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"Buy-to-let" is one of the most horrible market distortions to be let loose on the British housing market. Again, it's a net transference of wealth from relatively poor to increasingly rich.

To say it "shouldn't be allowed" is an understatement.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Jun 1st, 2011 at 06:44:47 AM EST
[ Parent ]
""Buy-to-let" is one of the most horrible market distortions to be let loose on the British housing market. Again, it's a net transference of wealth from relatively poor to increasingly rich.

To say it "shouldn't be allowed" is an understatement. "

Er... why exactly? You state that there are not enough flats offered for rent.
If you forbid people to buy with the intention of letting the flat, you are forcing people to buy or else. How would that be an improvement?

Just regulate the price increase while letting buy to let happen and you may find that the price adjustment will be a lot faster.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Jun 3rd, 2011 at 04:11:16 AM EST
[ Parent ]
Look at it from the perspective of the bank that lends to the buy-to-letter or the buy-to-owner.

The BTO will be paying principal and interest out of their income.

The BTL will be paying out of their income plus the income of the expected tenant.

Therefore the bank will lend more to the BTL than to the BTO. This means BTL drives BTO out of the purchase market.

The problem is that the BTL's business plan is predicated on a certain demand for rental. In theory the BTO being shut out of the property market will fall back on the rental market. Except the BTO already has a place to live. So what happens is not that the BTO is forced to rent from the BTL. The BTO stays put and the BTL doesn't have an additional potential renter.

So eventually the BTL's business plan will fail, with losses for both the BTL and the bank.

The whole thing is a bubble and has to stop.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Fri Jun 3rd, 2011 at 04:49:35 AM EST
[ Parent ]
"The BTO will be paying principal and interest out of their income.

The BTL will be paying out of their income plus the income of the expected tenant."

He will also have greater expenses as he ALSO needs to pay for his place to live.

"This means BTL drives BTO out of the purchase market."

Which needs not be a bad thing where there are too many owner-occupied houses and not enough ones for rent.

"So eventually the BTL's business plan will fail, with losses for both the BTL and the bank. "

Yes, so what? They made some during the good times, why should they not be allowed to take losses at other times? Plus, well, shouldn't the bank then stop giving more money to the BTL as the business model may not hold?

"The whole thing is a bubble and has to stop."

Then address the bubble, but not the idea of buying to let. Banning buy-to-let, in the long run, means that there will be no rental market at all.

Now, I know why right wing politicians would see that as a good thing: it has been demonstrated that owning a house makes you much more likely to vote righ-wing. But in general, I don't see how having lots of owner-occupied houses is a nice goal per se.


Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Jun 3rd, 2011 at 11:31:35 AM EST
[ Parent ]
He will also have greater expenses as he ALSO needs to pay for his place to live.

He has no greater expenses, because the tenant pays all his "investment" costs. The BTL makes his profit from capital gains.

Which needs not be a bad thing where there are too many owner-occupied houses...

No...

Then address the bubble, but not the idea of buying to let. Banning buy-to-let, in the long run, means that there will be no rental market at all.

Who needs rental market? Some CEO's in business trips? Labour families don't need them.

But in general, I don't see how having lots of owner-occupied houses is a nice goal per se.

Why not?

by kjr63 on Fri Jun 3rd, 2011 at 03:57:24 PM EST
[ Parent ]
But in general, I don't see how having lots of owner-occupied houses is a nice goal per se.

Why not?

It does bad things to your political culture. Also tends to blow up your financial system every once in a while.

Real estate taxes are the first line of defence against real estate bubbles (because they force people to put up real money to support the bubble valuation, even if their bank takes leave of its senses and offers negative-amortisation, no-money-down loans). So declining real estate taxes weakens your defence against real estate bubbles.

If you have lots of owner-occupiers it is electorally very difficult to raise real estate taxes, because raising real estate taxes will make homeowners unable to pay their bills. And you will, in a democratic system, occasionally have a right-populist government that enacts irresponsible tax cuts. So high homeownership builds in a structural advantage for macroeconomically illiterate right-wingers.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 3rd, 2011 at 06:05:53 PM EST
[ Parent ]
Real estate taxes are the first line of defence against real estate bubbles (because they force people to put up real money to support the bubble valuation, even if their bank takes leave of its senses and offers negative-amortisation, no-money-down loans). So declining real estate taxes weakens your defence against real estate bubbles.

