We have been debating three proposals for better decisions on building and planning.
The first is my proposal to pay compensation for loss of amenity, view, and worse quality of life to existing homeowners. This proposal has several advantages. It can be done under the current law. Where I have seen it used it works. People accept the compensation, allowing planners to grant the permssion without objections from those closest to the proposed development. It can speed up the planning permission and avoid long appeals and court battles. It pays the money to those who otherwise lose out. It can be a cheaper solution for the developer.
The second is the idea put forward that we should auction planning permissions, with the money going to the state, probably in the form of the Council. This is a more formal version of Section 106 Agreements which we have today, which are individual negotiations with developers by Councils to make an infrastructure contribution. I have no objection in principle to an auction to determine the value of a planning permission. It is not, however, entitrely straightforward.
If the state already owns the land then it works very well. The state grants itself planning permission and then sells the land with permission, capturing the gain through the auction sale. This already happens.
If the land is privately held the problem is who will bid in the auction other than the current landowner? There would be no point in offering to pay a large sum for planning permission unless you already had secured the land so you could sell the package on or develop it yourself. An auction of one is a negotiation, which is what we have at the moment.
You could create a more serious auction if Council announced it was prepared to grant so many permissions to allow building of a specified number of homes or a speficied fllor area of commercial property. Competing landowners could then submit bids for how much they were prepared to pay to be one of those allowed to develop. Some areas would be ruled out for other palnning reasons – Green belt etc.
The third proposal is to go over to a system of LVT. Proponents of this see it as an easy answer to all our problems. Others see it as land nationalisation.
The full scheme replaces some taxes with a rental charge on all property payable to the state. It is therefore a more penal tax on all those who have already bought freehold interests in property, and may still be paying off the bank loan or mortgage, as their freehold effectively is taken away from them as the state becomes their landlord. I have never seen a satisfactory explanaiton of how the transition would be handled fairly, given the huge numbers of property claims that underpin the banking system and the current pattern of widely spread property ownership.
August 19, 2010
Oh gawd, here we go again ~ there is no 'right to a view' why are you seeking to nationalise it? You are flirting with socialism in tis regard.
As for auctioning planning consents ~ who do you think might win the auctions ? The PLC developers of this world with their identikit houses ~ awful.
Let's face facts, within certain established parameters, you know more or less what may or may not be built near you. If you live inside the settlement boundary of a village, you may well see development ~ get over it, they are houses, not reprocessing facilities for nucler waste. If it bothers you that much buy the land and don't develop it.
But PLEASE don't ask the government to interfere with other people's rights to grant you special favours ~ this is statism. I appreciate I am in a minority on this one, but I do claim to be at least consistent (not that it did me any good in a village meeting recently when I was the only person of about 200 saying "Yes, let's have the new homes"
August 19, 2010
This makes a lot more sense than the proposals set forth above. What on earth is going on here – paying people so that a developer can build houses near to them? This is absolute lunacy, it's corruption by the back door.
If people want to live in isolation build a house in the country, otherwise accept you live in a town / city / village, that we have an expanding population, and our options are either build more houses or stop immigration (impossible without leaving the EU) and somehow force people back into a 1950's mentality of never divorcing or having children out of wedlock.
In other words we need to build more houses. Remove obstacles in developers ways and let them get on with it.
Like so much this government seems to be doing you're tinkering round the edges with no apparent appetite to take the tough decisions. I honestly think we're going to be no better off than if Labour had won, it's that bad.
August 19, 2010
How a transition to LVT could work fairly depends on whether you think the present system works fairly: the idea that young workers and entrepreneurs setting up in an area with opportunities have to pay 200k for the right of residence ,as now,does not strike me as fair.(Though there are those who call this freedom)
The smoothest transition to LVT is the original proposal (in English) by J.S.Mill only to tax land values when they go up.So there is no attempt to extract past unearned capital gains in property values. This has been dubbed the Sentinel Tax form of LVT because it lurks in the background and is triggered by land price inflation .
It could be that this form of LVT would not raise much revenue because people would stop piling into property .This revenue shortfall would be a good thing in the larger context of people getting cheap houses and business premises in areas which are on the up.Then spending larger disposable income (after smaller mortgage deductions) in the shops.
