Friday, April 14, 2017

Mark Wadsworth exposes Margaret Thatcher's Great British Property Brake Off

The need for wider media coverage on a drastically fairer tax system grows. The start of this was Henry George's seminal work on how to fund the services needed by the community using the community's self-generated land values.  It would involve charging freeholders/landowners an annual levy (LVTax) on land value only, quite apart from the value of a building built on the land. (* 'Annual Ground Rent'). Modern developments of his ideas involve making counterbalancing reductions in income tax and other such counterproductive burdens on creative work. 

Mark Wadsworth has written a short and comprehensive article on UK property market history which shows how political moves over the last 30-40 years have warped the market in favour of those Baby-Boomers who were fortunate enough to have been buying their homes since about 1970. Before then several regulations kept the lid on wild property booms.

In an unfettered property market the location value of a building plot rises to what Wadsworth calls 'unregulated' high values. A monthly or yearly manifestation of land value is rent. Now rent controls imposed since 1918 meant that rents were kept lower than otherwise for decades. The knock-on effect was that freehold prices were also kept lower enabling potential home-owners to compete with private landlords, leading  to owner-occupation rising from 30% to 60%  (1945-1980s). Also governments, pre-1970s, by building were adding to the affordable rent social housing supply which meant less call on the taxpayer through little need of the rent subsidy known as housing benefit.   Mortgage restrictions on borrowers (loan/income ratios) were about half current levels so there was reduced ability for buyers to bid up prices. Higher value homes were taxed though Schedule A taxation (to 1964) and Domestic Rates (to 1989).  

But these benign conditions did not last. The regulatory brakes started being let off the property market when Mrs Thatcher and Messrs Blair and Brown dismantled the above restraining forces and property prices rose high and higher to their unregulated values. Low earners, even mid-earners, are excluded from buying for themselves and this has reversed the decline in private renting - down from 50% to 9% (1945-1990) up now to 18% (2014).  Wadsworth does not mention the additional London effect of more recent years whereby new foreign/company freeholders have increasingly been bidding up property to park their wealth in a safe haven - then to add insult to the priced-out ordinary Londoners leaving many such properties unoccupied for long periods.  

Wadsworth's article is a succinct summary of historical politico/real estate wisdom, and the recent meddling. The meddling has had an expensive effect on everyone's taxes as welfare support is needed by people who are being priced out of affordable housing by the 'Baby Boomers...[who] genuinely believe that they are somehow morally superior because they 'rolled up their sleeves and paid off their mortgage' '. This is a huge social issue. It is coming home to roost for the growing number of renters who may need tax funded housing benefit to survive - despite themselves having to roll up their sleeves but still unable to pay the rent. Maybe the tide is turning with prices of London properties declining - partly due to specific property tax charges by Chancellors desperately needing funds to counteract the hugely expensive welfare effects flowing from the flawed housing system. 

But the property market bandwagon will continue to career dangerously on unless we adopt Henry George's insight of taxing land values. The need for an affordable home for everyone is too important to be tied up with the inevitable involuntary land speculation that every home owner is party to when they start to purchase.  For the sake of a more equitable society, everyone needs to feel the effects of some or all of these: rent controls; land value tax with lower income tax; property lending restrictions and increased house building. Whether the effects will be seen as benign or not will depend on how favoured we already are.    

*Annual Ground Rent  
Fred Harrison and Mason Gaffney have written a book Beyond Brexit: The Blueprint  which uses the term Annual Ground Rent to describe land value tax. AGR neatly describes LVT as the regular charge morally due from all landowners/homeowners to contribute to public services.  The book has been enthusiastically reviewed by The Georgist Journal ( March 2017 print copy) which also contains Mark Wadsworth's article.  
POSTED BY Charles Bazlinton. Author THE FREE LUNCH - Fairness with Freedom

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