The UK keeps sinking deeper into property inequality – and it's not alone

Oh, good, more luxury flats. Image: Getty.

Outrage has been mounting over the untaxed incomes of the global elite, foreign ownership of urban land and soaring rents in the private rental sector. Much of this boils down to two key matters: who owns property, and how they are treated.

The UK, it seems, is a place that makes it very easy for individuals to generate a great deal of wealth from property, with little concern for social justice or the provision of affordable housing.

But this problem is not uniquely British. Across the world – and particularly in many developing countries experiencing fast economic growth – capital is flowing rapidly into real estate. And increasingly, governments are waking up to the need to effectively capture some value from these investments, for the public good.

Yet, as my research shows, this can be extremely difficult to achieve due to complex historical legacies around land, as well as deeply entrenched vested interests.

Consultants from the UK and other rich countries are often the first on hand to provide advice and propose systems of property and land taxation, to enable governments in poorer countries to bring in revenues that reflect the real value of developments. Meanwhile, ironically, the UK’s primary property tax – a monthly “council tax” paid by residents to local authorities – remains scandalously out of line with modern property values.

House prices are rising – but council tax isn’t. London, 1995 to 2015. Image: Alasdair Rae, University of Sheffield.

Of course, property inequality looks very different in British cities than it does in cities in developing countries. In many African cities, a clear majority of people live in slum conditions, the like of which are (thankfully) consigned to the past in Britain. Yet the property markets are being transformed by very similar processes.

International capital flows are central in both cases: wealthier migrants from low-income countries now based in the US and Europe often channel their earnings into untaxed property back home, while the UK solicits property investments from footloose international elites. Whatever the context, the outcome is largely the same: luxury properties abound, often unoccupied and almost always undertaxed, while governments fail to provide proper incentives for developers to invest in cheap housing.

These issues are particularly concerning in poorer countries, not only because of the scale of inequalities and gaping absences of affordable housing, but also because investments in luxury properties divert funds from other sectors, which urgently need capital to make the nations' economies more productive.

What to tax?

It seems clear that governments of both poor and rich countries need to find ways to reduce the appeal of massive investments in high-end property, and to spend more on housing and services for low-income groups. The question is: how?

Stamp duty is obviously one mechanism for capturing some of the value of property, but as this is a one-off payment it deals with only part of the problem. Updating the council tax is an important step in the UK – though this will be very politically difficult.

More fundamentally, however, simply updating council tax bands sidesteps major questions about exactly what we should be taxing when we tax property. Given the state of the UK property market, a proper debate is needed on these issues. But as this is also a global issue, the UN’s biggest conference on urban development issues in 20 years should also provide a forum for discussing this at the global level.

One possibility that has aroused significant interest is a land value tax. The idea is that public investments in infrastructure – rather than private individuals’ effort – make land valuable. So, the government should “recapture” this value for further public investment, by taxing property owners a proportion of the annual rental value of their land.

Less vacant land. Image: Sinkdd/Flickr/creative commons.

Some argue that taxing land also encourages people to use land productively, and deters speculation; in other words, if you are paying a relatively large amount of tax on a plot of land, you will want to make the best possible use of that land (by building a tall tower, for example), in order to maximise your profit.

By contrast, taxing buildings discourages investment and development, so many proponents of land value taxation argue that structures should simply be ignored. There is a certain progressive logic to this: for the most part, growth in land value provides a windfall to the owner, so it seems like a fair revenue to tax.

Should buildings be off the hook?

But a land value tax could have some undesirable consequences: exempting buildings from taxation encourages developers to build for maximum profit – and this often means constructing expensive, luxury residences for wealthy investors. What’s more, large buildings impose on the surrounding residents and public spaces in a number of ways which can be seen to warrant taxation – for example by blocking light, generating traffic and adding to pollution and noise.

In countries where forms of land taxation are relatively high, but building taxes small or non-existent, there is a tendency to speculate on buildings for which there is no obvious demand. This can be particularly harmful when there isn’t sufficient public infrastructure or services to support these looming edifices.


If we consider property tax as a means of redistributing wealth from the rich to the less well-off, then it makes sense to tax buildings. After all, why should one person be able to own a large, immovable asset without paying tax on it, when others pay tax on so many goods, services and incomes? Is it really fair for the residents of high-rise developments to pay a small fraction of a land value tax, regardless of the actual value of the luxurious apartment which they occupy (or, more accurately, don’t occupy)?

No – taxing property wealth is not only about taxing the windfall of increased land values: it is about acknowledging that the playing field of society is not level, and that the rich should pay more because they can. And it’s not just a question of social justice – it’s also about the kinds of incentives we want to create for investment, and the kinds of lifestyles that this promotes. We should not be so keen to encourage intensive investment in land that we exempt buildings – no matter how extravagant and unnecessary – from any kind of tax.

In many developing countries, innovative approaches to valuing and taxing property are being proposed and piloted, and concerted efforts are being made to overcome political resistance. The UK would do well to follow suit and bring its system of property taxation into the 21st century.

Politicians fear these issues, and public discussions about property tax has fallen all but silent since the Labour party failed to win the argument for a “mansion tax” at last year’s election. No solution is simple; but not talking about it won’t solve anything at all.The Conversation

Tom Goodfellow is a lecturer at the University of Sheffield.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

Seven climate change myths put about by big oil companies

Oil is good for you! Image: Getty.

