The man’s mad

As the FT reports this morning:

The top 20 [parliamentary] seats by [house price] value, of which 11 are held by Conservative MPs, have property worth a total of £741bn. The cheapest 20 seats, of which 15 are represented by Labour, are collectively worth just £57bn.

That total figure is less than any of the three most valuable seats in the country: Cities of London and Westminster (£78.8bn), Kensington (£74.8bn) and Chelsea and Fulham (£61.8bn).

That is a measure of real inequality for three reasons.

First, some of that difference reflects the quality of housing.

Second, a significant part of that difference access to work.

And third, house prices do, in the UK economy, reflect ability to access capital and so opportunity to create self employed businesses of any size.

The inequality this survey reveals does not simply represent a pricing issue. They also represent social, physical and economic inequality that needs to be addressed in the UK.

There is a very strong case for a wealth tax in this country. This is another argument for it.

People who live in places where houses are expensive have to pay more for their houses. This is thus a reduction in consumption inequality if people who have higher incomes are paying more for their housing. And given that consumption inequality is the only inequality we could possibly actually care about….

Man’s mad.

29 thoughts on “The man’s mad”

  1. given that consumption inequality is the only inequality we could possibly actually care about….

    Well we might care about inequality of opportunity to create new businesses, for example.

    (puts on body armour, dons hazmat suit and nuclear gas filter on defending Ritxhie…)

  2. what?

    so if rich people own assets (like shares) and they go up in price, you’d argue that reduces consumption inequality (because if you buy shares you have less money left over)?

    I mean people moving in to nice neighbourhoods might have less money left over as prices rise, but generally asset prices rising do not punish the rich. Plus if nice things (nice houses in nice neighbourhoods) get more expensive, I’d say that exacerbates consumption inequality in one way: nice things have gotten less affordable for the poor.

    Tim adds: http://www.forbes.com/sites/timworstall/2015/01/04/solved-why-poor-states-are-red-and-rich-states-are-blue/

  3. Easy solution:

    A progressive tax on housing to equalise prices.

    So a 3 bedroom house in Doncaster (say) costs the same, with tax, as a 3 bedroom house in Mayfair.

    Next!

  4. How about a pilot scheme? We take a single location at random, let’s say Downham Market in Norfolk, and set up a swingeing wealth tax on property to give to people living on the Gurnos Estate in Merthyr Tydfil.

    For Social Justice and Equality.

  5. @ Luis Enrique
    And “what?” to you.
    It doesn’t make a ha’porth of difference to the houseowner’s actual spending power (unless she/he wants to take take out a second mortgage to pay off her/his cedit card debts) if the notional price if of his/her house trebles overnight. The value (as distinct from price) of the house is as accommodation.
    For those who buy shares as a long-term investment, daily price fluctuations are irrelevant. BUT I might, no *will*, point out to you that the current level of the FTSE-100 index is still more than 6% lower than it was at the end of 1999, ignoring inflation. Adjusted for inflation. that is a fall of 39%. So “so if rich people own assets (like shares) and they go up in price, you’d argue that reduces consumption inequality (because if you buy shares you have less money left over)?” gets the answer – yes it does reduce consumption inequality if rich people buy shares because, firstly, they have less money left over and secondly, when they sell the shares the monmey they get back buys less.
    Tim doesn’t claim to be an Economist, he just knows a bit about economics.

  6. @ Rob
    That’s because you haven’t realised just how much wealth was transferred to Guardianistas in 1997-2010 so they control places like Islington and Hampstead.

  7. bloke (not) in spain

    You need to think where you’re going with this, Tim.
    I’d have a lot of sympathy with Luis Enrique, on this.
    Why are you excluding houses from consumption?
    A house is just a big consumer durable. Your wealthy inner city Londoner gets just the benefit from the Georgian terrace in Chelsea as he does from the Porche. And pays for them.
    Except property got turned into an investment vehicle. With the game heavily loaded in favour of property investment. And your rich inner city Londoner benefits much more than the bloke living in Shithole-on-Tyne because that’s the way the game’s been rigged.

  8. What b(n)is says.

    Also, your premise is wrong: “People who live in places where houses are expensive have to pay more for their houses.”

    No, the people who live in places where houses are expensive had to pay whatever the asking price for their house was when they bought it. The neighbourhood may have been a lot cheaper in the past: gentrification is a real thing. Only people who moved in the last couple of years are paying full whack for their homes: everyone else gets a discount which varies according to how long they’ve been playing the real-life game of Monopoly.

  9. bloke (not) in spain

    I haven’t finished saying, Andrew.
    Very few people buy property with folding stuff out their back pocket. The whole property market depends on credit creation. Which trashes the value of money whilst allowing the notional wealth to accumulate with property owners according to their stake in the game.
    And, of course, provide lucrative employment to bankers, estate agents & the rest of the leeches. Particularly property developers.
    Search me what purpose the modern property developer serves. Apart from intercepting the flow of created credit. Property developers don’t build houses. Builders do that. Would do it without the interference of property developers if houses were built out of yesterday’s rather than tomorrow’s money.

