LVT is just reinventing the wheel – we can learn from the past.
Between the 1920s and the 1960s, house prices in the UK were low and stable. Declining in some years, rising in others, but apart from a brief spike in the late 1940s, when a lot of housing had been destroyed in the war, the long run average was about three times income. An article By Mark Wadsworth.
1. We had Domestic Rates (replaced in 1991 by Council Tax) and Schedule A taxation (until 1963, scrapped without replacement) which between them amounted to a kind of Land Value Tax (or progressive property tax, and I personally don't see a big distinction).
2. We were building a lot of social housing (couple of hundred thousand units a year).
3. We were building a lot of private housing (another couple of hundred thousand units a year). The two big politicial parties used to compete with each other as to who would build more homes.
4. Building societies did the bulk of lending, and they had strict income multiples and other requirements, like having had a savings account with that BS for some years. BS's weren't allowed to borrow using bonds until the 1980s, so they had to fund themselves by ordinary customer deposits, which keeps a lid on things.
5. Until 1997, immigration was not an issue. Net immigration from/emigration to other developed countries and Old Commonwealth was a small absolute number and the two often gave a net emigration; net immigration from New Commonwealth and Third World was negligible (tens of thousands a year, if that).
6. In the 1980s sometime, the Tories invented Housing Benefit for private tenants (to subsidise private landlords) while simultanseously selling off council housing at undervalue to favoured voters (Labour have taken this to extremes, of course)
You have to look at all these factors in the round, the "bubble period" did not start until the early 1970s when house prices doubled (after Schedule A was scrapped) and there was a mni-banking crisis in the mid 1970s (which always happens in tandem with a house price crash); there was another bubble after Domestic Rates were replaced and BS's were allowed to borrow more and banks muscled in; the last bubble was the biggest of all because Council Tax nowhere near kept up with house price growth; we build hardly any houses any more; there was huge net immigration (although that affects social housing/welfare budget more than owner-occupied); interest rates were artificially low because China et al were lending our banks too much money too cheaply etc etc.
So I say, let's just wind the clock back at least fifty years and do what we used to do:
– liberalise planning laws and build more social housing (let on a commercial basis). About 250,000 a year in total looks about right to me (adding 1% to total stocks each year).
– Scrap Housing Benefit for private landlords/tenants. it's far cheaper building social housing than paying HB.
– Replace all property/wealth taxes (Council Tax less CT Benefit and discounts for single occupants; Stamp Duty, inheritance tax, capital gains tax on second homes/investment properties, TV licence fee, VAT on domestic fuel and improvements, insurance premium tax, s106 agreements, roof taxes etc etc) into Land Value Tax or "averaged out progressive property tax for each postcode sector with a disregard of Â£x00 per square yard" which would apprximate to "true" LVT.
– If house prices start going up, then instead of tinkering with base rates, just increase the LVT rate by half a per cent and see what happens. Sure, pensioners will whine and moan, but they can have a roll up option – so when they die, instead of there being Inheritance Tax and Stamp Duty when you sell, there's just the unpaid LVT to worry about.
– scrap the BoE Monetary Policy Committe while we're at it
– proper banking supervision, let's go back to the old rules that banks/BS's can only borrow 25% against of their total assets, with at least 12.5% own capital and 62.5% funded by deposits. Make it clear that if banks get into trouble, bonds will be converted to share capital (in other words, banks' assets – in other words mortgage lending and business lending – would have to fall in value by a third before a single penny of deposits were at risk).
– as to immigration, go back to what we were doing prior to 1997.
Here endeth today's lesson.
Posted on behalf of the real author who is the prolific Mark Wadsworth