By Michael Brett
The name of the game in recent years for both Labour and Coalition governments has been to keep the house price boom going at any cost.
People feel good about life and their government when the value of their house is rising. Rocketing prices are not such good news for would-be buyers, but these are smaller in number than the owners. Their pain is politically important, but less so than the joy of those already on the so-called housing ladder.
Thus political considerations are largely responsible for the socially and economically disastrous state of Britain’s housing market. Unfortunately they are also likely to rule out some sensible moves that could improve the situation.
The housing problem falls into two main but interlocking parts. There are not enough houses available in many areas for the number of people who need somewhere to live, regardless of whether they are would-be renters or buyers. And the price of houses puts them out of the range of most of those who would like to buy rather than rent or live with mum and dad.
The second problem has been exacerbated by government-manipulated unrealistically low interest rates and various schemes to help buyers pay much more for houses than they would be worth in a less-rigged market.
But underlying the British housing problem is the perception of a home as an investment as much as somewhere to live. Reduce the perceived investment attractions and a fair bit of the heat would go out of house prices.
Would any government have the guts? I doubt it, but it is difficult to see any alternative solution other than chipping ineffectually at the edges of the problem with increased homebuilding.
It wouldn’t be so very difficult. Announce that you have decided to abolish Capital Gains Tax but, to maintain government revenues, replace it with a Wealth Tax. This would be levied annually and calculated as a percentage of an individual’s total assets in the UK including (and this is the vital part) the value of his home if he owned it.
The disadvantage of a wealth tax – that it does not relate an individual’s tax liability to his ability to pay – might be a positive advantage, though it would be painful.
Owners of homes that are too large for them might find it difficult to pay the tax and would thus be encouraged to move out and downsize. This would make property available, perhaps for conversion into smaller units, which would help to ease the shortages.
And foreign buyers who are taking over swathes of central London to the detriment of the capital and of those who need to live in it would face a double whammy. Their London “investment” would be costing them money in Wealth Tax, while the prospects for future growth in value would be much reduced in the new climate.
And personally I’d make any use of the term “housing ladder” an offence punishable with a term of imprisonment. But that’s probably a pipe dream, too.