  10. John77

    “That’s because you haven’t realised just how much wealth was transferred to Guardianistas in 1997-2010 so they control places like Islington and Hampstead.”

    But I did ‘realise it’. That’s why it is interesting. It’s a huge social change from thirty years ago. Essentially these (Metropolitan) areas are now so wealthy their inhabitants can indulge in Progressive politics with no cost to themselves. Hence, Blair.

  11. @ Rob
    Either I’mmisunderstanding you or you’re misunderstanding me. They are not indulging in “progressive” politics because they are wealthy – they are wealthy because New Labour enriched its supporters, putting all public sector job adverts in the Guardian, transferring grants from Conservative-governed local authorities to Labour-governed local authorities, raising public sector pay (including pensions) to more than one-quarter higher than private sector pay for comparable jobs, paying union employees from government funds, subsidising all council house rents by 50% of market rates, equal pay for less hours, more than doubling MPs pay and allowances, massive subsidies for lefty luvvies in “the arts” and thousands of lefties hired as university lecturers for useless degree courses in lefty subjects like “media studies”, gender studies, sociology, politics, developmental studies … while neglecting basic apprenticeships. How did Peter Mandelson and Ralph Miliband become millionnaires? Not from the sweat of their brows.
    I grew up in a working-class town and, (with one exception, a slimy solicitor) all the Labour councillors were solid working-class men and women (so were a majority of Conservative councillors) with whom I disagreed but whose attitiudes and acxtions I could understand and often respect. The current crop look as if they rerad 1984 as a training manual instead of a dire warning.

  12. bloke (not) in spain

    I’d say you’re both partially right & partially wrong. It’s the children of those solid working class Labour & Conservative counselors who are now living in Islington & Hampstead & calling the shots. Who passed through the university system & lost their solid working class roots along with most of their sense.

  13. To coin a phrase: what? Credit trashes the value ?If so, so what? Since when has money been real wealth but bricks and mortar ‘notional’?

    Insurance values give us the cost of build of the property, the lowest possible sustainable price for new builds. There is no way, without credit a working person or family could buy a home until their ‘ 50 without it. Credit is good.

  14. @ b(n)is
    As far as I know the children of the working-class councillors stayed there and had to struggle with the impact of unemployment introduced by the Wilson government when it demanded uniform national pay rates; some of the children of the middle-class Conservative councillors followed their parents into their professions, some of us went south to get a job.
    The only guy I knew who went to live in Islington was never working class: his godfather loaned him a London flat while he was a trainee/junior barrister.

  15. Tim, interesting link. My suspicion is that in the UK, the urban peeps are subsiding the rural/Tory/old/UKIP peeps. (Evidence limited.)

    Dearieme, I agree. I find the idea that people should be locked into low wage, dangerous jobs unhealthy. The more people in nice cushy middle class jobs with air-conditioning and a pension, the better. If they’re the mythical diversity advisers, who cares?

  16. So Much for Subtlety

    bloke (not) in spain – “It’s the children of those solid working class Labour & Conservative counselors who are now living in Islington & Hampstead & calling the shots. Who passed through the university system & lost their solid working class roots along with most of their sense.”

    I bet it is not. I bet the children of those solid working class Labour and Conservative voters became Conservative voters. And the formerly Conservative voting Upper Middle Class needed a way to distinguish themselves from the White Van Class. So they voted Blair. Just as saying you like really ugly art is a mark you are not *suburb*, so too does voting for Miliband show you are one of the cognisati.

    Polly does not come from a working class family. Nor does her editor Seamus Milne. The person who used to edit it, for instance, is called Georgina – not a Chav name by any means. And needless to say “Born in Aden, Aden Protectorate (then a British colony), where her father was an army officer….”

  17. “…No, the people who live in places where houses are expensive had to pay whatever the asking price for their house was when they bought it….Only people who moved in the last couple of years are paying full whack for their homes: everyone else gets a discount”

    I don’t agree; nobody got a discount at the time they bought it. That the sale price they could command rises over time doesn’t make it a discount. As Tim notes, they exchanged money for house. And they cannot ‘consume’ the house so their ability to consume is indeed reduced.

    A further mistake Richard Murphy and all the wealth taxers (as opposed to genuine LVT advocates) make is to say “It’s alright if you haven’t got the income to pay the land/property/wealth tax (sorry for lumping them all in here Tim) we’ll let you role it all up until you die dear.” This quite obviously defeats the purpose of LVT. It also defeats Ritchie’s confiscatory desires.

  18. @ Luke
    “The more people in nice cushy middle class jobs with air-conditioning and a pension, the better. If they’re the mythical diversity advisers, who cares?”
    I agree unless the paypacket for diversity advisers is so vast that thousands of people cannot afford central heating.
    But: you want air-conditioning in Britain? Are you an Eskimo, or are you pulling my leg?
    “Interesting link” – what link? None when I clicked.

