Killer Arguments Against LVT, Not (293)

Over at ConHome, an anonymous author couldn't even be bothered to think up some new and original KLN's, so he goes for a couple of "tried and testeds":

First of all taxation should always be related to the ability to pay. Just because someone owns land it does not mean they are making money from it. They could, of course, sell some or all of it to pay the tax – which could encourage more productive use of the asset; but when it comes to people’s homes, it is surely deeply immoral to apply such an argument.

That's the Poor Widow Bogey again. Is it really beyond the wit of mankind to think up some transitional system of exemptions, deferments etc? And why is it "deeply immoral" to make people pay market value for where they live? All tenants and first time buyers have to do it, don't they? The whole landowner-banking pyramid is based on the fact that they can and do.

Secondly, where property is rented, the cost of the tax would most likely be passed on to the tenants. In effect, the burden of the land value tax would fall upon the shoulders of the landless. Some irony.

"Most likely"?? Answer is, it wouldn't be. Simple common sense tells us this*; supply and demand curves tell us this; all the available evidence and statistics tell us this; the fact that the "landed" spend all their time campaigning against LVT tells us this - because simple lack of LVT enables them to obtain more and more land, while the "landless" subsidise them (either directly via rent or indirectly via taxes on earned income).

Do these Homeys have any real life examples or actual hard facts at all to support their contention?

* The total rent a landlord can charge bears no relation to his actual cash costs, it is all down to location. The cash costs of actually providing and maintaining buildings are pretty much the same everywhere in the UK but rents and selling prices are wildly different. Those differences are entirely down to the location. If it were true that rents depend solely on the landlord's costs, then rents and selling prices would also be pretty much the same across the UK, but they aren't.

It's easiest to consider the position of new entrants under an LVT-only system:

A tenant is choosing between two physically similar homes, one in a nicer area costing £12,000 a year rent; and one in a less-nice area costing £8,000 a year rent. That differential is decided by the markets, so we can assume that all tenants, taken together are indifferent between the two. Market equilibrium is established.

An investor wants to invest in buildings to rent out. He can buy the home in the nicer area, rent it out for £12,000, pay £7,000 LVT and keep £5,000 to cover his costs and his own return on capital. Or he could buy the home in the less-nice area, rent it out for £8,000, pay £3,000 in LVT and keep £5,000 to cover his costs and his return on capital. So we can also assume that actual and potential landlords will be indifferent between the two - the cash cost of buying either house will be much the same (about £80,000) and the annual net return on capital will be much the same (£5,000 minus cash costs). Market equilibrium is established.

If you try applying Homey non-logic to this equilibrium, it would be impossible for a market equilibrium to be established. Why would our potential investor buy the home in the nicer area and then imagine that he can rent it out for £19,000?

I suppose the Homeys would argue: "Aha, you have just proved our point! When deciding his rent, the landlord takes his costs plus minimum return on capital, adds on the LVT and then makes the tenant pay it! So the tenant does bear the tax!".

False comparison!

The point is that tenants and first time buyers already pay LVT, it is just that it is collected privately. LVT is not a tax on tenants, it is a tax on landowners. If we had LVT for a couple of years, the new equilibrium would be established and everybody would be happy - but what if we then reduced LVT again or scrapped it? Would all the landlords drop their rents from £12,000 to £5,000, or from £8,000 to £5,000, to reflect their lower costs?

Of course they f-ing well wouldn't. They'd keep their rents the same. So reducing the LVT benefits solely the landowner.