House prices back to 2006 and still falling

“Foundations of bricks and mortar boom are shifting” announces another article on the drop in house prices. This one is in The Times. However, too much notice should not be taken of particular sets of results, as the different indices are collected in different ways giving slightly different pictures. The Financial Times has an article explaining why the various sets of data do not agree; the FTs figures indicate that in some parts of the country, notably Greater London, prices continue to rise.

Unfortunately, nobody outside of the LVT movement seems to understand that these price movements are really movements in in land prices; they all refer to house prices, often to “Bricks and Mortar”, which is exactly wrong.

This criticism is not pedantry. When commentators fail to discuss the problem in the correct terms, it misleads, and positively prevents public and politicians from understanding what is going on. Had they done so, nobody last year would have been talking about a “soft landing” from the boom, when as can now been seen,  the signs are that the present crash will be one of the most severe in living memory.

The widespread, near universal, failure to appreciate what was going on is an indicator of the deficiency of the economic theories that almost everyone is working to. It is really only those who use the theories based on the analysis of Henry George and his successors that appear to understand and be able to predict the likely course of the economy. From those theories stems the necessity to replace existing taxes by LVT to prevent the periodic shocks to the economy and the persistence of poverty despite the increasing productive power that comes from technology. There is no need to be a genius to understand the economy – it is just necessary to use a sound economic model such as that of Henry George.

Newspaper comments on the rumour that the government is going to do something about Stamp Duty are an example of the confusion. Commentators are unclear about the effect, some thinking it will help first time buyers, which it most definitely will not. It will just prop up prices a little and slow down the rate of fall. This is not to say it would not be a good idea to get rid of it, as it is a bad tax, discouraging people and companies from moving and thereby interfering with the smooth operation of the property market. But that is a point hardly being made. With the decline in the numbers of property transactions, it is no longer even a good revenue source, though it was always inherently vulnerable to these cyclic movements, which LVT based on rental values is not. The Campaign’s view is that Stamp Duty should reflect the cost of the work involved by the Land Registry when titles are transferred, which would set it at a level of a few hundred pounds.

What would happen if a government announced, say next week, that it was going to introduce LVT? The key point here is that LVT is not intended as an additional tax but a replacement, If it replaced the present property taxes – UBR and Council Tax, and was accompanied by a rise in Income Tax thresholds, then this would indeed take some of the sting out of the coming recession and give the Bank of England an opportunity to raise interest rates to the point that they will put a squeeze on inflationary pressures without further slowing the economy. Additionally, because the effect of LVT is to remove the overall tax burden in locations where land values were lowest, the change would limit the damage being done to the economy in the weaker areas of the UK. With an announcement of LVT in the near future, the system could be up and running by the middle of 2011, after the next election but near the bottom of the slump, just in time to prevent owners from holding onto empty land and buildings and thereby delaying economic recovery. It would also prevent the epidemic of de-roofing which will occur if the government persists with charging business rates on vacant property.

The coincidence with the election means that the policy would need all-party agreement. LVT ought in principle to be acceptable to both main parties, as well as the Liberal Democrats where it already enjoys some support. The Conservatives are, amongst other things, the party of business. Unfortunately, they are also the party of the numerically very small landowning interest, whose mode of operation is to spread fear, uncertainty and doubt on the subject of LVT. Within Labour, especially amongst the young people who shape party policy, there remains the notion that taxation should be related to ability to pay, which is automatically related to income tax despite the evidence that in reality it is not, since those who can pay tax can also pay for good professional advice and avoid their liabilities. The other problem is that, especially on the Labour side where economics policy tends to be more based on theory, land and location is just not taken into account. The average street busker knows more about this aspect of the subject than most of the eminent academics.

And so, although a solution to the problem is available and could be in place at the right time, the chances that it will happen are remote. Although the worst effects of the coming recession could be mitigated by LVT, vested interests and a refusal to question accepted and inadequate economic concepts will ensure that it will run its miserable course.