  19. So Much for Subtlety

    Ironman – “And they cannot ‘consume’ the house so their ability to consume is indeed reduced.”

    I don’t know. I think you can consume a house. You can consume a film. Which is basically watching stuff. Why is the view from my back patio not being consumed too? I have lived in some appalling houses in the UK. I have lived in some nicer ones – and even nicer ones overseas. I think you consume a house and that it is worth paying for. A nice house with a nice kitchen and a nice back garden is worth paying a premium for.

    “This quite obviously defeats the purpose of LVT.”

    How does it defeat the purpose of the LVT? It does not force people into re-developing land they would prefer to sit on. But that is only one feature. The main purpose is, surely, to prevent land owners getting the full value of their property? So my suggestion – we tax the Value Added to a house since its last sale at 40 or 50 or 60% at the time of sale – is perfectly simple and a LVT.

  20. @ John 77 earlier comment. I have been meaning to update the stats on this for a while, but this just reminded me. The total return on the FTSE index, i.e including reinvested dividends since December 1999 is completely different from the simple price appreciation. The index change from Dec 199 to Dec 2014 is indeed negative, -5.25%, but the total return including reinvested dividends is 68%. A big difference I think you will agree. The wider All Share index, which is what most pension funds are actually invested in has stats of +9% and +88.8% respectively. Tim, you might want to jot those numbers down for future bonds beat equities discussions.

  21. Under LVT the owner cannot pass on the tax to lessees. So LVT encourages the most economically productive use of the land. And it provides a ‘fair’, meaning consistent and efficient, tax base. Letting granny roll it up and pay when she’s dead is exactly what you should not do. This is quite apart Fr the fact that tax based upon capital holding is now subject to an income measure. Ritchie and friends don’t know what they themselves mean by ‘wealth’.

    As for consumption, I seem to remember reading this conversation on this blog before. Five and circulating capital; consumption implies destruction. Take your pick really. But a house doesn’t get ‘consumed’ in that sense.

    Yes though there is something to your suggestion of taxing the added value, or the capital gain on a domestic property as a surrogate FOR LVT. Council Tax essentially fulfils that function.

  22. @ Mark T
    Good point but (i) after tax on the dividends (we’re discussing “the rich” so they have to pay higher rate tax) the total return barely keeps up with inflation and (ii) Luis Enrique was saying a rise in share prices on its own increases spending power and I was answering that specific allegation.

  23. bloke (not) in spain

    ” Five (fixed) and circulating capital; consumption implies destruction. Take your pick really. But a house doesn’t get ‘consumed’ in that sense”

    Maybe it’s a result of being involved with houses but I tend to see all of them as in a process of slow motion destruction.

    There’s a farmhouse I helped a Brit with in France. It was built out of stones from the fields & timber from the woods. A lot of it with the bark still on. All as cheap & simple as possible. It was quite obviously constructed on the yardstick I’ve often mentioned before. A 40 year design life. It lasted close to two hundred but, by the time the idiot Englishman bought it, it was abandoned & well on it’s way to returning to nature.
    That, I would say, is the seminal house. It existed for a purpose & when it’s purpose departed, (along with it’s french occupants to a nice little centrally heated place close the village) it no longer had one.
    That, in my way of thinking, is a consumer good. It had been consumed. No differently than a car or a washing machine.
    That seminal house is the root of all houses. They have no other function than their purpose. You can re-purpose houses, buy them & do them up like you would an old car. Polish them on Sundays. You will spend the entirety of your tenure maintaining them. Unless you leave the problems for the next mug. But they are all still that seminal house. A roof to keep the rain off. Walls to keep the winds out. Nothing else.
    All the rest of it’s bollocks.

  24. And the economic value of the land is the largest component part of the cost of that home in Chelsea or Kensington. I think you and I are doing nothing more than reiterating Tim’s initial point. Shall we call it a.draw?

  25. bloke (not) in spain

    I don’t believe I am.
    I don’t go along with Tim because I don’t think I share his assumptions. He’s just looking at the amenity value of houses. So wealthy people pay more for houses because the houses they choose to live in provide more amenities. like being in Chelsea rather than Shithole-on-Tyne. Far as I’m concerned their consuming that amenity much the same as one consumes the amenity of owning & driving a Porche.
    But there’s a whole other issue of houses as a store of wealth. There, the higher up the housing price ladder the more wealth you get to store. The greater you’re able to benefit from house price rises Fair do’s. Buying a million shares in Xco makes you more than one share.
    But.
    Houses aren’t a store of wealth. They’re a store of created credit. Few people buy houses with cash money. So they leverage, via their deposit. And created credit is a product of the banking system/State. it’s backstopped ultimately by deposit guarantees & “too big to fail” banks. So when it boils down, it’s the wealthier being able to create “property investments” in their houses & the wealthier you are the bigger the gain. All subsidised by the taxpayer.
    Subsidised? Yes subsidised. Because mortgage rates are way cheaper than borrowing to finance any other speculation.

Leave a Reply

Your email address will not be published. Required fields are marked *