It would also mean you could pour cheap credit into the economy without allowing "house prices to get out of control and put at risk the sustainability of the recovery" Gordon Brown 1997.
August 19, 2010
John,
You seem to be dancing round the rather obvious implementation of a property tax?
Possibly a simple rated charge per acre on undeveloped land gauged to make it uneconomic to hold large quantities of undeveloped, non productive land? Make it so the tax is revenue neutral by putting all extra money to lower the business rates.
A system that is common in most USA States.
August 19, 2010
option 1) What do you do if the existing homeowners still do not want the construction to take place, or if they refuse the payment, just ignore their wishes? Who decides how much is appropriate compensation?
option 2) an auction of planning permission for a given piece of land would be pointless, as you point out. Most councils do however have a target for how many new homes they want built. There would be nothing to stop the council auctioning off that many planning permissions, to be used in appropriate plots. If people had appropriate plots of land, the could bid. Easy.
option 3) As has been pointed out numerous times by other contributors, there is already a tax levied on those who own property. If LVT is a "rental charge" then so is council tax. Remove council tax and replace it with LVT set so that it captures the same amount of revenue. Over time you can then abolish other such taxes and increase LVT in line. This will help prevent housing bubbles, ensure that people do not get massive windfall gains and over time will bring housing prices down to the point that they're affordable.
The benefit of option 3 is that getting planning permission is no longer an unalloyed gain – you face a higher tax charge, so there's less incentive to seek to bribe local councils (whether by 106 arrangements or by brown envelopes stuffed with cash) to get it passed.
As you may have guessed, option 3 is my preferred way…
August 19, 2010
Tim Leunig's auction idea has been around for some time…
August 19, 2010
As an architect I am deeply mired in the existing planning system. I describe it as a system because it has become a systematic robbing of freehold rights, not only by the State, but by various special interests including the ‘green’ lobby. All this looting went on splendidly while there was inflation in the property market but I know of several schemes for housing that will not be built because of the huge expense in simply getting planning consent and the Section 106 demands – 40% affordable housing, highway contributions, archaeology costs, playgrounds, sustainable drainage systems, newt sanctuaries– the list goes on and on.
Now that the property bubble has imploded can we all begin to understand that there is no hidden pot of gold for the State to carve into any longer?
I think that the owner of a property should also have rights. If we had a decent set of agreed design codes for polite development coupled with direct compensation to affected neighbours (as suggested), the State could withdraw almost completely from the land piracy it engages in at the moment!
August 19, 2010
I am sorry to say that, from my reading of John Redwood’s diary this week, I do not believe that most of the correspondents, and maybe John Redwood himself, understand what is entailed in the 40% affordable housing that you mention. It is a massive tax on what John Redwood called ‘windfall’ gains which, as you say, is now strangling new residential development.
Rory
August 20, 2010
This is the most regulated and messed about private sector that over the last few years generated profits only from property inflation. The government was the greatest beneficiary in this through S106 agreements, capital gains tax, VAT on construction, stamp duty, local property taxes…and finally Inheritance tax.
Seems to me as though the windfall has already been scraped out together with the apple tree!
August 19, 2010
As I understand it, infrastructure is not a planning consideration. So if there is an infrastructure impact as a result of a planning approval who pays for the consequential infrastructure improvements needed?
August 19, 2010
A company I worked for once paid £50K on a section 106 for a new newt sanctuary and precisely five of 'em took up residence ~ £10K a newt seemed a bit lively to me!
August 20, 2010
All levels of government are good at spending other people's money…and no price is too high if you are saving "the environment".
August 23, 2010
40% affordable housing
What's wrong with that? New technology mean that all goods should become more affordable over time; this is a good thing because it makes us all richer. It's perfectly possible using modern technology to build a house for £20,000 (see http://cabalamat.wordpress.com/my-policies-housin… for details), which is well within anyone's budget, so 100% of housing should be affordable.
August 19, 2010
Your first proposal already exists in many areas in the form of restrictive convenants, a significant proportion of which are ancient and are merely an income stream for some previous, long disasssociated landowner. Reasonable release from such covenants is unusual, the norm is a form of long winded extortion.
