How can we grow a proper relationship between people and place?

A one-day Land Conference will take place in the Totnes Civic Hall on Saturday March 21st 2015. Its purpose is to give those who care about a proper relationship between people and the land (rural and urban) the opportuLandConferencenity to come together and share their understandings and passions on the topic.

The Conference was conceived and organised by a group of people committed to raising awareness of land issues, including several members of the Henry George Society of Devon. The desire is to facilitate opportunities for practical engagement with the firm belief that this will then convert into concrete action for change. (more…)

Advertisements

Share the Land, Keep the Fruits of Labour

This article is by Erich Jacoby-Hawkins, Canadian blogger, director of Living Green and the Robert Schalkenbach Foundation. We thank him for allowing us to reproduce it here.

We all depend on this earth for our basic needs: food, water, and a place to live, work, and play. Luckily, our world has locations and resources enough to provide for all, if we share well and conserve rather than waste. But what is the fairest way to share?

I’ve been reading the new Mason Gaffney Reader: Essays on Solving the “Unsolvable”. This economics professor’s work comes highly recommended by intellects such as former World Bank Nobel economist Joseph Stiglitz, and shows how land tax reform is the key to addressing unemployment and poverty and revitalizing our cities and economy. But how?

(more…)

Housing crisis? What housing crisis?

Mark Wadsworth works as a tax advisor and is interested in tax, welfare and land reform, as well as being the treasurer of the Young People’s Party UK. Here, he gives his take on how a land value tax could help solve Britain’s housing crisis

Mark Wadsworth Headshot

It would be foolish to describe the current situation in the UK housing market as a “crisis,” as this suggests some unforeseen events which suddenly come to a head and which the government has to deal with urgently. Far from it, the state of the housing market is the inevitable result of quite deliberate changes in UK government policy over the last thirty years or so, which we are feeling the full impact of now.

Government policies

If we go back to the period between 1945 and the 1980s, what is remarkable is the rate at which owner-occupation levels increased. The share of owner-occupier households rose from 30% to 60%; the proportion of social tenants increased from 20% to 30% and – in a development which has received much less attention – the share of households renting privately fell from 50% to 10%.

The spread of owner-occupation is often perceived to have created a more equitable distribution of wealth, but as we will see, this trend did not happen by accident: it was the direct result of policies which were intended to reduce the concentration of wealth – it was the effect and not the cause.

And although the 18-year boom bust cycle was not completely suppressed, the house price bubbles in the early 1950s and early 1970s and even the late 1980s were relatively short lived affairs and bank lending/mortgage borrowing was never allowed to reach dangerous levels, so none of these earlier bubbles resulted in the massive banking ”crisis” which has persisted since 2008.

So what was the government doing during that earlier period? Why did this lead to a more equitable distribution of wealth? How was the house price and banking boom-bust cycle dampened? Why did the level of owner-occupation grow so rapidly (even before the last short term boost of the 1980s council house sell-offs)?

There was an overall package of policies as follows:

1. Since 1918, the government had been controlling rents through a variety of rent acts. Landlords could not collect all of the location value, so by definition it went to those people actually living and working in an area who could enjoy ‘for free’ the location value they helped create because of the discount from what the unregulated rent would be.

2. If the regulated rent is only half the unregulated rent, then clearly, the amount which landlords are prepared to offer to buy a home is only half what it otherwise would be, making it much easier for first time buyers to compete. Buy-to-let lending was virtually unheard of, and until 2000 or thereabouts, banks required larger deposits from landlords and charged them higher interest rates compared to owner-occupiers.

3. Rent controls are a blunt tool, so the government also increased the stock of social housing, which made it available relatively easily and at very affordable rents. Historically, social housing has always made a slight profit in cash terms for the government; even though the rents were less than private sector rents, the rents collected were more than enough to pay interest and running costs. And until the council house sell-offs, there was no need for Housing Benefit, another huge saving to the taxpayer.

4. To prevent credit bubbles arising and to prevent first-time buyers entering into a borrowing arms race (and bidding land prices back up to their unregulated value), there were mortgage restrictions. Buyers were expected to pay larger deposits and mortgages were effectively capped at twice the main borrower’s income – until the 1980s, the average loan-to-income multiple was only two.

5. Clearly, neither rent controls nor mortgage restrictions would prevent homes in the more expensive areas being sold to the cash rich for their unregulated value, so we had Schedule A taxation of notional rental income (until 1964) and Domestic Rates (until 1989) which were highly progressive – the tax on the most valuable homes was a hundred times as much as on the cheapest.

6. Until the 1970s, we were building 250,000 – 300,000 homes per year. For the reasons explained, these were not snapped up by landlords, they were sold to owner-occupiers who paid much less for them than in today’s unregulated market.

