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Err, no, just no

Dozen homes worth £500,000 each on the brink of collapsing into the sea after appalling weather speeds up cliff erosion

Land owned by John Radford, 62, for 45 years eroded by 15 metres in weeks
He and his wife feel \’trapped\’ because dangerous houses are \’unsellable\’

If they\’re unsellable then they\’re not worth £500,000 each. For things are worth only what someone is willing to pay for them.

They\’re worth nothing.

26 thoughts on “Err, no, just no”

  1. Surely proof (if ever it were needed) that value is entirely subjective and not based on the amount of effort expended on creating something.

  2. As has been said here plenty of times, most of the value isn’t the physical house but the land having planning consent.

    And that land has just fallen into the sea.

  3. From the article: –Mr Radford said: ‘The houses here are unsellable and unmortgageable.The people living in them are trapped. Insurance doesn’t cover erosion.’–
    Of course the Daily Mail writes its own headlines.

  4. Yep, “once” worth or “formerly” worth, though since the point of the article is indeed that they are now worthless, I’m not sure what the quibble achieves.
    More notable is the address. 1 Cliff Road, with a known-to-be-crumbly cliff nearby. “Before the disaster of November I was reasonably sanguine and thought we’d get another 20 to 25 years”. Ye’ll be moving to 1 Floodplain Way or similar and being reasonably sanguine again, then.

  5. When Brisbane flooded a couple of years back, my uncle and his family sat in their nice house on top of a hill, and watched the hill turn into an island, making the most of their excellent wine cellar as they sat the thing out. It’s not that they didn’t have sympathy for their flooded neighbours – they did – but as Brisbane is prone to floods, they had considered this when they chose where to live.

  6. It is standard of the Daily Mail to mention what the house is worth (or rather what an estate agent will tell you its worth) in any story mentioning a house.

  7. It’s one of my hobby horses this. If you don’t understand subjective value, you don’t understand economics. Any of it. For instance, one of the things I’ve tried several times before giving up to try to explain to Mark Wadsworth is that things don’t have economic values when they’re not on the market, but since that means you can’t have a rational Land Value Tax, the Georgists just go into denial about it, because what they mean by “Value” in LVT is actually valuation which is a different thing. And so on.

  8. Ian B, off topic, but a query on that last post.

    “you can’t have a rational Land Value Tax”

    Valuers go round valuing properties all the time that aren’t on the market, though obviously their opinions aren’t tested.

    Are you saying you can’t have such a tax at all, or just that it’s a bit rough and ready?

  9. Well obviously you *can* have any tax. Tax windows, wig powder, anything. What I was getting at is that the tax isn’t tax what they think it’s taxing. I actually tried to explain this to Wadsworth with an analogous tax, which he then proceded to treat as if I were seriously advocating it, which from its nature it was quite clear I wasn’t. I suggested a Whore Value Tax, the WVT. I think once you consider that, it becomes clearer.

    It’s certainly the case that every woman’s poonani has a potential value. You could send round an army of valuers to look every woman over and ascribe a hypoothetical prostitution value to her. Would it then make sense to make her pay a tax on that value? Let us say, Freda Bloggs, according to the valuers, is hot stuff and worth, perhaps, £50k. She now has to pay a WVT of £50k[1]. And don’t worry, Georgist theory tells us that this won’t cause any economic distortion, because she is already “enjoying” that value whether or not she charges for it.

    The problem is, most women aren’t on the market. The “valuations” are predicated on *actual market values* of the smaller number of actual prostitutes. The valuers think Freda is as hot as an actual working 50k hooker, so therefore she has that “valuation”.

    But if every woman actually *were* on the market, supply would be much greater and prices very different indeed. Much lower, one would presume. Thus, if you sum all the WVT valuations, you get a much higher figure than the actual total value of pussy in Britain.

    Same for property. We routinely see ridiculously ginormous estimates of the “value” (summed valuations) of all the property in Britain. Because most of it isn’t on the market.

    So, the Georgists want to tax value that isn’t there. Because they don’t know the difference between a valuation and a value. Values are not only subjective, they are temporary, and only exist at all when a particular item is actually being transacted. The value of a home not on the market is undefined. Its valuation is merely a guess at what it would be worth, if it were on the market under current market conditions.

    I’ll just also reiterate this: Ricardians (Georgists, and including so far as I can tell Tim) insist that the LVT wouldn’t distort the economy at all. Using the WVT example (another “monopoly” product that is rented) we can see the codswallopiness instantly.

    [1] Georgists tend to oxcillate about whether or not they want to tax the full value, or tax proportionate to that value. We’re taking the full value case here.

  10. Explained that way, it’s actually a similar error to that committed by the wealth tax advocates. One tycoon may be able to sell their yacht or a couple of paintings but if they are all forced pay a 10% (for example) tax and have to divest themselves of capital goods, who is going to buy them and at what price.

    I (just as a dreary example) couldn’t afford to run a decent-sized yacht and I wouldn’t want a couple of Picassos making my library look ugly even if I could afford them.

  11. BTW – the LVT monomaniacs, at least the ones around here – tend to insist that if you can’t afford the LVT then you should move to a cheaper property.

    Try explaining that one to the missus re the WVT!

  12. “Try explaining that one to the missus re the WVT!”

    Well of course, she can’t divest herself of her rentable property. Even worse, she can’t even dowdy herself down, since the tax is on the “unimproved” value…

  13. I’m not sure that the WVT and a LVT analogy works very well – not least because the supply (of area, not value) of land is physically constrained, while the supply of actual whores will vary according to market prices, while the value of an individual potential whore can’t generally be altered a great deal.

    Also, I fear your general arguement that a true land value tax is impossible as it becomes a land valuation tax is also flawed.