Nothing prevents banks for loaning people money to pay both the mortgage and the taxes.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Fri Jun 3rd, 2011 at 06:07:57 PM EST
[ Parent ]
True in principle.

In practise, this tends to strain the credulity of even the most soundly sleeping financial regulator.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 3rd, 2011 at 06:16:15 PM EST
[ Parent ]
and you dont think they still would have found a way to justify it?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Jun 3rd, 2011 at 09:50:54 PM EST
[ Parent ]
True in practice.

You pay the expenses and taxes through a consumer loan, not a mortgage.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sat Jun 4th, 2011 at 04:10:17 AM EST
[ Parent ]
But the mechanics of that differ from the mechanics of a neg-amortisation loan.

Think about a negative-amortisation loan as an interest-only loan plus some fictional interest. This extra interest increases the bank's assets but not its liabilities, compared to an interest-only loan at a correspondingly lower interest. It's free funny-money for the bank, in that it comes with no funding cost - no extra liabilities means no need to borrow more from the CB.

Taxes don't work like that, because they have to be paid in real money, not Monopoly money. So a consumer loan to pay taxes actually increases the bank's liabilities, making it less attractive on paper.

(That, and mortgages typically come with stickier strings attached than consumer loans.)

Of course there are no regulations that a sufficiently incompetent or corrupt regulator cannot fuck up. Foolproof systems do not exist in economics, and even if they did nature is ever at work improving the stock of fools. But as a first line of defence, property taxes are not bad.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 06:22:23 AM EST
[ Parent ]
I agree all this. It is a political issue. But this is not true:

"..because raising real estate taxes will make homeowners unable to pay their bills."

you can decrease taxes on labour and labour will have more purchase power, not less. Property tax is a very progressive tax.

by kjr63 on Sat Jun 4th, 2011 at 04:41:54 AM EST
[ Parent ]
Ah, so you're just building a general tax-cut bias into your political economy. Because that's so much better.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 06:14:35 AM EST
[ Parent ]
No. Just wealth transfer from wealth extractors to wealth creators.
by kjr63 on Sat Jun 4th, 2011 at 07:11:54 AM EST
[ Parent ]
Because making land-owners a more politically powerful group tends to do that...

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 07:35:31 AM EST
[ Parent ]
Please elaborate. And what do you actually mean by "general tax-cut bias?"
by kjr63 on Sat Jun 4th, 2011 at 09:58:08 AM EST
[ Parent ]
What I'm saying: Promoting homeownership makes it politically difficult to raise taxes on real estate, because raising taxes on real estate will cause people's houses to decline in price and their total housing expenses to increase (since interest payments and loan amortisations do not decline just because taxes are increased).

You dismiss this with some hand-waving about lowering other taxes to compensate.

First, that won't work. The reason real estate taxes are less upwardly flexible than other taxes is that they make real estate lose value as mortgage collateral. If you make a revenue-neutral shift in the tax share from income to real estate, real estate prices are going to drop. Which may cause homeowners to become insolvent even though they are still able to make their monthly payments.

And second, even if it did work, it would build a general tax-cut bias into your political economy, because every time a wingnut government lowered taxes on real estate, the next responsible government would have to limit itself to revenue-neutral tax reforms in order to prevent a housing panic. Over a full cycle, this causes a net drop in tax rates. Thus, a built-in tax-cut bias.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 10:24:14 AM EST
[ Parent ]
If you make a revenue-neutral shift in the tax share from income to real estate, real estate prices are going to drop.

Not so fast.
First, of course tax increase is a market value depreciation. But only half of the housing is apartments, another half is commercial real estate. And from both these big portion are not owner-occupied. And add there natural monopolies.
But second, real estate tax transfers money from economic rent payments to the demand of goods and services. This means higher employment, higher wages (=less labour supply) and higher wealth for wealth creators. This would change income distribution for the benefit of labour and landless. That means higher demand for housing market.

And second, even if it did work, it would build a general tax-cut bias into your political economy, because every time a wingnut government lowered taxes on real estate, the next responsible government would have to limit itself to revenue-neutral tax reforms in order to prevent a housing panic.

