4 comments

• Comment Link Tuesday, 29 June 2010 16:16 posted by Jeremy Edwards

  At the moment the tax regime in the UK favours house purchase as your principal private residence is free from Capital Gains Tax. For most people their home is the one asset that will have appreciated over the last 10-20-30-40-50 years; if you only rent you will miss out.
  
  If you do rent in one place, you can nominate a principal private residence somewhere else, let it out and use it as a retirement home later. For members of the clergy, people in service, the armed forces and the diplomatic corps, this is a realistic expectation.
  
  Renting has its perks, (flexibility, low outgoings etc.), but there appears to be little alternative if you want to accumulate capital.
• Comment Link Wednesday, 01 September 2010 09:24 posted by Patricia

  The world won't come to an end if mortgage loans are restricted to 75%-80% of the value of a property. That is how it used to be and in those old days the aim of the Government (in New Zealand) was to get everybody into their own home. There were various methods to do this for first home buyers and, if I remember correctly, some of them were grants, interest free loans, very low interest loans and $1.00 for $1.00 saved into a a first home savings account. It did work. It is in a Country's long term interest for people to have their own freehold home by the time they retire. If a Country lets people rent all their life then when they retire the Taxpayer has to pick up the tab for that rent plus any superannuation. To me it makes sense.
• Comment Link Friday, 03 September 2010 12:23 posted by Derek

  Just bacause an asset class has done well does not mean it will continue to do well.
  
  Housing in the UK can be thought of as being the cost of build plus the cost of the land it is sat on. If you apply this logic to existing houses you'll get a land value of around £1m an acre for most of the south of england, outside London. If you then go looking for a plot to build your own you'll find the plot costs are very close to this valuation, suggesting this logic does hold water.
  
  As a house costs approx. £100 per square foot to erect and leave enough over for the builders profit you can easily see that the build cost of a 1000sq ft residence is £100k meaning if you're having to pay £200k for the house then you're paying £100k for the land. Assuming the plot is 1/10th acre (33ft x 125ft), that makes the land worth £1M an acre.
  
  Now that may be fine for a city centre but is it fine for a house surrounded on all sides by undeveloped fields.. because that is precisely what you'll find. The arable land next to the building is worth at the very most £10k an acre whilst the building land is worth around £1m an acre, maybe £500k an acre if it's badly positioned etc.
  
  So you're paying 100x over arable for the permission to build. Should planning laws change (as they just have with LA bribed to build by offering to match council tax on new builds from central coffers) then one would expect to see this premium change. It might go further up, but it is just as likely it could come crashing down.
  
  Lets look at this another way.. what happens if the land goes more or less to zero.. we have an average house being £100k and suddenly we get the oft referred to ratio of house prices to wages of ~3x.. that's why prices don't fall below this, builders can't afford to build houses below cost so supply hits zero below 3x salary.
  
  So why would all and sundry push prices up to these insane levels?.. well partly its loose lending polcies coupled with a government desperate not to let prices fall, partly it's a sudden increase in population by unrestriced immigration, partly it's demographics, partly it's Nimbyism, but mostly it's due to having governments over the last 40 years more interested in power than serving the population. A government interested in serving the population would have told the Nimbys where to go, would have only allowed sustainable immigration, would have done it's best to mitigate the demographic bulge rather than magnify the problems.
  
  You want someone to blame.. don't look at the banks.. look at your MP and the political parties.. you want affordable houses.. lobby your MP and keep lobbying.
  
  Derek
• Comment Link Saturday, 11 September 2010 08:58 posted by Anthony

  CGT is a terrible tax. It taxes people who invest in building factories, houses and offices. LVT is what should be taxed. Tax people for the land value, not what they do to improve the land. Housing costs are something everyone has to bear (except for the very poor). It is like food and air, people need to live somewhere. So rent should never be taxed from income. If you own a house, you should be able to deduct rent from your income tax. This is why there is a tax free allowance. It is supposed to deal with this issue on aggregate. However, it is woefully low, so they should link these concepts so that it is directly understood what that tax free allowance is all about. The tax free allowance should be equal to the median rate of rental costs for a person of working age + cost of basic food stuffs and utility bills. Lets say for arguement's sake that the median rate of rental was £100 p.w. and utilities + basic food £100 p.w. you get to an annual rate of about £10,000. Then everything is fair again. A fair playing field in the game of life.
  
  Back to the point of renting vs. owning. LVT is a tax that recoups the intrinsic year on year value of land. Land only has value when there are people in society, without people it is close to worthless. It is a common asset. The physical houses on land however, are very different, they have a lifespan and are of value primarily to those occupying them. Hence, rent going to an owner is split between to different things. 1) the intrinsic land value, which should be taxed. 2) the capital of the house, which should be equal to the build cost, minus depreciation, plus return on investment. This is why hong kong is so successful as an economy. They tax the intrinsic land value, not the capital investment.
  
  The point of all of this is that no matter how you look at the problem, it all comes down to supply and demand. Government controls supply with planning control, which sets to land cost on aggregate. Builders control the house build cost, which is highly competitive. 70% of a new build is land cost, 30% of a new build is building cost. So even if you made the most competitive house building market in the world, all flat pack prefabicated, the maximum impact you could have is 15% of overall house prices. The problem is simply planning control. Give more houses consent for planning and the base costs will go down. LVT is then used to ensure that a portion of the added land value (i.e. it's utility) from that planning consent is redistributed over society as a whole.
  
  In summary, capitalism only works when the market is allowed to function properly. Government is the problem here.