Debate Magazine

Killer Arguments for LVT, Not (2)

Posted on the 09 April 2018 by Markwadsworth @Mark_Wadsworth

Following on from my previous post, the same factors that mean that a 100% LVT replacement tax won't cause a wiping out of the landlord class, mean that LVT won't make house prices "affordable", where "affordable" doesn't mean "prices that people can afford" (using that definition of "affordable", the only unaffordable house is an empty house) but "prices at a level they were in the 1980s" or at least "a smaller chunk of my monthly outgoings than at present".
As can be seen from this graph, house prices are pretty well inversely proportional to interest rates, i.e. they are proportional to what people can afford to borrow:

Killer Arguments LVT,
However, if LVT is a replacement tax and, given no change in interest rates, then, by and large, the average would-be homeowner is going to be no worse off than they were before. The extra they have to pay in LVT will be balanced by the amount they are saving on income tax and VAT, so the amount they can afford to spend on a mortgage every month will be roughly the same as it was and thus the average house price will remain pretty well unchanged. Indeed, the improvements to the economy caused by the removal of deadweight taxes is likely to put house prices up, by making the housebuying public better off.
Sure, Londoners and Roselanders will see prices fall and inhabitants of places like Neath will see them rise, but these falls and rises will be caused by falls and rises in what these people can afford to spend on mortgages, so true affordability will remain unchanged.
What has made houses unaffordable in the past twenty years is not so much the price, because the price of land is linked to what people can afford to pay and therefore is a system with negative feedback, but the requirement for ever bigger deposits, which has no link to anything apart from government policy.

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