Thursday, 11 December 2014

Legal and economic incidence of a tax (part 94)

For all fucknut Osborne's waffle about his SDLT changes "helping buyers", we are not surprised to see this sort of breathless and hyperbolic do-whattery in The Evening Standard:

Property buyers are demanding huge last-minute price reductions on central London homes following George Osborne’s dramatic shake-up of stamp duty…

Charles Puxley, director of sales in the Chelsea office of agents Jackson-Stops, said: “We had a case in SW7 last week on a property under offer at £3.6 million where a buyer said, ‘The stamp duty is going to cost me that much more — I’m going to reduce my price by £80,000’. It’s human nature that if you have to spend that much more you’re going to take it off the offer. In this case the client refused to accept the gazunder.”

The practice of gazundering — the mirror image of gazumping, when a seller accepts a higher offer after a price was agreed — is a classic sign of a buyers’ market.

A tax on anything is borne whichever factor is less sensitive to price (in terms of quantity supplied or demanded). So clearly, taxes on land, be they annual recurring taxes or transaction taxes, are borne by the seller. Regardless of the price offered, he cannot produce or provide more or less than he has. The buyer can demand larger or smaller quantities.

So this is not a sign of a "buyer's market" or anything else, it is a sign that, er, SDLT has been increased on sales of the most expensive homes. And knocking £80,000 off a £3.6 million bid is not a "huge reduction", it is a 2% reduction, the same amount as the SDLT went up.

Similarly, SDLT has been reduced somewhat on the sales of the other 98% of homes, and we would expect to see prices firming a bit with some gazumping going on elsewhere in the country.


Andrew Smith said...

OK, Mark - what's your view of the likely housing prices in the coming (say) 6-12 months.

In general, do you have a view on the economy leading up to and after the GE in May.

Mark Wadsworth said...

AS, the economy is still on a downward trajectory, has been since 2008 or so.

It's like the period between the mid-1970s and the mid-1990s, occasional credit-fuelled upturns following by long grinding downturns, we'll not be out of the woods for another ten years.

So rents will stabilise at a high level (because that's what the government wants) and I expect interest rates to stay low for a very long time (weak economy and governments determined to keep them down).

Therefore, not much will happen to house prices overall.

Is my expectation.