A taxing question for California

How mobile are the world's billionaires? 

It's the perfect time for researchers to investigate the question. Brazil, Spain, France, South Africa and the US are all mulling proposals to raise taxes on the world's richest people. Many others have raised taxes on the wealthy to plug holes in their balance sheets following a period of enormous spending during the pandemic. 

Next week, California voters will decide on Proposition 40, which would impose a one-time tax of up to 5% on the taxable net wealth of billionaires who were resident in the state on January 1. It would cover assets including stocks, art and stakes in private companies, whether or not they've been sold. Directly held real estate would be excluded.

Capital flight

There has been lots of noise regarding capital flight in the run-up to the vote – Bloomberg published a good piece earlier today. Tech giant Meta issued a new class of stock to investors that would enable founder Mark Zuckerberg to sell shares to pay Proposition 40 without diluting his voting power. Alphabet co-founder Sergey Brin and venture capitalist Peter Thiel have also "taken steps to move", according to the Bloomberg piece. 

Are these isolated examples or part of something broader? Research by Benjamin Jaros and Joshua Rauh, economists affiliated with Stanford University’s Hoover Institution, suggests its the latter. California's billionaires contribute $3.3–5.8 billion annually in state income taxes, the pair estimate. Proposition 40, they say, would collect approximately $30 billion, less than a third of the $100 billion projected by the act's proponents. The figures account "for the publicly confirmed taxpayer migration that has already eliminated nearly 30 percent of the Act's wealth tax base."

These departures more than offset the one-time wealth tax revenue. Rauh and Jaros put the net present value of the act at about negative US$38.9 billion. And they've been thorough: across 100,000 simulated revenue and discount rate combinations, 85% of plausible outcomes produce a negative net present value for state revenues.

Set patterns

The UK housing market continues to tread water. House prices were unchanged during October, which is a slight improvement from September's 0.3% decline, according to Nationwide figures. That brings the annual rate of growth to just 0.5%, from 0.8% last month. 

The mortgage market is telling a similar story. Lenders granted 53,400 mortgages to homebuyers in September, down from 54,900 in August and below the six-month average of 58,800, the Bank of England reported yesterday. 

These patterns look set for the time being, given the Bank of England is set to embark on a precautionary tightening cycle in November. Leading fixed-rate mortgages have climbed from about 3.5% in February to about 5% today and are likely to be locked around that level until the energy shock shows some signs of easing. 

Critical support

Chancellor John Healey avoided many of his predecessors' pitfalls by delivering a low-key Budget. The UK’s ten-year borrowing costs dipped by 0.05 percentage points to 5.3% following his speech, making the UK the best performing debt market on Wednesday.

Knight Frank's Tom Bill and Blick Rothenberg CEO Nimesh Shah take just 30 minutes to dissect everything relevant to the housing market in a new edition of Housing Unpacked. For a commercial real estate focus, we've condensed all the relevant announcements and the implications here. 

Shares in UK housebuilders fell pretty heavily on Wednesday following the announcement of Your First Home – essentially erasing gains made after the announcement that it was coming. The is expected to provide an initial £4.7 billion in equity loans to first-time homebuyers, which is less than 20% of the total lending handed out over the life of Help to Buy, writes Bloomberg. That piece quotes Knight Frank's latest survey of small and volume housebuilders, 94% of whom say buyer support is critical to getting the housing market moving – we'll have much more on that next week.

In other news...

UK Buy-to-Let Investors Sell Portfolios After Years of Tax Rises (Bloomberg).