Sunday, February 6, 2011

The clearest logic yet spoken on the housing market

Why must we make the same old policy failures in the housing market?

Banks should not be pressured into increasing mortgage lending in order to get more people into the housing market. This argument suffers from "the fallacy of composition". For an individual, the availability of more money may help them to become a property owner, but this is not true for the population as a whole. The supply of housing is fixed. An increase in mortgage lending will only generate higher house prices. What's more, if the Government makes special provisions for particular groups in society that it believes deserve support, such as first-time buyers or so-called "essential" workers, rather than improving the overall availability of housing, this only shuts out others deemed to be less worthy.

Posted by drewster @ 11:55 PM (2564 views)
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15 thoughts on “The clearest logic yet spoken on the housing market

  • mark wadsworth says:

    Roger B is top man:

    “all that lower construction costs will do is to increase the price of land, leaving house prices broadly unchanged.”

    and a bit further down:

    “If the Government wanted to be really radical, though, it would end the ludicrous subsidies to owner-occupiers – the exemption from capital gains tax and the absence of tax on the imputed rent from living in a property.”

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  • The untold truth is out in the mainstream.

    Very good article, if only someone would listen.

    This paragraph caught my eye :-
    It is supply, not demand, that determines the availability of property. Demand determines the price.

    RB doesn’t really get into the unfair advantage a btl landlord has over a ftb in terms of initial pricing considerations.

    I know if worked out correctly the landlord doesn’t have that much of an advantage, but enough in the early stages to snaffle up the property of others.

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  • I liked this bit:

    “The trouble is that ministers want to be seen to be active. And artificial schemes to boost demand, or to advance the interests of some special group or other, are easy to implement and sound good. Who wouldn’t want to “help” the nurses? In fact, lower paid workers have been shut out of the market largely as a result of government policy, which is one of the leading causes of sky-high property prices”.

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  • ‘If the Government wanted to be really radical, though, it would end the ludicrous subsidies to owner-occupiers – the exemption from capital gains tax and the absence of tax on the imputed rent from living in a property.”

    True that homeowners are getting a ridiculous subsidy via ZIRP, let’s hope that ends soon. I can’t be the only one who sees any kind of wealth tax as double-dipping and morally abhorrent though. One of the commentators cites Switzerland as imposing a wealth tax but it’s a very low rate (progressive up to a max of 1.5%, think I paid 0.01%) and their income taxes (which differ by canton) are low, which I can’t see happening in the UK. They don’t mug ordinary hardworking professionals in Canton Zug, most of us working at the pharma company got to keep about 80% of what we earned.

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  • mark wadsworth says:

    A Saver, land values are not “wealth”, they are the benefit arising to an individual as a result of a social contract which is a corresponding burden on the rest of the nation; and notional rental income from owner-occupation is no different to any other kind of rental income. Land is the one thing you can merrily tax without driving it abroad.

    PS, Switzerland is a good example, they still have a modest Schedule A tax and also lower income tax – this makes the place much more attractive as somewhere to locate to. The Sch A tax costs the newcomer absolutely nothing as it depresses rents and house prices in equal and opposite measure, but the lower income tax benefits him exactly as much as you think it does.

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  • There is also the question of wealth distribution. Land “wealth” is very unevenly distributed – the majority in this country is held by a small proportion of the population. But it does not end there. Income is not a reflection of wealth creation but of economic power. Taxes in part redress the resulting imbalance. When someone talks about being “mugged” by taxes and “hard-working”, what they really mean is they wish to defend their privilege.

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  • Hi, this is an off topic, but can anyone tell me which free website provides up to date house price details. At present most of them appear to have no transactions after mid-2009. Can someone please help.
    As regards the article, politicians will always make the same mistakes.

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  • mark wadsworth says:

    House, I find that the quickest is houseprices.co.uk. It appears to show sales up to about a month or two ago and is updated regularly (fed directly from HMLR).

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  • One underlying point in this article is that the regular election cycle of democracy prevents politicians from implementing decisions which will cause economic pain to people in the medium term but is much better for them in the long-term. This poses the question of whether the Chinese way of doing things, ie having a bunch of unelected bureaucrats in power to focus on the country’s long-term direction, is better. And then we read that the Chinese are happily inflating their own property bubble…

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  • @7 house

    You might find nethouseprices useful as well. Decent front end and offers filters on the data.

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  • As has been said: the ludicrous support to owner occupiers in the form of CGT

    We (I’ve) been saying this for some time.

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  • lethemfall @6 said ‘When someone talks about being “mugged” by taxes and “hard-working”, what they really mean is they wish to defend their privilege.’
    How is being taxed at 50% (income tax + nat insurance that doesn’t get you anything) at anything above 37.4K of income being ‘privileged’ (not to mention council tax, petrol etc)? You can pay tens of thousands in income tax for decades then get sick or old and the State will give you about 4k a year to live on. I think people in this country have just got used to the notion of higher rate taxes being ‘fair’ in some way, whereas they are actually a major disincentive to developing your business any further. Come to think of it I did feel amazed and privileged at keeping so much of what I earned in Switzerland.

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  • a saver

    I tend to agree that taxes are too high on lower incomes, and the salary at which the higher rate starts is hardly a fortune. But on the other hand, remember that we have a regressive tax system, and those on low incomes pay a larger proportion in tax. If one is in the higher tax band, one is relatively privileged compared to the half of the population who earn £25k or less.

    If you think about it we do get a lot for our tax, though obviously this is a matter for debate (and we all fantasise what our pay would be without deductions). I’m sceptical that taxes are a disincentive to expand a business. Bigger business generally equals more money, and the richer you are the smaller your overall tax burden. The tax system as well as the economic structures in this country favour the rich, which is why income is becoming more polarised now. The comparative success and well being of those European countries with a more equitable distribution of wealth (and pretty high taxes that ensure this) suggests that reducing tax on higher earners is not a good idea at all.

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  • Just build more – and get on with it..

    ..everything else will then sort itself out

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  • Mark W,

    In this article Roger Bootle talks about “imputed rent“, which is the rent (not) paid by an owner-occupier to themselves. If imputed rent were taxed, would it be closer to Business Rates or LVT, or something else entirely?

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