In an unusual move the newest member of the nine-person Monetary Policy Committee (MPC) has put forward a controversial comment on fiscal policy. Normally they would restrict themselves to talking about monetary policy, the process by which the government through the central bank can control the availability and cost of money. Whereas fiscal policy is how government spending and revenue collection is used to influence an economy.
Adam Posen has suggested that taxation should be used to limit any future house price bubbles. This could take many forms, such as making all residential property subject to council tax (including only homes), raising stamp duty and varying all taxes and fees involved in property in line with prices at any given time. Mr Posen said he was commenting on a personal basis and went on to say that the problem of the house price bubble should be tackled directly by policymakers as well as through the central bank to try and create an ‘automatic stabilizer for housing prices’.
Mr Posen must be after a job with Labour. See a problem and tax it is exactly their stance too. This type of tinkering will do nothing more than further complicate the whole house buying/selling/owning procedure, lead to another hugely expensive Quango, possibly start a whole new area of fraud and have the council for ever revaluing your house.
What we really need is more of the right sort of houses in the right places. Supply over demand is what will keep house prices down. After all, the recent small rise in prices was put down to lack of houses up for sale and more buyers.
There needs to be a re-think in residential planning and building. It has been said that the population may rise to 70 million. Where are they going to live? We need to free up land for building. Then start a publicly funded and planned building programme that puts the type of houses we need where they need to be built. Do not leave it to greedy property developers who will only continue what they’ve done until now (it is on their interest to make sure each house is as expensive as possible, less work more profit). When the houses are built rent them out and where people want to buy them they stay for ten years or pay huge penalty fees.
Then comes the best bit, you keep building at a rate that ensures supply always outstrips demand by a set percentage.
This may sound like a bit of a throwback to the middle of the last century, but it has worked before to an extent.
What it does not do is address any other bubble that will arise in a boom period (there’s always a bubble in something). But at least we should all have a reasonably priced roof over our heads.
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Tags: Adam Posen, house price news, House Prices, News, planning, stamp duty, tax on housing
I have a suggestion to control HPI. One that I put to the Government back in 2002!
Charge an interest premium ‘tax’ when a bubble is inflating. Suppose interest rates are say 5% & house prices are rising ABOVE the rate of inflation. Force lenders to charge a supplemental rate of interest (say 2%) . Logically this would depress house price inflation by damping demand. The clever bit is that this ‘tax’ would not be spent by the state but invested, on the borrower’s behalf and for them exclusively, in the Second State Pension . That way although borrowers would feel the ‘pain’ of higher interest rates(as part of the mechanism of contolling HPI) there would be at least some long term (pension) gain. The same could be applied to credit card interest.
Adam Posen should have a look around in Europe. Spain has got 7% stamp duty and still had a huge property bubble. In Spain people cannot sell their houses as buyers are put-off buying new. The more elastic a market is the better as adjustments happen faster. The way forward suggested by Adam Posen reminds me of old fashion socialistic envy tax. Let the free market rule under controlled circumstances. Why do the government and its agencies always shout “more tax” when they do something wrong? BoE and FSA failed to properly regulate and control so maybe some heads needs to roll in some gov.uk agencies instead?