money in 1950 (when HP's were £2000). You only had to borrow 73% of your pay, not the 3 to 4 times that modern FTB's need.
(08 October 2011, 10:48PM) Complain about this comment
I disagree with Mark (32) that forcing banks to lend will help "solve the property market" ... by not lending the banks are doing the property market a favour by putting a downward pressure on prices at a time of historic low interest rates - otherwise an increase in demand and lack of supply would drive up prices even further.... and then when rates eventually rise rapidly to deal with the uncontrollable inflation that will no doubt result for all of this QE, the property market is likely to crash completely and plunge many people into negative equity...
(08 October 2011, 10:59PM) Complain about this comment
not sure who is being referred to as a "stupid champagne socialist ***" - Merryn or me, but the idea of a Land Value Tax to replace most other taxes was favoured by Adam Smith and many other free market economists... sadly not many people understand the concept and how much fairer it would actually be, compared to the way we are all currently taxed ...
(08 October 2011, 11:00PM) Complain about this comment
(09 October 2011, 06:43AM) Complain about this comment
My children have just left home. We have tried to down-size several times in the last few years. No-one wants to buy. Maybe we should have lowered the price more deeply and more often than we did.But I don't understand why you should be talking about more tax, or even distributing the tax burden in a different way. The State is already too big. I understand that 75% of the people in Northern Ireland for example are employed by the Government. None of these people are creating wealth. Any taxes they pay are just recycling money in the State's merry-go-round.We need to create some highly productive jobs now. Things that the rest of the world value and will be prepared to pay for, even in a world recession.
(09 October 2011, 12:33PM) Complain about this comment
agreed - not more tax - less but fairer tax... reduce the size of the state, reduce/get rid of income tax and VAT but instead tax land - encourage efficient land use and discourage land banking...
(09 October 2011, 05:11PM) Complain about this comment
#41 Mrs R Rabbit. There are 1.78 million people in N Ireland, of whom 400,000 are under 18, 40,000 are at Uni and 370,000 are pensioners. There are the 160,000 who choose not to work for whatever reason, 80,000 unemployed and 60,000 disabled.We are left with 670,000 people, of whom about 56% are in public sector jobs. I make that 20% of the population. The very idea that they create no wealth is ludicruous. If a surgeon saves and entrepreneurs life or if the Dept of Transport build a new road, does that not benefit the whole of society?
(10 October 2011, 07:46AM) Complain about this comment
Off topic a little ,but are there any comments out there about the system in Switzerland where any owner of a second home gets taxed on it's market rental income, whether it's rented out or not..?
(10 October 2011, 10:52AM) Complain about this comment
@44 - In the absence of LVT, I like that idea - I have no problem with "holiday cottages" which are let to tourists throughout the year who spend money on local goods and services and keep small villages alive.
(12 October 2011, 02:00PM) Complain about this comment
There are so many ways to make housing available to people, of which this is one idea. Unfortunately the government thickos can only think of one 'solution' (which isn't actually a solution at all) and that is to relax the planning system as a means to have a development free for all at the expense of England's green and pleasant land. What is needed is a proper analysis of options that could release living space for people. See my next entry for rest or argument.
(12 October 2011, 02:09PM) Complain about this comment
Part 2 of previous comment:There is plenty of living space for people in existence already, we just need to think about how to make it available either through taxation or (the reverse) incentivisation. As for boosting the construction industry, why not spend the QE money on loans to property owners to fully ecorefurb the current stock of housing - including internal and external wall insulation - then get the money saved from heating bills paid back to the Bank of England, therefore not wrecking our pensions nor putting money into banks who will investt it in commodities and thus increase the price of land and food for the rest of us. A closed loop of cash flow which will keep people in work, help meet our (legally binding) climate change targets and not wreck our futures.
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