Your general point is sound though, e.g. why should a neighbour particularly with party walls be subject to massive work on adjoining properties without compensation.
Your suggested proposal could fairly replace restrictive covenants older than say 50 years.
August 19, 2010
Others have thought about this far more than I, but I have heard proposed a simple transition arrangement:
Given that the imposition of LVT would be countered by a reduction in other forms of taxation (opinions differ on which taxes should be cut and in what order, of course), and the result should be fiscally neutral, we could simply have a transition period where an individual would be free to select to remain paying tax in the current manner, or opt into the new, simplified system of LVT (where the aboltion of council tax and a range of other taxes for them would make it more-or-less neutral).
Personally, I'd like to take that further and totally simplify and reform general income taxation too, removing swathes of allowances, special dispensations, and so on, and settling on a lower %age rate which without the myriad of exemptions, can easily result in the same if not a higher tax take for the State, all the while costing folk less to manage an making it all much easier.
Potentially the type of transition period alluded to above could cover this, too – you either elect to stay in the current system, or join the newer, simpler system of LVT and a tax-all-but-at-a-much-lower-rate income tax (etc).
AVI
August 19, 2010
local governments could actuively
– identify land that is suitable for development, but currntly with no permission (either specific sites or areas)
– buy that land in the open market, at market prices, either opportunisticaly or by making unsolicited offers
– then grant itself planning permission
– then sell it again at the open market.
this activity could be undertaken alongside conventional processes that we have now. The council might need to to be covert about buying land – using some kind of go between to as not to reveal identity and inflate the price.
As transactions are conducted on the open market between willing buyers and sellers, so no no government coercion.
yes, of course, councils already do this to some extent, but I am advocating doing as policy as a desirable way to capture planning gain for the community.
August 19, 2010
This smacks of "Insider dealing"!
August 19, 2010
A land tax is a different subject altogether to the discussion on planning gain. One is a tax on the value of land the other is a discussion of how the capital gain made by a landowner when given planning permission can be reduced.
As for describing the land tax as giving the freehold away, how is this any different to the current council tax?
Obviously you are not in favour of land based taxes, the landowning classes generally do not.
August 19, 2010
Having known people disposessed of their property (only asset after bankruptcy) for failure to pay council tax, LVT could never be desribed as worse than council tax. In fact its more preferable because it captures the value of local amenities to the plot of land on which a house sits (or for business premises, the value of having a lot of residential property nearby.)
Council tax & property related taxes are bad because they take into account the value, views, number of rooms, garden space etc.. etc.. of the property. By simply using the plot of land a property sits on (or more importantly the plots of land PEOPLE sit on until prices shoot up) you encourage development and useage of land which in turn lowers the tax per property as supply meets demand. If additional local amenities are also put in place alongside new development, the tax per property would remain fairly static and the tax base and therefore tax revenues would increase.
Non-doms can't take the ground from under their feet with them too so its win win. If they rent for the short periods of time they are in the UK, they are helping the landlord to pay the tax bill on the property they rent.
August 19, 2010
I’m not sure of the point of these posts on planning policy.
We have planning policy because they provide a means of controlling development, thereby preserving the best of the past and creating a democratic framework for the type of landscape in which we wish to live. This often doesn’t work very well but it a noble and perfectly respectable conservative aim of preserving the best of what we have whilst incorporating new needs.
If this debate is about how we build more house then we ought to stop and ask what is driving the housing demand (immigration being the biggest factor but there are others) and how much of this demand can be controlled, before asking how best to supply the demand.
August 19, 2010
Planning policy suffers from arbitrary application of rules (particularly on matters such as density levels, green space and height of buildings where measurable standards should make application simple) with a lack of thought on long term sustainability; the latter is most evident in London where, for example, no one has really seriously considered how school places are to be provided to support the occupants of all new proposed housing developments. Planning gain ought to be set aside to pay for the infrastructure of school, roads, hospitals that will be required to support the significant levels of development that are currently being proposed.
