1 thought on “The Resolution Foundation’s ‘Citizen’s Inheritance’ would be like Help To Buy on steroids”

  1. Posted 16/05/2018 at 10:27 | Permalink

    Leaving to one side that the Resolution Foundation’s proposal isn’t a good idea, it’s not true that the £10K one off payment will raise house prices.

    Land values arise from differences in locational productivity, which in turn makes average incomes in one part of the country higher than another. It is these differences that get captured by rental incomes thus selling prices.

    If young people in every part of the UK get the same amount in a Citizens Inheritance, there will be no changes in the differences between average incomes, thus rents/selling prices won’t change either.

    The reason Help to Buy was a bad idea is because it was based on percentages of selling prices, which would indeed have seen differences in the amounts people could spend between different locations. On top of that, in London the % of the equity loan was doubled to 40%. So of course, this would have been capitalised into higher selling prices.

    Ricardo’s Law of Rent also gives us the solution to the housing crisis. A 100% tax on the rental value of land acts to rebate back in full to typical working households, that part of housing expenditure that currently makes it unaffordable. As a group, their disposable incomes go up by around £10K per year, while those of landlords, lenders and economically inactive/foreign property owners fall by a concomitant amount. This transferring of incomes back to working households would therefore lower selling prices by an average of two thirds, making housing >3.5 times more affordable for typical working households, as measured by ratio of discretionary incomes to prices.

    Such a tax would also allow the market to optimally allocate existing stock, eliminating excessive vacancy and under occupation.

    It’s silly to talk of shortages until this is sorted out first.

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