Beyond the council tax

row of potted treesThe council tax is unlovely and unloved. It was rushed into being as a replacement for the hated poll tax. Its structure has always been an uncomfortable compromise, somewhere between a charge for services and a genuinely progressive property tax. The property values upon which it is based haven’t been uprated for twenty years in England and Scotland and ten years in Wales. This means that, because local housing markets have traced out different trajectories, the relativities built in to the council tax bandings bear very little relationship to the current distribution of property values. The truncation of the council tax bands means that higher value properties are relatively lightly taxed compared to lower valued properties. The tax is, broadly speaking, regressive.

There are good reasons for reforming the council tax as a basis for gathering revenues to fund local authority services. But there is another aspect to the debate. The Joseph Rowntree Foundation’s Housing Market Taskforce argued a couple of years ago that property taxes may well have the potential to act countercyclically in the housing market and dampen housing market volatility. That is, as prices rise the tax burden will increases, and that puts a brake on further price rises. Such a property tax could take various forms, including creating additional council tax bands for higher value properties or moving to a flat rate or progressive property tax. The latter has the advantage of removing discontinuities, but brings greater informational demands in assessing property values.

These are ideas I have blogged about before.

Last week, Chris Leishman and colleagues produced a report that explores these issues empirically. It is based on an ambitious attempt to create a comprehensive dataset of property values for England and then model the impacts that changes to local property taxation would have both spatially and at household level. The researchers were interested in how alternative tax structures could improve fairness between places and fairness between people, and whether it is possible to detect any influence of property taxes on price volatility. [Read more...]

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Policy Unpacked #2 – Housing shortage and housing supply

Policy Unpacked logoThe issues of housing shortage and increasing housing supply feature prominently in current debates over how to deal with the UK housing crisis. Housing analysts often seek to place these urgent policy problems in the context of the longstanding issue of excess volatility in the UK housing market, and alongside an exploration of how we might make better use of the existing housing stock.

In this podcast I discuss a range of issues around housing supply with Ken Gibb, Professor of Housing Economics at the University of Glasgow and Director of Policy Scotland.  (Running time: 45′ 56″) [Read more...]

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Careful now

Richmond HillIf you were entertaining any idea that changes to property and land taxes could help to curb the volatility of the UK housing market then just stop it. That is the message of a new report Taxing Issues? released by the Policy Exchange this week. This is a highly political document, and fascinating as a result.

The think tank offers a host of reasons why property and land taxes just won’t do the trick.

The report starts from the premise, based on OECD figures, that the UK already has the most highly taxed property in the developed world. This premise is, if not erroneous, then rather misleading. The OECD includes all sorts of things in the calculation to arrive at that figure – including business rates. Business rates are largely irrelevant to managing the housing market. Except the rhetorical strategy adopted by Taxing Issues? means that they aren’t.

The reasons for thinking property taxes will fail to deliver reduced volatility are a melange of some reasonable points, some basic economic theory, some casual empiricism – including making brief reference to a range of non-comparable taxes in other countries, and a massive dose of street-fighting politics. [Read more...]

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Fool me once …

Plenty of political announcements made at this time of year are little more than conference fodder. They grab a headline and a round of applause and that’s the last we hear of them. But George Osborne’s proposals to cut another £10bn from welfare don’t fall into that category. They were buried in the detail of previous policy statements and it was only a matter of time before they bubbled to the surface. Conference season is the ideal time because it allows some posturing against the modern folk devil – the feckless scrounger.

We only have media reports of Osborne’s speech at the moment, and we’ve no idea what’s going on behind the scenes, but a key element to this story is going to be how it plays out within the Coalition.

Clearly the New Victorians of the Conservative party are full-speed ahead for cutting welfare, with a strongly Malthusian undertone that if we lose a few scroungers along the way through starvation then that’ll save us a bit of money.

But the Liberal Democrat position is a bit more complex. [Read more...]

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Restructuring to reduce market volatility

Last May the Joseph Rowntree Foundation Housing Market Taskforce produced a major report which touched on a wide range of housing market issues, with the main concern being how to reduce the substantial and dysfunctional volatility that plagues the market. Four issues were identified: increasing housing supply in the long run, implementing policy instruments to deal with short run price volatility, developing innovative and effective mechanisms for protecting consumers from the consequences of market volatility, and fostering alternatives to home ownership that will provide households with long term secure accommodation.

Two of the academics involved in the work of the Taskforce – Mark Stephens and Peter Williams – have returned to provide an update, published today, on policy developments under the Coalition. Has the Government taken the sort of steps that will move the housing market on to a more stable footing? [Read more...]

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Taxing property

Why is there a lot of talk about a mansion tax at the moment? The short, obvious answer is because the budget is imminent.

Liberal Democrats have long held the belief that it is better to tax wealth than income. This position was reaffirmed at Spring Conference. A belief in the desirability of a mansion tax is not restricted to the Libdems. You can even find the odd Tory who is sympathetic to the idea.

In the context of the budget the Libdems were campaigning for a switch to a mansion tax to accompany a reduction in the higher rate of income tax. Not a reduction in the overall tax burden for wealthier households but a change in its composition. Moving taxation to wealth reduces the disincentives on productive effort. Taxing high value property is seen as also having the advantage that it is harder to avoid or evade than taxes on income. That has got to be true, assuming that it is possible to curb the ruse of setting up offshore companies to hold property and avoid tax. While the property itself can’t easily be hidden, a bit of creativity over legal ownership can reduce or remove tax liabilities. [Read more...]

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Shifting underoccupiers

There is little doubt that we are facing significant problems in the housing market. Most obviously, problems of access and affordability. And there is little doubt that we must be heading towards a housing statement from the Government. Reports from think tanks and lobby groups – each trying to exert some influence over the direction of policy – are appearing with alarming regularity. Last week it was the turn of the little-known Intergenerational Foundation to produce a report called Hoarding of Housing. The report received quite a lot of media coverage. As far as I could tell most of it was negative. That seems to me both fair and unfair. [Read more...]

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