Michael Howard says that, if the Tories are elected, they will raise the Stamp Duty threshold to £250,000. He stated today that, when Labour came to power, the average house purchased produced a Stamp Duty bill of £900. Today, that bill is £1800. His proposal would reduce that bill to nil for all houses below £250,000.
I think this policy is flawed.
The principal reason that individuals, couples and "hard working families" struggle to purchase a home is not Stamp Duty, but spiralling house prices. At present, there is a definite pressure on prices of properties around the Stamp Duty threshold that was announced by Gordon Brown in the budget. Properties that might be offered at £160,000, which includes a lot of smaller and first-time buyer properties are actually being sold at or below the "150,000 threshold. Dramatically increasing the threshold might save those families a few hundred pounds in Stamp Duty, but it will take the lid off of prices and ultimately cost them more.
The real problem is with housing policy. The Labour party proposes to offer more low-cost and subsidised housing to this ridiculous group known as "key workers". This does nothing other than add fuel to the market by taking many low-cost homes out of the general market pool, denying them to all the other "hard working families" who work in offices, shops and so on, but are not key workers. As any half-witted economist will tell you, reducing the supply always has the result of increasing prices.
In my opinion, the way to make housing affordable to more people is not to tinker with Stamp Duty. Abolish it, perhaps – that would have a zero effect on the market – but I don’t see HMG abandoning that source of revenue. The way to make housing more affordable is not to subsidise certain groups when they purchase property – that, in fact, has the opposite effect. The only way to improve the position of house buyers is to increase the supply of housing by relaxing or changing planning laws and increasing the number of new homes being built, as well as encouraging older homes to become available in the market again. Increased taxation on second homes that are not rented out (we must encourage a strong rental market) would also discourage second home ownership or alternatively raise revenue from those who are the owners of multiple properties that are denied to the general market.
To me, it seems so obvious, yet neither Labour nor the Conservatives can do more than make policies that generate cheap pulbicity.
4 Replies to “Meddling but not changing anything”
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Another solution, or part of one, would be to try and break the long-held grip that the Southeast has on the job market. If demand is spread over more of the country the distribution of house prices should decrease as there are less people chasing houses at a local level. Not having thought this through to any great depth I’m not quite sure how you would achieve this (increased incentives for businesses to move north? Greater investment in northern airports? Lead by example – move more government departments out of London?).
A problem with relaxing planning laws is that you get a situation like my home town where house building is rampant but amenity development (shops, schools etc) is at least 20 years behind.
I do agree with increased tax for non-rented second homes. It would be a big step to stopping the prices rises associated with holiday homes that are forcing local communties to move apart.
Hey! That bit of ground you want to build on is at the end of my garden! Seriously you will have to get around the nimby crowd first. How are you going to do this?
Steve – clearly planning policy guidance needs to be strengthened with regard to amenity provision. Also, building needs to be encouraged where existing transport and other facilities are already in place before it is encouraged in other areas.
Tim – NIMBYism is a problem, for sure. I think it needs a change in social attitudes that will take some time to manifest itself. Those who have experienced the problems with purchasing a home, or have children that have had the problem, don’t seem to be much less NIMBYistic (new word! yay!) as a result of their experience.
I was all in favour of high-density urban housing on brownfield sites until one was proposed yards from my front door. It’s a sort of hypocrisy but a rational and finely argued hypocrisy.
About ten years ago I visted my friend who lives in the greater South East. Everywhere we went we saw new housing estates signposted, we even viewed a couple of show homes for a laugh. I asked her whether any new schools were being built. She didn’t know. Still haven’t been. But just at thatsnapshot we calculated that approx 1000 3 and 4 bedroomed houses were being built within about a twenty mile radius of her home. That’s an extremely large, or two good sized secondary schools that still haven’t been built.
I cannot understand why businesses will not move out of the South East. So much processing still goes on in areas of labour shortage and housing pressures.. When I worked via an International Employment Agency they moved payroll from Central London to Slough. Why?
Mind you, my current employer has payroll based on Merseyside and finds it more difficult to recruit there than for its core business processing in Croydon and Sheffield.
I was talking with some accountants at another Govt Department and they said being based in Leeds was ridiculous because they sepnt most of the time on the train to London to meet with policy people. and policy people won’t/can’t relocate because of the knock-on implications – stakeholders are either based in London or in places from where it is easier to travel to London than anywhere else – the same rationale that drives the venue of UK Blogmeets
For a laugh – I’m not sure of the unintended consequences – I would suggest that anybody who has been unemployed (not sick/disabled or retired) for more than a year and living in social housing in an area such as London should be forcibly moved to areas where social housing is lying empty. I already know some drawbacks, but it would scare the bejeezus out of a good few people with whom I’m acquainted. And improve the quaity of local schools, too…!