Why would "revenue-neutral" become such a keyword? And land tax is not a "tax" really. It is a return of public wealth to the public.
But of course we have seen this in the USA. They have made there for 100 years politics with "property tax relief" agenda. And property tax is the most hated tax everywhere.

by kjr63 on Sat Jun 4th, 2011 at 12:31:27 PM EST
[ Parent ]
First, of course tax increase is a market value depreciation. But only half of the housing is apartments, another half is commercial real estate.

It is less than perfectly clear to me why that matters.

The problem is that if you raise real estate taxes on your residential owner-occupiers, a number of them becomes insolvent (because this tax is discounted in the market value).

Therefore, if you have a lot of homeowners, raising taxes on residential real estate will be electorally difficult.

If you fail to tax residential real estate, you weaken the defence against real estate bubbles.

Therefore, lots of homeowners makes your real estate market harder to defend from bubbles.

The logic is broadly similar for corporate real estate, but fewer people are involved, so you lose fewer direct votes.

But second, real estate tax transfers money from economic rent payments to the demand of goods and services.

No.

Inasmuch as taxes crowd out amortisations, they don't matter to demand. Taxes destroy money, amortisation destroys money - either way, the money is destroyed.

Inasmuch as taxes crowd out interest payments, you reduce banker income, which ceteris paribus reduces demand.

Which is a feature, not a bug, because bankers' demand profile tends to be undesirable (a notably higher fraction of their spending goes to renting politicians and buying pundits than is normal for a citizen of a democratic country). And you can always compensate for the lost demand by spending on more productive things.

Why would "revenue-neutral" become such a keyword?

Because if you take more home in taxes than previously, then ceteris paribus people will have a harder time meeting predetermined financial commitments like debt servicing. People take out debt based on the current tax regime, meaning that if you have high private debts, raising taxes becomes harder. Homeownership promotes private debt, because people have to take out mortgages.

So widespread homeownership increases resistance to tax increases.

And land tax is not a "tax" really. It is a return of public wealth to the public.

All taxes are under a fiat currency.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 05:24:36 PM EST
[ Parent ]
The problem is that if you raise real estate taxes on your residential owner-occupiers, a number of them becomes insolvent (because this tax is discounted in the market value).

If their mortgage goes underwater, it does not mean they are insolvent, if their other wealth increases. You cannot decide a household wealth only from the balance sheet of their mortgage.
And anyway, this is an issue of politics. That is a very poor starting point for seeking remedies. Politics must follow policy, not the other way around.

Inasmuch as taxes crowd out amortisations, they don't matter to demand. Taxes destroy money, amortisation destroys money - either way, the money is destroyed.

No. This is the central point. Property tax destroys economic rent. Labour tax destroys wealth. A whole different thing.

Inasmuch as taxes crowd out interest payments, you reduce banker income, which ceteris paribus reduces demand.

It is not ceteris paribus at all. When banker incomes are economic rent (created interest charges over existing wealth, like land, real estate, shares etc.) these "incomes" are the actual "the beef" that destroy demand. This is exactly what property tax helps to get rid of.

by kjr63 on Sun Jun 5th, 2011 at 04:42:47 AM EST
[ Parent ]
If their mortgage goes underwater, it does not mean they are insolvent, if their other wealth increases.

But it won't.

Household's bankable assets are basically houses and pensions. And raising real estate taxes will not increase the nominal value of their pensions.

And anyway, this is an issue of politics. That is a very poor starting point for seeking remedies. Politics must follow policy, not the other way around.

As I've pointed out in the context of the Euro crisis, it is unwise to design a system that grants a structural advantage to bad policies.

When banker incomes are economic rent (created interest charges over existing wealth, like land, real estate, shares etc.) these "incomes" are the actual "the beef" that destroy demand.

Look, the household doesn't care whether it pays rent to the taxman or to the bank. It loses the income either way.

The banker does care, because he gains income in the first case and not in the second. So the banker will have less money to spend. This destroys demand.

There's no problem with that, because the government can always spend enough to ensure full employment. But that's the spending side, not the taxation side.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 5th, 2011 at 05:00:40 AM EST
[ Parent ]
Look, the household doesn't care whether it pays rent to the taxman or to the bank. It loses the income either way.

Yes.

