Wednesday, 22 April 2015

Glorious bit of Home-Owner-Ist DoubleThink

From an article in The Daily Mail on the Mansion Tax:

House price rises good; house price falls bad

Despite the setbacks caused by the global financial crisis, many in Britain have become used to the idea that the value of their homes will always go up...

Given the uncertainty over the valuations of property and concerns over whether more properties might get sucked into the tax at a later date, it is likely that the freeze will reach well below the £2 million threshold – and may even blight sales down to £1.75 million.

With buyers scarce, prices will tumble. For properties above and just below the threshold, an average fall in prices of more than five per cent seems likely. A much more severe fall in prices of up to ten per cent is possible. Ultimately this means that families could see hundreds of thousands of pounds wiped off the value of their homes.

House price rises bad; house price falls good

But the effect will not end there. With fewer people wanting to move up the property ladder because they would be whacked by the tax if their new home was above the threshold, competition for houses below the threshold will intensify.

Given that there is already a shortage of such houses, this can only mean that prices will be driven up, possibly by as much as ten per cent, pricing out many middle-class families. So the perverse consequence would be that the squeezed middle will be squeezed even more.

So there you have it: House price rises are simultaneously good and bad. If we apply their non-logic, the ideal policy must be to increase Council Tax on cheaper houses and exempt really expensive ones...
The premise is nonsense of course.

Yes, the Mansion Tax will depress prices at the top - wiping out up to six or seven months' worth of recent capital gains. Boo hoo.

But the tax will have absolutely no effect on the price of houses further down the scale. There will be an mild upward push from those few thousand Poor Widows who might finally decide to trade down and an equal and opposite mild downward push from the few thousand people who can now trade up.


L fairfax said...

But it is a bad tax isn't it?
It not based on the land value but the property. If someone lives in a £1.8 million house in e.g. Blackheath South London and wanted more space the logical thing was to do a loft conversion. Now it could be to sell and live in two smaller houses.
Or stay put a buy a flat in nearby Grove Park. The mortgage could be less than the mansion tax and cost of loft conversion together

Random said...

Have you seen the Google doodle? It's "Earth Day" apparently.

Mark Wadsworth said...

LF, it is not a very well designed tax at all, but that is not the point here.

But the notion that owners of marginal value houses will be discouraged from keeping them in good condition is another silly KLN which I have brushed off before.

R, every day is Earth Day, isn't it?