7. Also worth a mention is that rental income was taxed at higher rates than earned income.

There was some watering down of this package even in the 1970s, but Thatcher and then Blair-Brown completely dismantled every bit of it in the 1980s and 1990s.

  • Rents have been rising faster than wages since the 1988 Housing Act ended rent controls and reduced security for tenants.
  • Rental income is now taxed at half the rate applying to earned income (no National Insurance).
  • There has also been a cultural shift by banks, which now view buy-to-let landlords as a better credit risk than first-time buyers. So landlords have flooded back into the market, because they can borrow more, pay more and leverage up the equity in the homes they already own. As a result, the number of households renting privately has doubled since the early 1990s – from an all time low of 9% back up to 18%.
  • Broadly speaking, people will take out a mortgage if the monthly cost is not significantly higher than the equivalent rent, but if rents are allowed to double, and then the amount which people are prepared to pay for a home will double. Add to that the interest subsidies which the government offer banks (Funding for lending, Help to buy) and inevitably house prices will double.
  • Banks will lend people as much as they are willing to borrow – the average loan-to-income ratio for new mortgages today is nearly three-and-a-half time, and 15% of borrowers owe four-and-a-half times their income.
  • So not only does the vendor make a big windfall gain compared to what he paid for his home under the old system, the banks are collecting a much larger share of location values (disguised as mortgage interest) than they did until the early 1990s.
  • Domestic Rates was replaced by the short-lived Poll Tax and then the Council Tax, which is basically a Poll Tax but dressed up a bit, so more valuable homes can be sold for much higher prices, because the new Council Tax bill was only a small fraction of the old Domestic Rates bill.
  • For crude political reasons, Thatcher and Blair sold off the nicest third of social housing, much of which is now being rented out again, often to Housing Benefit claimants.
  • NIMBYism is the order of the day, so we now have a larger population, but new construction dropped by half in the 1970s and has stayed low ever since (an average of 150,000 new homes per year).

So it is any surprise that those born in 1970 or later are more or less shut out of owner-occupation; they are doomed to either pay ever rising rents or take out a crippling mortgage which will take them decades to pay off, as against the ten years which was normal thirty or forty years ago?

Most sickening of all is that the Baby Boomers have conveniently forgotten all this;, they genuinely believe that they are somehow morally superior because they ‘rolled up their sleeves and paid off the mortgage’. They are blind to the fact that they could buy their first home for a price that was only half the regulated price, and they did not even pay off their mortgages out of taxed income – their interest payments were subsidized via a scheme called Mortgage Interest Relief at Source (MIRAS), so a large chunk was paid out of untaxed income.

The unearned capital gains they think they have earned are merely the direct result of the abolition of all the old regulations designed to redistribute the location value in an equitable fashion. The wealth that they have accumulated was handed to them on a plate; they bought at a time when the government kept rents and house prices low and are selling at a time when the government has allowed rents and house prices to skyrocket.

Speaking on behalf of the Young People’s Party, reintroducing the old system of rent and mortgage caps, building more social housing etc would be a good step forwards, but in terms of ensuring an even fairer distribution of location values and hence wealth, there is an even better policy – which is to reduce taxes on earnings and output and to increase taxes on location values instead.

Calculations suggest that if we moved half the tax burden off earnings and output and onto land values, young working households would be £10,000 a year better off. Such a tax system could easily be run in conjunction with rent and mortgage caps, so this is not an either-or choice.

(more…)

Induced Ignorance

Fred Harrison explores the thorny issue of rent seeking, or as he terms it “cheating”, in this excellent film packed full of deep insight into the problem at the heart of our dysfunctional socio-economic paradigm.

Alternatives to Owning the Earth

Ideas about property rights are so fundamental to the economy and society that we rarely question them. But property rights to the earth are at the heart of millennia of conflict, war, poverty and exploitation. A timid response would be to transfer land from its present owners to a new and, for a while, more equal group of owners. A radical approach would change our ideas about the nature of ownership so that everybody benefits from the wealth of the natural world.

Jonty Williams and Julian Pratt, both of the Henry George Society of Devon, will host this important conversation which will provide everybody an opportunity to share their ideas about proprietorship of land. (more…)

Husbandry: an ancient art for the modern world

Jonty&Carrol

Jonty Williams,  a founding member of the Henry George Society of Devon, has written a book setting out how the ancient art of Husbandry provides us with principles for the transformation of our relationship with each other and with Mother Earth. The power of the story lies in the beautiful, evocative, personal and heartfelt way it is told. Jonty writes:Husbandrybook

This is an earth community to which I belong. This mutual belonging – this settling on a future in intimate relationship with a geographically located ecological, social and economic community – is the story of humanity. Each person, each people, each place with its special perspective has myriad stories both of the amazing – and the tragic – to tell. An understanding of this mutual belonging, it seems to me, is needed for humanity and our world to see the way out of the mess we are making for ourselves.