The banker does care, because he gains income in the first case and not in the second. So the banker will have less money to spend. This destroys demand.

No. As i explained. With this logic, the production is useless.

There's no problem with that, because the government can always spend enough to ensure full employment. But that's the spending side, not the taxation side.

Yes and no. If the created money is extracted by rentiers, no jobs will follow. Only asset price inflation of the wealth already in place.

by kjr63 on Sun Jun 5th, 2011 at 05:35:23 AM EST
[ Parent ]
No. As i explained. With this logic, the production is useless.

Can you elaborate? Or link to your explanation? Aren't we talking about nominal demand?

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter

by generic on Sun Jun 5th, 2011 at 07:21:05 AM EST
[ Parent ]
Rent/interest are payments for nothing. There is no service or goods exchange behind it, no labour involved. If this money is instead used for public consumption (as taxes) this money then circulates in the hands of wealth creators, labour and capital, not rentier. And when the interest of labour and capital grows, there will be more wealth and more exchange and more consumption. Both (real) investment demand and wage purchase power and equal income distribution.

(And there is also multiplier effect).

by kjr63 on Mon Jun 6th, 2011 at 03:47:58 AM EST
[ Parent ]
While I disagree that a modern monetary system works like that you probably have a case if we look at the lunatic Euro arrangement. And generally I find nothing wrong with taxing rentiers.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Mon Jun 6th, 2011 at 08:36:53 AM EST
[ Parent ]
Rent/interest are payments for nothing.

Well, no.

Rent is payment for the use value of the land you are occupying. That land could have been used for warehousing, farming, water storage, sewage treatment or any number of other things. The fact that you are living there means that it can't be used for those things. Rent is what you pay to make sure people don't use your living room for sewage processing. That has a real value.

Interest is payment for deployment of state power (money) to serve your goals. That, as well, has a real value.

If this money is instead used for public consumption (as taxes)

But taxes do not create or enable public consumption. Public spending creates public consumption. You do not need to tax in order to spend - you need to tax in order to prevent other people from spending (because you want to free up more capacity in the private economy than the inefficiencies in the private sector create automatically).

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 6th, 2011 at 01:49:04 PM EST
[ Parent ]
That has a real value.

Of course it has real value. And huge value indeed it has. But this is not created by the title holder. Paying rent to title holder, or interest extractor, without any labour nor entrepreneurship, creates additional cost to market prices.

Interest is payment for deployment of state power (money) to serve your goals. That, as well, has a real value.

I was talking about interest created over existing wealth. If interest is not a return to productive capital, whatever the mechanism is, it is just "rent" and again just an additional, unnecessary, cost.

by kjr63 on Mon Jun 6th, 2011 at 06:04:44 PM EST
[ Parent ]
Of course it has real value. And huge value indeed it has. But this is not created by the title holder. Paying rent to title holder, or interest extractor, without any labour nor entrepreneurship, creates additional cost to market prices.

No, the market price does not depend on whether it is extracted by the man who created the value or by someone else. If I can deny you an object of value, I can get you to pay for it, whether I created it or not.

There are advantages to taxing rents, but lower cost of living is not one of them.

Interest is payment for deployment of state power (money) to serve your goals. That, as well, has a real value.

I was talking about interest created over existing wealth.

Interest is still a payment for services rendered. Specifically, it is a payment for the service of not sending goons with guns to kick you out of your home. (That's also the service taxes are paid for.)

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jun 7th, 2011 at 04:47:57 AM EST
[ Parent ]
No, the market price does not depend on whether it is extracted by the man who created the value or by someone else.

Yes it does. If i pay more production costs (less economic rent) in the markets, then there is more production incomes in the market. And so more supply relative to demand.

If I can deny you an object of value, I can get you to pay for it, whether I created it or not.

It is called rent, or monopoly profit. (Or perhaps interest).

There are advantages to taxing rents, but lower cost of living is not one of them.

Lower prices, equal income distribution, poverty abolished and meritocratic society. From pure economic point of view.

Interest is still a payment for services rendered, Specifically, it is a payment for the service of not sending goons with guns to kick you out of your home.

You mean mafia protection against the government?


(That's also the service taxes are paid for.)