August 19, 2010
The problems I can see with LVT are (a) it's a tax on capital which may or may not have in income stream to support it, so in effect you are confiscating peoples' property and (b) perceived or agreed Land Value might well increase drastically, bringing vastly increased taxation, though changes which are outwith the control of the owner and which in fact they may have opposed bitterly – example a major shopping centre or transport hub gets built round the corner. This is obviously inequitable: people need to have some sort of confidence of what taxes are going to hit them, a random possibility of a huge hike at some unpredictable moment is not acceptable.
Incidentally, where is Mark Wadsworth when you expect him?
August 19, 2010
COMPENSATION FOR LOSS OF AMENITY
If compensation is to be paid for loss of amenity then it should not be limited to "homeowners"; commercial interests should also be compensated. Or, perhaps better than compensated, protected from detrimental consequences of adjacent development.
For instance, say a housing estate built next to an industrial estate gives rise to complaints from home owners who seek to prevent industry from doing what they have previously been doing. Objections about noise would be a typical. Arguments along the lines of "if you don't like the noise you should not have moved there" do not seem to hold much sway in a tribunal.
August 19, 2010
"The full scheme replaces some taxes with a rental charge on all property payable to the state. … I have never seen a satisfactory explanaiton of how the transition would be handled fairly, given the huge numbers of property claims that underpin the banking system and the current pattern of widely spread property ownership."
Given that you were the local government minister (I believe) at the time precisely that kind transition took place (when the Community Charge was replaced by Council Tax), I would have thought you would be well placed to offer that explanation from experience.
August 19, 2010
"The full scheme replaces some taxes with a rental charge on all property payable to the state. It is therefore a more penal tax on all those who have already bought freehold interests in property, and may still be paying off the bank loan or mortgage, as their freehold effectively is taken away from them as the state becomes their landlord."
Sure, so let's have discounts or reductions for recent purchasers whose house falls to a lower value than what they paid. Even with a full-on LVT to replace all other taxes (income tax, VAT, National Insurance, corporation tax), people who bought ten or more years ago would still be sitting on a capital gain.
And if this tax is 'penal', then is not income tax even more so?
August 19, 2010
"I have never seen a satisfactory explanation of how the transition would be handled fairly, given the huge numbers of property claims that underpin the banking system and the current pattern of widely spread property ownership."
Others have already made their own suggestions for the transition (all of which we can incorporate), to which I would add:
1. HMLR already holds enough info on selling prices, locations and plot sizes to be able to determine land values within a tolerable margin of error.
2. For a start, let's replace all existing land or wealth related taxes with a flat tax on site only land values. On a fiscally neutral basis, replacing Council Tax, Business Rates, Stamp Duty, Inheritance Tax, Capital Gains Tax, Insurance Premium Tax and the TV licence fee in their entirety would require a 1% flat tax on total buildings values (like Domestic Rates in Northern Ireland) or even better, a 2% tax on site-only land values (i.e. value of bricks and mortar is deducted for valuation purposes). Preferably averaged out over postcode sectors or whatever.
August 20, 2010
4. One group would be clear winners from this, and that is businesses – instead of businesses and their employees having to hand over about half the wealth they generate (in VAT*, National Insurance, income tax, corporation tax and Business Rates) the total tax generated from businesses and commercially used land and buildings would go down by about two-thirds, and the UK would be a veritable magnet for inwards investment. Hurray! What's not to like?
5. As to 'property values underpinning banking system', aren't wildly inflated land values and a heavy tax burden on businesses how we got into this current mess? Isn't that something worth avoiding in future?
* Obviously, we'd have to leave the EU first, but that would be A Good Thing in an of itself.
August 19, 2010
We attempted to present LVT to to Mr Redwood in his office some time ago. We were told explicitly not to talk to him about moral values. "you are wasting my time talking about morals, please leave now, I will not get elected if I talk to my constituents about morals". All we had attempted to say was that some people receive an income without doing any work from “unearned incomes” in the private exclusive ownership of land. And the people “earning” their incomes by doing actual work pay for that tribute. We walked out in disgust though understood his point politically.
The point is that not doing this is both impractical and immoral. The system always collapses evidently if we do not make the change. Objecting on practical grounds is rather silly if the status quo is more impractical. If its also immoral then all the more reason to change.