Click here to access a PDF of the book: HUSBANDRY. If you want to order a paperback copy click here: LULU

Henry George’s book “Social Problems” now an audiobook

Social Problems is a collection of essays by Henry George published as one volume in 1883. It can be regarded as a companion to his 1879 work Progress and Poverty. The rich use of language conveying deep insights into the nature of society and civilisation is very much on show:

“My endeavor has been to present the momentous social problems of our time, unencumbered by technicalities and without that abstract reasoning which some of the principles of political economy require for thorough explanation. I have spoken in this book of some points not touched upon, or but lightly touched upon, in Progress and Poverty, but there are other points as to which I think it would be worth the while of those who may be interested by this book to read that.” — Henry George (more…)

What is Land?

This short film provides the answers.

The Study of Political Economy

A lecture delivered by Henry George to the students of the University of California, Mar 9, 1877

Take it that these lectures are intended to be more suggestive than didactic, and in what I shall have to say to you my object will be merely to induce you to think for yourselves. I shall not attempt to outline the laws of political economy, nor even, where my own views are strong and definite, to touch upon unsettled questions. But I want to show you, if I can, the simplicity and certainty of a science too generally regarded as complex and indeterminate, to point out the ease with which it may be studied, and to suggest reasons which make that study worthy of your attention. (more…)

An Abomination of Public Finance

This article was written by Nate Blair and posted on the LVT facebook page. We thank him for allowing us to reproduce it here.

There are three sources of public revenue: fees, fines, and taxes. Fines are pretty well understood, but the Georgist exLandValuEverythingElseample would be a Pigovian “tax” on environmental damage. A fee is when the state charges $10 for a licence; charging $100 for the licence would be mostly a tax. Land value “tax” (LVT) is actually a user-fee, not a tax, just as a Pigovian “tax” is a fine, not a tax.  LVT is the price landowners should pay for the privilege of excluding others from the value of locations in nature that the community is giving value to.

Society currently donates the value of locational privilege to landowners mostly free of charge—in fact, we even pay them with *negative* LVT for agricultural land (subsidies and grants) and with public investment projects that enhance land value.  Government donates all that to landowners, mostly the wealthy, and pays for that expense with real tax on our labour and productive enterprise.  What makes payroll and sales taxes actual taxes is that they are arbitrary costs added onto normal, beneficial activities that we would otherwise want to encourage.  When states charge employers to hire labour, the state is not directly offering any reciprocal benefit/service.  Nothing is created; value is simply extracted and then used in ways that may or may not later benefit the people who paid the tax.

Together we can save our community

We can, but not like this. Ricardo’s “Law of Rent” makes that impossible in the long-run.

Even though that seems bad, it gets worse, because then labourers and businesses are taxed again, this time by the very landowners we just donated to!  Labourers are obliged to pay a private toll to access the very same benefits their hard work and taxes just created.  So ground-rent being captured by private location monopolists is analogous to a tax, since the landowner arbitrarily demands a portion of the produce of labour without creating anything that contributes to the productive process.  In that sense, private land privilege, or any other monopoly for that matter, technically qualifies as a private tax.

LVT simply reclaims our donations to landowners by charging monopolisers of location for the annual market value of the privilege they are receiving from the community.  Ground rent captured by LVT is directly subtracted from the “capitalized” price of land.  That changes the form of land payments but never increases its cost.  A 100% tax of land rent would equate to a sale price of land approaching zero.  Following through with the private tax analogy, it is clear that every land purchaser already pays what he/she expects to be a full LVT, whether as an up-front cash payment or over time as mortgage payments to a bank.

That revenue could instead be used to remove taxes on things that we want more of (labour) and to provide more of the social services/investments that enhance quality of life (and location).  The best way to think of it is that instead of paying rent and taxes, people would only pay rent, but we would pay that rent back to ourselves, to the community instead of monopolists.

This is exactly the same method shopping malls use to finance the provision and maintenance of restrooms and security.  Malls do not tax vendors a percentage of sales or for each employee hired—but what if they did?  Imagine if the malls also allowed speculators to hoard perpetual, rent/fee-free titles to vendor-locations, preventing actual businesses from using the locations, increasing costs and making the mall look and operate badly.  Location monopolists would also capture the value of improvements for themselves, so that each time businesses worked harder, the economy improved, or the mall enhanced its services, rent seekers would increase the private tax extracted for access to mall locations.  THAT WOULD BE CRAZY!

The tragic truth is that what we are doing is much crazier.  This has *deadly* consequences.  Every time you read about the need for austerity or that there is not enough money for nice things, it is a lie: nice things increase land value in proportion to their niceness.  What we are actually saying is that the power of parking lot owners is so great that we willingly condemn vast numbers of people to poverty, death of the mind, body, and spirit.