And this second payment is for government protection against the mafia?

by kjr63 on Wed Jun 8th, 2011 at 06:11:15 AM EST
[ Parent ]
kjr63:

Interest is still a payment for services rendered, Specifically, it is a payment for the service of not sending goons with guns to kick you out of your home.

You mean mafia protection against the government?

More likely enforcers of the eviction order.

kjr63:


(That's also the service taxes are paid for.)

And this second payment is for government protection against the mafia?

In the larger order of things yes, but I think Jake is referring to the uniformed goons with guns and badges that the government employs to take people away when they do not pay their taxes.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Wed Jun 8th, 2011 at 10:22:51 AM EST
[ Parent ]
Interest is still a payment for services rendered. Specifically, it is a payment for the service of not sending goons with guns to kick you out of your home. (That's also the service taxes are paid for.)

BTW, why only landless need this "protection?" Not owners? They pay neither interest, rent nor taxes.

One would think that property owners need protection against the poor, right?

by kjr63 on Wed Jun 8th, 2011 at 06:27:09 AM EST
[ Parent ]
That's why property owners pay taxes.

Anyway, John Stuart Mill altready theorised about private property along these lines:

Further, in the social state, in every state except total solitude, any disposal whatever of them can only take place by the consent of society, or rather of those who dispose of its active force. Even what a person has produced by his individual toil unaided by any one, he cannot keep, unless by the permission of society. Not only can society take it from him, but individuals could and would take it from him, if society only remained passive; if it did not either interfere en masse, or employ and pay people for the purpose of preventing him from being disturbed in the possession. The distribution of wealth, therefore, depends on the laws and customs of society. The rules by which it is determined, are what the opinions and feelings of the ruling portion of the community make them, and are very different in different ages and countries, and might be still more different, if mankind so chose.
(diary)

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed Jun 8th, 2011 at 06:41:23 AM EST
[ Parent ]
Why does labour pay taxes?

Mill is obviously right.

by kjr63 on Wed Jun 8th, 2011 at 10:35:10 AM EST
[ Parent ]
..and even if we had this "protection money circle," that does make it right nor change economic laws.
by kjr63 on Wed Jun 8th, 2011 at 10:46:39 AM EST
[ Parent ]
No. As i explained. With this logic, the production is useless.

For creating demand?

Yes. Production creates no demand. And more to the point, taxing away rents certainly does not create demand.

Spending creates demand.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 5th, 2011 at 10:04:35 AM EST
[ Parent ]
"Yes. Production creates no demand"

Spending and production are chicken and egg.

"..taxing away rents certainly does not create demand."

Of course it does. It removes economic rent from market prices. When prices come down to the actual cost of production, there is more exchange, more consumption and more wealth. This is the basic idea of Smith and Marx. And this is why Smith called ground rents as ideal tax base.

Labour cannot spend, because they pay from their earnings both taxes and and rent/interest for existing wealth. If they would pay only rents (and rents are collected by tax collector) they could also afford housing, right? And this is achieved simply by cutting off the parasite.

by kjr63 on Mon Jun 6th, 2011 at 03:18:21 AM EST
[ Parent ]
Spending and production are chicken and egg.

Say's fallacy.

Of course it does. It removes economic rent from market prices.

No, it just makes that rent go to the state instead. While there is a strong economic justification for this, it is not that it lowers prices or increase demand.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 6th, 2011 at 01:51:23 PM EST
[ Parent ]
Say's fallacy.

Not.

No, it just makes that rent go to the state instead.

To nurses, teachers, police, roads, infrastructure. Without rentier, land does not go away, without production, we have nothing. See the difference between wealth creation and wealth extraction?

by kjr63 on Mon Jun 6th, 2011 at 06:41:43 PM EST
[ Parent ]
No, it just makes that rent go to the state instead.

To nurses, teachers, police, roads, infrastructure.

No. Taxes do not fund spending.

Unless the rentier was planning to spend the money on real goods and services, taxing it away does nothing to create spending room for the sovereign (nor, conversely, does it greatly affect demand - which is why tax-and-spend policies are effective in a depression).

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jun 7th, 2011 at 05:57:36 AM EST
[ Parent ]
No. Taxes do not fund spending.

That's semantics. In that model, you need to destroy money to avoid it becoming worthless.

Unless the rentier was planning to spend the money on real goods and services, taxing it away does nothing to create spending room for the sovereign.

