Friday, 5 December 2014

Shroud Waving Of The Week

From City AM:

MIDNIGHT, 3 December 2014 is a date to celebrate for UK home buyers. Anyone purchasing a property worth less than £937,500 is now paying less tax. The chancellor’s move to scrap the invidious slab-style stamp duty land tax (SDLT) regime, introduced by Labour in 2000...

Fair enough so far, adjectives aside. Then the woman works herself into a complete London-centric Home-Owner-Ist frenzy:

There is little doubt that such increases will be unsustainable and the market between £1.5m and £2m will collapse. There is also little doubt that there will be a bottleneck around £937,500, where buyers start losing out under the new regime, increasing demand and piling upward pressure on prices below this.

Nonsense, there was a definite cliff-edge under the slab system which has now entirely disappeared, there will be no bottlenecks, and certainly not around the £937,500 mark (which is the top one per cent of homes by value). What she refers to as "collapse" means that prices will adjust accordingly.

Of course, top end properties in the exclusive prime central London market, where one in two properties are over £1m, are not immune and buyers will feel the pain the chancellor intended. However, they are less likely to be domestic, but international, making discretionary purchases with discretionary wallets to match.

So she's just completely contradicted herself - she started off by saying that prices will adjust , i.e. the seller bears the tax and benefits from the tax reduction, and now she says that "buyers will feel the pain". Which is it? If anything, downsizers will feel the pain (one reason why SDLT is such a bad tax).

But yes, such homes are not bought by "hard working Londoners", not by any stretch of the imagination. Prices here are crazy, a decent, entry level home for a normal family is about £400,000, but everything above that is conspicuous consumption (my family is conspicuously consuming a lot more than that, which is our free choice).

Culminating with this...

In conclusion, the SDLT changes are a bold step and one in the right direction. But if I were Osborne, I would be looking very hard at how to decrease the pain among hardworking, career-minded up-steppers in London. They are the Tory heartland. They are the heartbeat of our economy, whose aspiration – and seemingly main sin – is to want to own a modest family home in one of the most expensive capitals in the world.

i. Hang about; that's her second contradiction - first she said that £1m-plus homes are bought by wealthy foreigners and now she says they are bought by "hardworking, career-minded up-steppers".

ii. "Hardworking people" are not "Tory heartland". There are hardworking people - from bus drivers to brain surgeons - of all political persuasions (from BNP to Green Party) and none. I would consider all the YPP members I have met to be "hardworking".

iv. A "modest family home" in London costs £300,000 - £400,000, not £1 million. If people want to pay £600,000 - £700,000 extra to be half an hour closer to the centre and/or have an extravagently large house, that's their call.


Dinero said...

Actually there were two contradictions in the tax incidence part alone,

first she says home buyers will pay less tax, then goes on to describe prices collapsing ie sellers paying tax, then goes to describe Central London buyers paying tax.

Yesterday Kirstie Alsopp also confronted the "apparant conundrum" like this

Dinero said...

at 18 mins and 40 seconds for the link

Steven_L said...

A cynic might suggest they just want to grab a bigger slice of the panic sales before the 'mansion tax' comes in under 'Red Ed'?

I wonder how many sitting MP's own property worth under say £750k that might stand to benefit?

James Higham said...

Prices here are crazy, a decent, entry level home for a normal family is about £400,000

Totally insane.

Steven_L said...


The prices aren't insane at all from an investors point of view.

London property yields more than government bonds, but enjoys government support.

An investor can borrow 15 times their income (15 times the annual rent @ a 4% yield and a 75% mortgage) and use a limited company which will allow them to walk away relatively unscathed if it goes wrong.

It's only insane if you are trying to get a normal regulated mortgage and gamble that rates won't rise / your salary won't fall.

Mark Wadsworth said...

Din, yes, those are more contradictions, the kind of Double Think on which Home-Owner-Ism relies.

JH, yes, totally insane… but as SL points out, because of the way things are rigged, from a cynical investor's point of view, still not wildly overpriced.

Physiocrat said...

Surely this makes no difference to what buyers will pay? The incidence of the tax is on the sellers ie prices will adjust.

DBC Reed said...

As a sidelight on all this, the Government has given up on private enterprise to build new houses. Danny Alexander was over at Northstowe just before the Autumn Statement saying, if the developers don't build the houses, the Government will .We now appear to face a cross between and Homeownerism and Communism. Best accounts of the latest loopiness in DM and Guardian circa 2nd inst.

Bayard said...

DBCR, I'm fairly convinced that the Govt is only saying that to woo the votes of those who want to climb into the Magic Money Tree, sorry, first-time buyers. Not that it would make any difference if they did, anyway.