Published: 01/08/2018 By Patrick Henry
Why can’t the government manage the property sector?
It is an interesting set of affairs when a conservative government chooses to increase taxes in any sector, but something doesn’t sit right with me when such a huge sweeping tax is brought in within the property sector. In an attempt to quell the purchases of multiple properties by budding investors and professional landlords a 3% stamp duty tax was introduced “if buying a new residential property means you’ll own more than one home”. There are ways around this tax if you ultimately sell your first home within 36 months of your new purchase, but the principle remains. It seems that our government is yet again dealing with secondary issues rather than the root cause of our problems. The heavily quoted line is that we are creating “generation rent”, baby boomers and those with inherited property wealth are gobbling up a disproportionate amount of properties and pushing prices up beyond what the average working person could ever hope to afford. One would assume that this would be a very simple challenge to tackle until it is counterbalanced – or rather unbalanced – by the fact that rental prices are too becoming unaffordable! My aborted attempt at an A level qualification may have come to an abrupt end before I reached the Advanced Structural Modelling module, but I made it through long enough to achieve an infantile grasp of ‘supply and demand’. It seems certain ministers and policymakers were not afforded the same prestigious education that I was at Merton College (not the one in Oxford).
Why would you focus your time and efforts on penalising buy-to-let investors who fuel the rental market and help to keep rental prices down or at least in equilibrium with sales prices, when your attention could be spent focussing on the fact that in London only 39’000 new homes were built or created and in 2016/2017 and the average population growth sits at around 150’000 annually over the past ten years. More broadly in the U.K. throughout 2017, 200,000 new homes built, but our population growth is averaging at somewhere around 500,000 per year. These figures make it clear that whilst the problem is intense in London, it is still also a problem –albeit a lesser one- nationwide. So improved transport links in and out of the city like the ones currently underway could help with the stress levels we are experiencing but it could hardly be deemed a lasting solution.
I had the underwhelming privilege of asking our then Housing Minister (now Conservative Party Chairman) Brandon Lewis in 2016 what we could do about the lack of houses being built and the stranglehold that local councils have on new developments. After the expected platitudes and politician garble, the nuts and bolts of his solution were that “we are looking into the potential of ‘flat-pack’ houses”. I was left wondering two things; does this minister have shares in IKEA and secondly does he even understand or realise the importance of my question? In reality, our government is doing more than just simply “looking into flat pack houses”. The most recent interventions have been in a bid to make it easier for first-time buyers to get onto the property ladder and make their first house purchases, these interventions have come in the form of Property ISAs and the Help To Buy scheme. The latter has seemed to work rather well, especially in London where the average first-time buyer’s deposit is reported to be four times the average national wage. The Labour party have proposed Rent controls as their solution to the issue of rising rents but surely when you couple expensive purchase costs (assuming they would keep the additional 3% stamp duty) with capped rents we will see landlords flee from the market as their yields are decimated and capital growth is suppressed. Moreover, this will leave a shortage in rental stock levels and force the government and local councils to increase the number of properties that they are currently building. Now I’m not sure about your thoughts on the matter but that sounds like too much of lurch towards socialism for me and ultimately poses the question “where does the money come from?”. Neither of these options actually take control of the underlying issue that we just simply do not build enough houses to sustain the population growth of this country.
Earlier when I mentioned Brandon Lewis’ response to my question I didn’t mean to single him out, as previous and subsequent housing ministers haven’t been able to tackle the question of how we tackle the property market’s perils either. But when you couple this apparent lack of action with the actual action that we are taking it seems as though we are wandering into a systematic attempt to tackle the sprawling branches of our problems rather than dig away at the root.