If you tax rentier, you destroy costs. If you tax labour you destroy wealth.
If money creation creates just rents/interest, it destroys wealth. And to avoid destruction, you must stop printing money, right? Like Michael Hudson says, interest grows exponentially, productivity linearly.
Keynesians seem to think that more money = more wealth. That's not the case. The issue is income distribution, not money creation.

by kjr63 on Sun Jun 12th, 2011 at 05:56:13 AM EST
[ Parent ]
That's semantics. In that model, you need to destroy money to avoid it becoming worthless.

Only if the rentier was planning to spend it.

Money that just sits in your bank account does not cause inflation.

If you tax rentier, you destroy costs.

You keep saying that, but it's just not so.

If you tax the rentier, you make sure that the rent is paid to the tax man rather than the private rentier. But that does not make the rent go away - the user still has to pay it.

What it does do is alter the term structure of the rent - from being paid up front in the asset price to being paid over time in taxes. Which is helpful in preventing bubbles, but not make the rent any lower in and of itself.

Like Michael Hudson says, interest grows exponentially,

But it does not, unless you allow scammy stuff like negative amortisation loans.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 12th, 2011 at 08:35:03 AM EST
[ Parent ]
Money that just sits in your bank account does not cause inflation.

Neither wealth creation. Why should government create money to somebodys bank account? That is not the function of money.  Why should rentier accumulate this capital and not the wealth creator?

If you tax the rentier, you make sure that the rent is paid to the tax man rather than the private rentier.

You don't see the difference?

But that does not make the rent go away - the user still has to pay it.

You keep saying this, but i have never said that rents go away. Labour taxes go away.

What it does do is alter the term structure of the rent - from being paid up front in the asset price to being paid over time in taxes.

Less unproductive debt and interest.

Which is helpful in preventing bubbles, but not make the rent any lower in and of itself.

Bubbles and labour taxes (=wealth transfer from the poor to the rich).

But it does not, unless you allow scammy stuff like negative amortisation loans.

It does, if interest is not a return to productive capital.

by kjr63 on Mon Jun 13th, 2011 at 09:19:12 AM EST
[ Parent ]
Why should rentier accumulate this capital and not the wealth creator?

Money != capital.

And there's no reason the rentier should get to keep that money. I'm just pointing out that taking it away from him will not change anything until such time as he might have wanted to spend it. Money only matters when it is used.

When you believe that you can lower labour taxes and raise property taxes, and that these will compensate each other, you are engaging in a version of the loanable funds fallacy. The term structure of payments and the valuation of collateral matters, not just net present value.

If you tax the rentier, you make sure that the rent is paid to the tax man rather than the private rentier.

You don't see the difference?

On the distribution of wealth? Absolutely. On your political culture? Absolutely. On consumer prices? No.

But that does not make the rent go away - the user still has to pay it.

You keep saying this, but i have never said that rents go away. Labour taxes go away.

And as I do not tire of pointing out, your policy proposal is unstable against a tax-cut government. Because asset prices are easier to inflate than deflate, and property taxes are therefore easier to cut than to raise.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jun 13th, 2011 at 05:17:52 PM EST
[ Parent ]
When you believe that you can lower labour taxes and raise property taxes, and that these will compensate each other, you are engaging in a version of the loanable funds fallacy.

Not really. Property taxes are a subset of capital taxes, and the point of capital taxes is to force money into motion.

This has nothing to do with money being too cheap. The aim of capital taxation is to move money out of the fake lalala casino economy into the productive economy - and you can only do this by making the casino economy so unprofitable that investors are forced to do something useful with their cash.

"Useful" meaning "physically or culturally productive" - i.e. more than a speculative fiction.

Property is a hybrid store of value that has a basic utility value - it provides a roof over your head - and a capital/investment value that can be multiply leveraged.

If you don't tax the capital value, you get a bubble followed by a crash, because the capital value will always be multiply leveraged in various unlikely schemes, and in bubble land, what goes up must come down.

What you shouldn't tax is the basic utility value. And ideally you should also run a housing policy that keeps the utility cost so low that it doesn't start mutating into significant investment capital.

