As housing prices in Auckland continue to rise at unprecedented rates, the dream of home ownership, especially for many younger Aucklander’s slips away. Well, more accurately put, it is obliterated. Why? Government inaction and a refusal by policymakers to consider different approaches that might actually address the issue. Land Value Tax (LVT) anyone?!
This time last year, Jesse Colombo warned of an economic crisis for New Zealand. He argued 12 points which you can find more detail on here. With regard to the housing bubble he warned interest rates, overvalued land and demand were key indicators.
Colombo was ridiculed by Economic Development Minister Steven Joyce, as an alarmist and a bubble-ologist. As the NBR point out, this is despite the endorsement Colombo is given through publishing on one of the US’s most influential business websites.
But here we are. On the downward spiral to that bubble popping. The demographic I’m referring to are those of us who have had or have to borrow for post-secondary school education. Most of us will never own our own home. We will pay rent to a landlord for the rest of our lives. We will continue to pay sizeable taxes on our incomes but we will pay for our own retirements.
I’ve banged on about LVT for the past couple of years. Deirdre Kent & Phil Stevens of the New Economics Party have been writing on it for even longer. The idea derives from the work of Henry George who wrote his seminal work Progress and Poverty in 1879, that makes the case for taxing land and untaxing labour. Oh, and a factoid for fun, Henry George began the original weekly newspaper ‘The Standard’ in 1887.
Some Georgists/Geoists prefer not to use the phrase LVT, and consider land rents or similar as a more accurate description. I’m down with that, after all, the intentions and theory behind it are pretty much the same. I’ve written a few posts on Georgism, so to avoid re-writing, you can read them here.
We are constantly told if we just build more houses the market will cool, well, clearly we can’t really build at a rate sufficient to meet the total demand it seems. If we raise interest rates, then fewer people will buy. But this means lower-middle income earners are priced out. These approaches have done nothing. And all the while the government itself has contributed to the skyrocketing prices, for example, by banking a section of land intended for social housing for over 11 years, which is now being sold off privately at market prices. So perhaps Minister Joyce might want to reconsider his views on Colombo.
My suggestion is why not an LVT? Even if it is something applied solely to Auckland in the interim to incentivise the competition necessary to drive prices down and then rolled out across the country? I’m not saying I have a model ready and available. All I’m suggesting is that we start talking about alternative approaches to housing affordability especially if they have the potential to simultaneously address other issues that are suffocating low-income families and younger generations (X, Y, Z)
The thing about an LVT is it changes the nature of property rights that we currently know. Rather than individual ownership rights, they become use rights where the land is of the commons and the occupant pays a rent to the community for the privilege of taking the land out of the use of the commons. One comment that remains firmly etched in my mind is this by Nate Blair:
The problem with Georgism is not the idea, which is basically flawless. The problem with this idea is that it seems both radical and inherently moderate to anyone understanding it. The revolutionary aspect of Georgism threatens the predators of caricature “capitalism” and angers the conservatives. The justice and honesty threatens communist revolutionaries and angers armchair progressives, who are fine with paying a bit more but not with giving up their privilege.
I hear heaps of people online referring to themselves as ‘progressives’, yet comparatively few advance any alternative ideas, to existing failed models. It makes me wonder how much of that is about a reluctance to part with certain privileges. So since many of y’all liked Piketty’s book, here is a video where Joseph Stiglitz & Thomas Piketty gave a presentation on inequality. Toward the end Stiglitz exposes his own Georgism:
If further interested have a look at the LVT tab up top of this page for some documentaries/clips and websites that talk more about LVT. I personally recommend “The Taxing Question of Land” and “Real Estate 4 Ran$ome”.