Actually there are many ways to make the transition to a just tax system that stops confiscating earned incomes and starts collecting the unearned incomes for public purposes. By far the largest part being the tax free annual rental values in the land of about $400bn annually. Enough to fund government. Our proposal is known as Land Value Covenants. It differs to traditional LVT in that it is voluntary, needs no valuations, does not collapse the banks and is politically practicable because it is voluntary. If you benefit from it do it. If not walk away. If the transition is the only remaining issue here then make the offer just beneficial for most people. LVT meets all the canons of taxation anyhow so it is always superior. See here for detail: http://www.systemicfiscalreform.org/Home/land-val…
Collecting the economic rent for public purposes will not solve all problems as is often claimed But it will sure as hell make everything else so much easier.
Reply: I do not recognise the quote you attribute to me. As we see from comments here, there is no agreement about what level of LVT would need to be imposed or how much tax revenue it would replace, and no commment on the impact on values and banking collateral, crucial to the whole economic system as it currrently runs. I understand why some of you do not like the current system, and why you think there could be a better system, but transition methods and detail of costs and prices are crucial to persuading more of us you are right.
August 20, 2010
Actually replying to Mr Redwood's reply to Cllr Smith.
During the recent stress-testing of banks ,we were told that they had been tested to see how they would hold up with various percentage falls in house prices.Therefore the Guv already knows what level of house price adjustment the banks can cope with -and could levy LVT accordingly if it wished.
Robin Smith was right to mention moral values.Something is deeply immoral about the Wage Inflation bad/House Price inflation good state of mind that pervades British politics .My local MP( public-school Labour )got very nasty when I suggested LVT because she assumed even the upwards only Sentinel Tax would lose her votes.(Not just LVT: she was frightened to be associated with anything that might restrain House Price Inflation.) She lost anyway-to another representative of the Homeownerist interest which believes in keeping house prices rising in order IMO to disguise the steady decline in real-wage levels in the UK.
There is also the issue that rises in land values represent something for nothing which right-wing people usually wax indignant about.
August 22, 2010
Addition to above.
It must be obvious that if politicians are scared of even mentioning the need to control house price inflation,the same way that they openly boast of controlling wage inflation (That Maggie. At least she tamed the unions!)
then democracy has ceased to function. The House prices must always rise coalition of the three major parties leaves us with the kind of bourgeois democracy that the Communists and Fascists sneered at in the
Thirties .
August 19, 2010
I too have yet to see a sound explanation as to how LVT could be applied in a fair manner: valuation would inevitably be capricious, subjective and open to influence. Those who say that our existing tax system has many failings and therefore it should be replaced by another system of uncertain quality do not have a logical argument.
There is no logic for the state to cream off added value from planning permission for itself. That provides an incentive for the state to ration permission in monopolistic behaviour, and to use it as a part basis for totalitarian control.
The issues we really have to decide are 1) How should we be influencing our population trends through the immigration policy we set and the incentives and disincentives for having children; 2) How do we deal with the wider planning issues if we aim to grow population in terms of locating housing and supporting infrastructure ("new towns" vs. your back yard etc.); 3) How do we seek to improve our existing housing and infrastructure. These cease to be purely local questions.
I think it is clear that there is a large majority in favour of much tighter immigration control across almost all the political spectrum. Achieve that, and we end up really only having to tackle 3) above.
August 19, 2010
Mr R, Sir. Your last paragraph, is with a ll respect, cobblers. On nearly everything we see eye to eye but you have singularly failed to understand LVT properly. All the factoids you quot can be easily dealt with by various other adjustments. Personally as a freeholder of a vlauable property with a low mortgage I'd much rather pay say 1% of the unimproved land value p.a. than I would pay all the taxes LVT would replace, like council tax, VAT CGT IHT etc etc. Furthermore, the primary purpose of the State is to secure the property rights of its citizens. FRom that you could argue that the purpose of the state is to secure landownership rights. Why not tax that 'right' so it can be defended? And LVT is NOT land nationalisation.