The real reason property taxes don't work like this is because the 0.1% who benefit from vast estates don't want them to. Slapping a fixed 10% annual tax on the largest land + property owners - say from £1.5m upwards - would crash the country estate market and force them to sell their palaces to the state.

Some of these estates are absolutely vast, with literally millions of acres owned by a relatively small number of private landowners.

The UK actually did something similar to this in the 1950s and 60s. The results were bad for the estate owners, but good for everyone else. Shrinking price differentials made the housing market a much more interesting and accessible place.

It's possibly not a coincidence that this period coincided with a massive boom in new housing development.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jun 13th, 2011 at 09:58:29 PM EST
[ Parent ]
That's all obviously true.

It is also completely tangential to my point, which is that you cannot both have a high fraction of owner-occupiers and responsible real estate taxation, because that is unstable against tax-cut populists: The tax-cut populist gets to enjoy the bubble, the responsible party that comes after it gets to clean up the mess. That only works if either (a) the voters understand that the pain they suffer during the cleanup is actually caused by the irresponsible tax-cutters, not the responsible adults who raise real estate taxes. Or (b) the fraction of owner-occupiers (and their dependents) is sufficiently small that you can fuck them over with relative electoral impunity.

I would not bet a lot of money on (a), let alone an election campaign.

Of course, you could get creative and automatically index mortgage principals to some real estate index. That would prevent homeowners from going underwater when the market tanks (and reduce their ability to play the leverage game). But then you'll have your banks running equity risk, and I am not completely sanguine about the implications of that for financial stability.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jun 14th, 2011 at 12:03:36 AM EST
[ Parent ]
In that scheme you'd get controlled equity risk vs uncontrolled explosive equity risk - the latter being the inevitable outcome of the current system, and Not a Good Thing.

So I wouldn't see controlled equity risk as a problem, because any scheme that controls risk is also going to lower volatility. It becomes hugely less likely that the entire economy will implode because of a bubble, and the real risk of going underwater becomes much lower for everyone.

As for the political argument - you can't immediately fix a democratic deficit by moving money around. You need to have decent representation first - as in policy influence at every level, and not just token show-voting every few years - and then you can start on the rest.

Unfortunately with the current system, even if there's an outbreak of something approaching bottom-up democracy, it's soon co-opted into the usual economic tyranny, making power redistribution politically impossible.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Jun 14th, 2011 at 04:30:04 AM EST
[ Parent ]
In that scheme you'd get controlled equity risk vs uncontrolled explosive equity risk

You also get a huge incentive for the financial sector to encourage bubbles (albeit a smaller one for homeowners to participate in them).

As for the political argument - you can't immediately fix a democratic deficit by moving money around.

But my point is that high property taxes requires that property holders are not a politically effective constituency.

In other words, they either have to be a small constituency, or they have to be labouring under a democratic deficit that prevents a large constituency from materially affecting policy.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jun 14th, 2011 at 06:49:21 AM EST
[ Parent ]
It's possibly not a coincidence that this period coincided with a massive boom in new housing development.

In Finland happened, after so called "Renter Law" (1919), in the 1920's a massive boom in agriculture and development. Over 100 yrs long extreme poverty in countryside was abolished in only 10 years, simply by dismantling the feudals.

All "social programs" and "birth control education" schemes were waste of time, only thing that was needed was kicking out the parasite (the lords), and liberate people from rents.

by kjr63 on Sat Jun 18th, 2011 at 08:34:41 PM EST
[ Parent ]
...only thing that was needed was kicking out the parasite (the lords), ...

There we goooooo.  Everyone paying attention?

The good news ... it's only a life sentence. You eventually leave this planet of idiots.

by THE Twank (yatta blah blah @ blah.com) on Sat Jun 18th, 2011 at 08:48:15 PM EST
[ Parent ]
When you believe that you can lower labour taxes and raise property taxes, and that these will compensate each other, you are engaging in a version of the loanable funds fallacy.

They will more than compensate, because increasing wealth creation cannot affect negatively to any payments or valuations now or future.

On consumer prices? No.

Of course prices will not fall, because increasing supply creates increasing demand. Let's put it this way: more value with same price; more wealth, less parasites.

by kjr63 on Sat Jun 18th, 2011 at 08:11:09 PM EST
[ Parent ]
One elaboration:

increasing supply creates increasing demand

To be more precise, income distribution to wealth creators creates increasing demand in a parasite-free economy. With multiplier effect.

by kjr63 on Sat Jun 18th, 2011 at 08:16:31 PM EST
[ Parent ]
They will more than compensate, because increasing wealth creation cannot affect negatively to any payments or valuations now or future.