Since the start of this year, major players within the fossil fuel industry – “big oil” – have made some big announcements regarding climate change. BP revealed plans to reduce its greenhouse gas emissions by acquiring additional renewable energy companies. Royal Dutch Shell defended its $1-$2bn green energy annual budget. Even ExxonMobil, until recently relatively dismissive of the basic science behind climate change, included a section dedicated to reducing emissions in its yearly outlook for energy report.

But this idea of a “green” oil company producing “clean” fossil fuels is one that I would call a dangerous myth. Such myths obscure the irreconcilability between burning fossil fuels and environmental protection – yet they continue to be perpetuated to the detriment of our planet.

Myth 1: Climate change can be solved with the same thinking that created it

Measures put in place now to address climate change must be sustainable in the long run. A hasty, sticking plaster approach based on quick fixes and repurposed ideas will not suffice.

Yet this is precisely what some fossil fuel companies intend to do. To address climate change, major oil and gas companies are mostly doing what they have historically excelled at – more technology, more efficiency, and producing more fossil fuels.

But like the irresponsible gambler that cannot stop doubling down during a losing streak, the industry’s bet on more, more, more only means more ecological destruction. Irrespective of how efficient fossil fuel production becomes, that the industry’s core product can be 100 per cent environmentally sustainable is an illusion.

A potential glimmer of hope is carbon capture and storage (CCS), a process that sucks carbon out of the air and sends it back underground. But despite being praised by big oil as a silver bullet solution for climate change, CCS is yet another sticking plaster approach. Even CCS advocates suggest that it cannot currently be employed on a global, mass scale.

Myth 2: Climate change won’t spell the end of the fossil fuel industry

According to a recent report, climate change is one factor among several that has resulted in the end of big oil’s golden years – a time when oil was plenty, money quick, and the men at the top celebrated as cowboy capitalists.

Now, to ensure we do not surpass the dangerous 2°C threshold, we must realise that there is simply no place for “producers” of fossil fuels. After all, as scientists, financial experts, and activists have warned, if we want to avoid dangerous climate change, the proven reserves of the world’s biggest fossil fuel companies cannot be consumed.

Myth 3: Renewables investment means oil companies are seriously tackling climate change

Compared to overall capital expenditures, oil companies renewables’ investment is a miniscule drop in the barrel. Even then, as companies such as BP have demonstrated before, they will divest from renewables as soon as market conditions change.

Big oil companies’ green investments only produce tiny reductions in their overall greenhouse gas emissions. BP calls these effects “real sustainable reductions” – but they accounted for only 0.3 per cent of their total emissions reductions in 2016, 0.1 per cent in 2015, 0.1 per cent in 2014, and so on.


Myth 4: Hard climate regulation is not an option

One of the oil industry’s biggest fears regarding climate change is regulation. It is of such importance that BP recently hinted at big oil’s exodus from the EU if climate regulation took effect. Let’s be clear, we are talking about “command-and-control” regulation here, such as pollution limits, and not business-friendly tools such as carbon pricing or market-based quota systems.

There are many commercial reasons why the fossil fuel industry would prefer the latter over the former. Notably, regulation may result in a direct impact on the bottom line of fossil fuel companies given incurred costs. But climate regulation is – in combination with market-based mechanisms – required to address climate change. This is a widely accepted proposition advocated by mainstream economists, NGOs and most governments.

Myth 5: Without cheap fossil fuels, the developing world will stop

Total’s ex-CEO, the late Christoph de Margerie, once remarked: “Without access to energy, there is no development.” Although this is probably true, that this energy must come from fossil fuels is not. Consider, for example, how for 300 days last year Costa Rica relied entirely on renewable energy for its electricity needs. Even China, the world’s biggest polluter, is simultaneously the biggest investor in domestic renewables projects.

As the World Bank has highlighted, in contrast to big oil’s claims about producing more fossil fuels to end poverty, the sad truth is that by burning even the current fossil fuel stockpile, climate change will place millions of people back into poverty. The UN concurs, signalling that climate change will result in reduced crop yields, more waterborne diseases, higher food prices and greater civil unrest in developing parts of the world.

Myth 6: Big oil must be involved in climate policy-making

Fossil fuel companies insist that their involvement in climate policy-making is necessary, so much so that they have become part of the wallpaper at international environmental conferences. This neglects that fossil fuels are, in fact, a pretty large part of the problem. Big oil attends international environmental conferences for two reasons: lobbying and self-promotion.

Some UN organisations already recognise the risk of corporations hijacking the policy-making process. The World Health Organisation, for instance, forbids the tobacco industry from attending its conferences. The UN’s climate change arm, the UNFCCC, should take note.

Myth 7: Nature can and must be “tamed” to address climate change

If you mess with mother nature, she bites back. As scientists reiterate, natural systems are complex, unpredictable, and even hostile when disrupted.

Climate change is a prime example. Small changes in the chemical makeup of the atmosphere may have drastic implications for Earth’s inhabitants.

The ConversationFossil fuel companies reject that natural systems are fragile – as evidenced by their expansive operations in ecologically vulnerable areas such as the Arctic. The “wild” aspect of nature is considered something to be controlled and dominated. This myth merely serves as a way to boost egos. As independent scientist James Lovelock wrote, “The idea that humans are yet intelligent enough to serve as stewards of the Earth is among the most hubristic ever.”

George Ferns, Lecturer in Management, Employment and Organisation, Cardiff University.

This article was originally published on The Conversation. Read the original article.