The moves to impose some sort of mansion tax on those owning homes worth over £2 million appears to be gaining traction as the Labour leader, Ed Miliband, joins the LibDem leader, Nick Clegg, in calls to bring the controversial tax onto the statute books.

Those opposed to this, such as George Osborne and, Tory MP Richard Harrington and the London Mayor, Boris Johnson, claim that such a tax would see the price of high value homes plummet in response with a ripple effect down the ladder affecting all homeowners.

Estate agents have also made the same claim saying that many of these properties would come on the market at once as owners try to downsize so depressing overall prices.

The reality of course is that while high value properties may well fall in price all those trying to downsize (owner-occupiers and investors alike) will be aiming their sights lower. And, as we are not building anywhere near the number of houses we need, there will be an increased demand pressure further down the chain – this will push the prices of more modest properties below a mansion tax threshold up, not down and that pressure will be felt all the way down.

No wonder some politicians like this idea:

• seen to bash the rich

• get more tax

• ordinary house prices actually go up so people think they are in an economic recovery

• the balance sheets of banks are further protected from a house price fall shock

Taviton Street by John Winfield via Wikimedia Commons

Taviton Street by John Winfield

Those arguing against this mansion tax are right that it will be bad but they are right for the wrong reasons and for the outcome it will bring.

When will a government really grasp the nettle and start building houses once again? As that is the only way to truly address the problems of a housing market that prices most people out of the market and panders to the wealthy. The longer we wait the worse this problem will become as the population grows ever larger due to the economic policies of whichever of the red/blue rosettes are in power.

But building enough houses is a problem as this would:

• be a tacit admission that the population is rising fast

• house prices would start falling as the supply/demand balance began to equalise

• banks’ balance sheets would be under threat as the negative equity monster raised its head once again

• cause local planning problems

• force governments to fund it as, which bank or builder would cut their own throats building units that could end up not earning them a profit (or maybe even make a loss)

Lastly, once this tax is in place no government would ever be able to afford to get rid of it and the threshold at which it was paid would probably never keep pace with inflation – you know how these things work out.

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