Reply: if the LVT were that low it would not replace all the taxes you imagine. We would all like to pay less tax, but that requires lower spending, not a different tax. I have asked people to write in and explain – with figures – how LVT would work and how the transition would be handled.
August 20, 2010
Lola would have to delete VAT off his list. To replace VAT (the worst tax of all) would require the rate to be at least 2%.
But a 1% rate on residential would comfortably replace Council Tax, Stamp Duty, Inheritance Tax, Capital Gains Tax, Insurance Premium Tax and the TV licence fee.
August 20, 2010
JR-what you refer to in the first proposal is taking the "planning gain " as a so called "commuted sum" (you are correct , — this can be done under the current legislation ) rather than as section 106 based infrastructure /service development.. In many such cases the commuted sum is not in effect privatised, but retained by the Planning Authority (most often the local Council).
What this debate boils down really is (in part )a political choice (nothing wrong with that !),– as a strong supporter of free markets you favour returning the commuted sum as cash to those most affected by the development. Those of us of a more Leftish persuasion will probably prefer the traditional 106 or for the commuted sum to be retained by the Local Authority.
There is a practical angle though, as I said in a previous post , any new housing development will require more school places, more parking management, more health provision and in the fullness of time , more social care provision., etc. etc. If you completely "privatise" the commuted sum, –a greater burden falls on general taxation.
Reply: I am saying do both – offer compensation to individuals to speed the planning permission, and S 106 for associated infrastructure. Time is money with permissions, and you also save the lawyer and planning consultants fees for the battle to get the permission.
August 20, 2010
Make standardised units of permission (1 unit = 1 small flat) transferable to any piece of land, make them tradeable too. Have a LVT too, it can't be any more complicated that the current system of tax/benefits and regulation.
Everyone who wants to buy a home registers their interest, gvt auctions the approriate number of permissions, buyers buy them and use them as a deposit to buy from the plc developers off-plan.
It's really not as complicated as some of the things we already do. If we can turn dodgy mortgages into AAA debt to make house prices go through the roof and cause a major recession, surely we can unstick the market to get back on the path to sustainable growth.
Letting the bubble down against a background of a savings-fuelled construction boom and real GDP growth makes a lot more sense than this funny-money interest rate manipulation and a decade or two of stagflation and decline (unless high house prices are your main priority).
August 20, 2010
Well I have a witness that will confirm what I quoted. I don't expect you to remember everything and respect that you do far more than most MP’s in your public responses. Thank you.
There IS agreement on the level of LVT: As close to 100% as possible. In the end. But it can start off low and work up to full rate. This can be done on a voluntary basis using an LVC above so political road blocks are not an issue… unless we want politics to interfere?
We HAVE said how much it would raise: £400bn today but why does that matter, it will be more than tax can raise now. And we could also remove £200bn in dead weight from the tax and welfare bureaucracy… in the end. What’s not to like?
We HAVE commented on the impact on banking’s balance sheets in the Land Value Covenant link above. It would have a big impact of zero! Incidentally, the value of the land and labour are more crucial to the economy than banking surely?
All the things you keep repeating need more evidence are all resolved. I call this psychology the need for infinite evidence. The choice here is a moral AND practical one. Is it right that one can do no work at all, produce no economic wealth at all and receive a huge income? Is it practical for this class to remove more wealth from the economy than must be there to sustain it? Choices we can avoid evidently (credit crunch) at our peril. Do we need any more evidence that we must immediately start to make better choices?
We offered this proposal to the Treasury in person a few months back. They agreed it made sense. And thought it might work subject to the issues that you also mention. But the real issue for them was this: they told us not to offer them anything radical. If they took anything radical to the Minister , they would be fired in the morning. Yet if we need to make Real Change what else can it be but radical?
I’m happy to discuss the Land Value Covenant idea at your office anytime? Or it maybe easier at your local pub in Wokingham.
August 20, 2010
The first system, your proposal, is very much the best option. In some instances, the compensation awarded will turn a proposed development from a profit maker into a loss maker, and the development will be cancelled. That is as it should be.
August 24, 2010
I hope you get this right John you are spending a lot time thinking about it and talking about it on your blog, one might ask why it is so important to you!!