...a blog by Richard Flowers

Thursday, August 07, 2008

Day 2775: Mr Frown Stamps on Housing


Great Britain has a housing market where it is too expensive for essential workers to buy a house; where people were encouraged by greedy banks to take out mortgages that were way too much for them to afford; and where, thanks to runaway house price inflation*, investing in property was seen as SUCH a one-way bet that it led to the credit crunch and now no one can get a home loan at all and repossessions are going through the roof. Forgive my pun.

So… when did it become a BAD thing for house prices to be going down?

(* balanced against low ordinary inflation. What with houses being the only things you can't import on the cheap from China. And now BOTH kind of inflation are going a bit iffy.)

Mr Frown has announced through his puppet Chancellor, Sooty, that he's going to spend the next month dithering about whether to axe Stamp Duty on houses.

In case you don't know, Stamp Duty is a tax on buying a house. If you buy a house that costs between £125 thousand and £250 thousand, then you have to give 1% of what you spend to Sooty. If it's more than £250 thousand then it's 3% and more than half-a-million quid and it's 4%.

Thanks to rising house prices – the average house now costs £218 thousand pounds – Sooty raises almost a billion-and-a-half pounds from this, so it's not the cheapest tap to turn off. (And where, you may well ask, is the money to cover the hole left by this latest bribe going to come from?)

But as Citizen Alix points out, 1% off is not much of a SPECIAL OFFER.

On a one-hundred thousand pound flat, a thousand pounds extra in tax is an IMPOSITION, but a thousand pounds off is not going to change your mind to buy or not to buy.

And of course that is even assuming that the buyer GETS the thousand, rather than it being INSTANTLY ABSORBED into a one-off tiny, hardly-worth-the-effort increase in house prices. Essentially, the seller just pockets the Chancellor's money and the buyer, particularly the first-time buyer, ends up having to pay exactly the same.

But the worst thing is that this dithering, this "announcement that there MAY be an announcement", introduces UNCERTAINTY into the market.

Who in their right mind is going to buy a house in August when Sooty has let it be known he's (MAYBE) going to announce a 1%-off offer in September. I mean, it's not a very GOOD offer but you still wouldn't want to pay it for no reason. So now no one's going to want to buy any houses AT ALL for a month.

This is SO obvious that even the Conservatories have spotted it.

So we have to ask ourselves two key questions:

  • Will this help to boost house prices?
  • Would we WANT to do that, even if it DID?
And then, since the answer to BOTH of those questions given a moment's thought is NO, we ask: so why did Mr Frown let it be known that he was thinking about doing this?

That's the trouble with spin… spin, that thing Mr Brown said he was giving up!

Because, of course, by letting it be known that you are thinking about it you create a rod for your own back… or more accurately a GREAT BIG STICK for the DAILY HATE MAIL to hit you with when you decide not to do it… or "Perform another U-Turn" as they'll put it… or "Betray the Home-Owning Democracy" as they'll put it.

Remember folks: flying a kite CAN lead to you being struck by LIGHTNING!

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