You are confusing stocks and flows. You cannot use higher income tomorrow to answer margin calls today.

Of course prices will not fall, because increasing supply creates increasing demand.

Say's fallacy.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jun 19th, 2011 at 10:00:24 AM EST
[ Parent ]
"general tax-cut bias?" = non-personal taxation?
by kjr63 on Sat Jun 4th, 2011 at 10:02:17 AM EST
[ Parent ]
If you forbid people to buy with the intention of letting the flat, you are forcing people to buy or else. How would that be an improvement?

Because it means there are fewer houses to buy, and therefore prices for buyers are higher. And because landlords have to make a guaranteed return - or they lose the property - rents are higher too.

Just regulate the price increase while letting buy to let happen and you may find that the price adjustment will be a lot faster.

Rent regulation is Immensely Unserious.

I think there may still be some vestiges of regulation left in London, but no one in government is going to mind much if there's a new generation of rich landlords.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jun 3rd, 2011 at 04:53:43 AM EST
[ Parent ]
but no one in government is going to mind much if there's a new generation of rich landlords.

in that case the limit of housing benefit and rents is a funny way to go about it.  On the plus side it should collapse the BTR market and thus bring house prices back into the reach of the less rich.

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Fri Jun 3rd, 2011 at 08:05:16 AM EST
[ Parent ]
Hmmm.

Torygraph

In an attempt to end the era of heavily subsidised (council house) rents, the Coalition's new system will lead to tenants paying as much as 80 or 90 per cent of the market rate. "This is still about there being affordable rent, but it needs to be more realistic. At the moment, if you get a council house you are really winning the jackpot," said a source. "In terms of the rent you pay it is very, very heavily subsidised. You may pay only a third or a half of the market rate."

And increasing council rents will help push up private rents.

Plentiful council housing is one of the best ways of keeping rents down. But too much of that would annoy "the market."

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jun 3rd, 2011 at 08:40:06 AM EST
[ Parent ]
Lets see, Council housing has basically not been built since roughly the early 1980's when the Thatcher government ruled to stop councils spending money on the council housing that they sold under the house sales scheme on building new council houses. So those houses  that are not renting at market rates, were constructedd at best at 1970's prices, so don't have the recent price explosions as part of their costs.

 This is nothing more than an attempt to  transfer the cost of local government from taxpayers over to renters

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Fri Jun 3rd, 2011 at 09:21:31 AM EST
[ Parent ]
"Because it means there are fewer houses to buy, and therefore prices for buyers are higher."

Yes, but the alternative means fewer houses to rent, and therefore prices for renters are higher. Which is worse when there are already too many owner-occupied houses.

"And because landlords have to make a guaranteed return - or they lose the property - rents are higher too."

Well, having no tenant certainly does not give you a guaranteed return.
Now you may argue that banks should not be allowed to demand a guaranteed return. But to talk about banning buy to let seems crazy.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri Jun 3rd, 2011 at 11:50:04 AM EST
[ Parent ]
Well, having no tenant certainly does not give you a guaranteed return.

When there's high demand this doesn't happen much. A bigger problem - so I'm told - is the cost of wear and tear, decoration, and repairs after tenants leave.

As for landlords, owner-occupiers traditionally rent out spare rooms anyway. So owner-occupiers don't necessarily push rents up. Generally they're less likely to be demanding about rent because they don't have to pay the extra cost of repairs/maintenance/redecoration. And they can choose to rent out casually, or not.

BTL landlords don't have that choice. They're on the hook for all expenses, they don't live with tenants so their costs are likely to be higher, and they have to pass those costs on tenants to keep up with payments.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jun 3rd, 2011 at 12:19:31 PM EST
[ Parent ]
This is just a hunch, but I guess Helen would be pretty satisfied with "regulating BTL so it is no longer pushing BTO out of the market". Giving rights to tenants would be a logical step.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!
by A swedish kind of death on Sun Jun 5th, 2011 at 11:27:58 AM EST
[ Parent ]

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