The ‘housing crisis’ is no such thing. It is a ‘transfer of wealth’ crisis

Reprinted from “Young People’s Party” submission to the Intergeneration Commission.

The current state of the housing market is not a ‘crisis’ – something that suddenly happens because of unforeseen forces outside the government’s control – but the inevitable result of quite deliberate changes in government housing policy over the last thirty years, i.e. the dismantling of the old system.

There is no lack of physical housing in the UK. All we are seeing is a massive transfer of wealth (via house prices and rents) from younger generations to those lucky enough to have inherited land, or acquired it cheaply in the past (the Baby Boomers).

Purpose.         This note was initially prepared for the UK Liberal Democrat Party’s  Tax Commission. The author had heard that Sweden incorporates an element of property taxation within its income tax system and also has a very modern, map-based property tax and local income tax (LIT). The Party currently favours LIT but also wishes to develop its longstanding policy of land value taxation (LVT) by modernising existing property taxes. The reason for studying Sweden is that both its Tax Board and Land Survey Department are internationally renowned for the efficiency and transparency with which their land information and property tax systems work together. This note is based on an earlier version specially prepared for the Tax Commission: a more technical and theoretical discussion of the subject can be found shortly at www.landvaluescape.org

Summary.      The Swedish tax system operates with a highly centralised administration. Direct taxation involves a single annual tax form each for individuals and companies but all taxes – including property taxes – can be paid off through earnings. Almost everyone pays local income tax (which averages 29%) whereas only people on above average earnings pay state income tax of around 20%.

Like most 30 somethings with a substantial HECS debt and an addiction to avocado on toast, I am an aspiring first home buyer. I’d love to buy the home I currently rent: a daggy 1960’s ‘six-pack’ flat on a main road in Footscray. It’s currently valued around $360,000. To put down a 20% deposit, I’d need to save $72K. A daunting figure for a single woman on a not-for-profit’s payroll.

Much less daunting is $18K. This is the 5% “genuine savings” I require to apply for the government’s shiny new shared equity scheme, HomesVic. HomesVic enables first home buyers to access 25% equity funding towards residential property. Government-backed shared equity schemes have existed in W.A and S.A for a number of years. The initial pilot will include 400 first home buyers, buying new or established homes in strategic locations specified by the government. Footscray is on the list.

Public Revenue Without Taxation.

Introduction

It is now widely recognised that the free market system provides a self-organising process that enables a more efficient allocation of a society’s resources than alternative arrangements based on the implementation of pre-conceived plans by central authorities. At the same time the market system offers much greater individual economic freedom and the opportunities for individuals to fulfil their potential in society.

In a free market, transactions are voluntary and are undertaken between a willing buyer and a willing seller. There are many independent buyers and sellers who can compete on quality of service and price. Prices are the outcome of the law of supply and demand, and the overall outcome under a prevailing set of conditions is a condition of stability and optimal allocation.

And yet, when it comes to the provision of public services, which in a modern economy can account for around half of the total economic activity, an entirely different mechanism is used which in many respects is the antithesis of the market system. Goods and services are often made freely available and corresponding costs are met mainly by taxation: “a compulsory contribution imposed by a public authority, irrespective of the amount of service rendered in return”.[1] For these services there is now no willing buyer or seller, no competition and no price mechanism. If one traces back the origins of these arrangements and, in particular the varied and complex methods of taxation employed to collect revenue required to pay for the services, it is found that they are rarely due to the application of sound economic principles and more often are the result of short term political expediency.

Mason Gaffney has written a new book “Nature, Economy and Equity — Sacred Water, Profane Markets”, published in November 2016 issue of the  American Journal of Economics and Sociology.

Ed Dodson has created a power point presentation to introduce the book, highlighting the important points.

The second presentation by Ed Dodson is an analysis of the U.S. residential property markets.

The Cat and Dick Twittingham

Once upon  a time there  was a cat and his master,  Richard Twittingham.

Dick  was determined  to make his fortune in London and planned to set off on the long walk from the Forest of Dean where he lived. But …

Outside a tavern in the year 1367, the first year in the reign of King Henry IV of England.

“Have you seen the cat?” asked Dick of the innkeeper.

“Do you mean THE cat?” enquired the innkeeper. “I don’t  understand,” said Dick.

“Ah, well, either you see THE cat or you don’ t,” said the innkeeper, going about his business.

“Of course I can see my cat when he is here,” snapped Dick, “he is black and white with four legs and a tail and goes by the name of Tom.”

“Ah,” said the innkeeper. “Whither are you bound with your cat, then?”

“London, of course,” exclaimed  Dick, “I’ve heard tell the streets are paved  with  gold.”

“So they are,” said the innkeeper, “so they are for them what can see THE cat.”