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Land Value Tax- the Big Idea that's Right in Front of our Noses

June 17, 2018 6:16 PM
By J G Šmíd

In Lib Dem Voice on 3 June Helen Flynn urge the readers to come up with "big ideas" to solve our current housing market.

Helen Flynn rightly identifies the issue is not of 'supply and demand': … problems in the housing market … are not necessarily problems of the housing market. Helen Flynn then singles out "distribution" of housing as the main issue: "Some people are occupying a lot more housing than others … others are squeezed out of the market entirely".

There has always been a problem of "housing distribution". Witness the relative sizes of 'castles' and 'cottages' throughout the ages. Distribution is not 'the big idea'.

Neither is the "big idea" described by a quote of Alex Marsh: "We need to view housing primarily as a means of meeting fundamental human needs for security, shelter and privacy rather than as a vehicle for passively making large amounts of money."

The "big idea" must be what lies behind the "rather than" statement above. We need to fix what created this unsatisfactory situation.

To understand the cause, we need to recognise that 'a house ownership' is a multitude of economic needs, and the 'shelter' part often insignificant. The 'economic goods' (utilities) the property ownership provides are numerous: saving, investment, tax optimisation, pension, inheritance vehicle, inflation hedge, speculation, security, income protection … and shelter.

The big idea must be how to move 'the shelter' consumable up front and limit the rest to a manageable degree. And the big idea here is to match the utility benefit (see the list above) with the utility cost. The distortion in the housing market is there because the 'utility benefit' and 'utility cost' are often divorced from each other. Even worse, one - the benefit - goes to a private person, the other - cost - is borne by somebody else. Often, but not always, a public body. Mortgage relief, housing benefit, infrastructure investment, tax regime … all these transfer monies from public purse to private profit. (PP2PP).

Trying to solve housing in terms of societal and economic changes, benefit restrictions etc will not work. Ownership distribution, improvement in housing benefits, societal change, allocation enforcement, even building new houses will not fix the hosing market. Indeed, all those socially liberal actions led us where we are. We need to attack the cause, not the result.

The common cause for unsatisfactory housing distribution is the distorted fiscal regime for housing. In any market money can be attracted by distorting the fiscal regime but this squeezes out the primary function of the market. The oil business is driven by supplying fuel to a miniscule degree. Another illustration is the current closure of high street shops which pay business rates and a surge in on-line retailing which does not pay business rates.

It is inconceivable to attack any single element of property ownership utility separately and on its own. Fortunately, 'the big idea' is with us and has been for millennia: Land Value Tax (LVT). Tax directly the ownership and you remove the fiscal distortion. Liberal Democrats and ALTER are the place to push this 'big idea' forward. ALTER should apply for Paddy Ashdown's grant to work on fiscal distortion of housing market and its LVT solution.

Notes:

A good read on fiscal distortion of the housing market is supplied by the Dutch.
The drive for 'distribution' led to the UK building the smallest new houses in the developed world. Overcrowded Netherlands, deprived Greece, comparable Germany all build houses 50% bigger than we do.

Average Floor Space by Country

Floor Space