    Imagine LVT was introduced on the following basis:
    1) A property only becomes eligible for LVT at it’s next sale after the LVT is introduced.
    2) The property enters the LVT system at the sale price, and 1% of its LVT value must be paid annually thereafter.
    3) Every time the property is sold, its new sale price is its new LVT value.
    4) LVT values are adjusted annually by the percentage change in sale price of similar houses (lots of different stats could be used to define similar, but it should be possible to define it accurately enough for our purposes).

    Now this is full of loopholes, and wouldn’t generally be a very good idea, but I think taken in the “superlongterm” you would get a true LVT, rather than a valuation tax.

    I’m not a massive LVT fan- I tend to the view that any good it did would be outweighed by the chaos that would come from its introduction, but I understand the theory’s attractiveness.

    Myself I think that the flaw in the LVT concept is it takes the total available land, and assumes that along with the area, the value of the land is static. Ah -ha says Mr LVT fanatic – we know taxes of things reduce the supply/consumption of things (jobs, fags, petrol etc) – but there is only so much land about – so if we tax that, we don’t destroy economic progress as land usually cannot be created or destroyed

    In saying this, our fanatics forgets that he wants (for obvious reasons) to tax land value, rather than acreage… but while the acreage is static, the value is extremely variable, depending on what you do with that acre. Value is added by people improving the land (be that by draining it for better farmland, or building houses on it). Taxing land by value just means less improvement of the land will occur… thus, as always, tax, even the sainted LVT destorts the free market, and reduces ecconomic growth – which makes an LVT rather pointless.

    If you wanted an ecconomically non-distorting tax, your WVT might be a better plan – there being only a finite number of women, and there being little they can do to alter their nominal whoring value…

  14. I’ve made the same point, repeatedly, about wealth taxes. It’s amazing how obtuse people are about them. Generally in the end even if you can get them to concede that they won’t actually raise any money and will simply destroy wealth, the attitude seems to be that the rich deserve it and it’s better if they’re taken down a peg even if we become collectively poorer in the process.

    Another example of the faux valuation is when you see a headline like “Police intercept cocaine shipment worth £18 million” etc.. Unless the Dibble are going into the blow business themselves, it’s not worth a penny.

  15. I love that analogy, Ian, and I hope you don’t mind if I steal it (with credit) the next time someone brings that up at the pub.

  16. Myself I think that the flaw in the LVT concept is it takes the total available land, and assumes that along with the area, the value of the land is static.

    No they don’t. They explicitly want to capture increases in value due to any improvements you don’t explicitly pay for: better roads, connecting your area to grid (power, sewage etc), a nice pub opening up in walking distance, changes in the planning rules.

    Which, of course, means an endless cycle of speculative valuations. (We’ve just had a huge wind farm installed on the nearest ridge – most people think this is a bad thing, so I should get an LVT discount? Of course, if I sold my house to a Monbioid, they might think it wonderful?) If the LVTers were lefties, I’d speculate that they saw themselves being the National Council for Land Valuation. But they’re not (except DBC), so I won’t.

    And, remember, you aren’t valuing the property – you’re valuing the land without the property on it but with planning permission to build the (any?) property. So you can’t even use historic and current actual sale prices.

    Matthew L – well, I suppose it beats talking about football but you must have some fairly dull drinking companions.

  17. If the LVTers were lefties,

    Well, it’s an inherently “left” philosophy even if its adherents don’t see themselves as “leftie”. It’s just Ricardian (pre-Marxian) socialism. It would take another long post to be thorough, but basically it’s based on an objective value theory in which all prices are derived from land productivity; which Marx replaced with a coherent (if wrong) theory of labour value.

    Thing is, if the LVTers really just objected to rent, they could solve all their problems with valuations etc, by asking for a “rental tax”. But they don’t want that; because they are determined to capture all that “hypothetical value” from the valuations.

    In the same way as, if you think prostitution is “unearned income”, rationally you would tax whores. But the WVT taxes, instead, your hypothetical value *if you were a whore, which you aren’t*.

    Ricardo was really attempting, in his historical context, to figure out who would win a perceived class war between what he saw as three distinct classes in early 19th century England; the landowners, the labourers and the new capitalists. His (erroneous) theory concluded that the landowners (rentiers) would expropriate all the value from the capitalists and labourers via rent, leading to an economic collapse. Marx retooled that as the capitalists expropriating all the money from labour. But the Ricardian “class struggle” is fundamental and thus whether or not the LVTers see themselves as on “the left”, they inevitably are by any reasonable measure of what the left is.

    Which is why I’ve been surprised to see our rugged capitalist host talk approvingly of the Ricardian “Iron Law Of Wages” etc.

    It’s worth saying that Ricardo’s model does describe fairly successfully a narrow class of economies with a hegemonic landlord class and utterly downtrodden subsistence farmers on their land; historic Ireland for instance. The error is to think the model is a general one.

  18. David Gillies, yes, but did you know that it is (absurdly) possible to be prosecuted for stealing someone else’s stash?

  19. Matthew L – well, I suppose it beats talking about football but you must have some fairly dull drinking companions.

    This analogy strikes me as an excellent way to get rid of anyone dull enough to bring it up.

  20. Explaining Austrian Business Cycle Theory is pretty effective in that regard, I’ve found.

    Tim adds: But that’s easy to explain in a pub. “Everyone gets a bit pissed and excited and starts throwing money into nonsense schemes. The recession is the morning after when the hangovers kick in. Nothing very much useful is going to get done until the vomits cleaned up and everyone goes back to sober ways. Until hte evening when it all starts again.”

    If you really want to get complex you could just say that cheap money is the booze.

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