måndag 9 juli 2007

Proliferating Piffle

Piffle proliferates. Today's Guardian carries a report of a study which accuses Gordon Brown of pricing first-time buyers out of the property market. Its research showed that they faced an average stamp duty bill approaching £1,500.

'"Policy Exchange, the centre-right thinktank, called for the charge to be cut or abolished after finding that it now posed a barrier to would-be homeowners in most regions.

Today's report points out that, although the stamp duty threshold has been doubled to apply to homes sold for £125,000 or more, it has failed to keep up with fast-rising prices.

Oliver Marc Hartwich, the thinktank's chief economist, said: "Hundreds of thousands of first-time buyers now have to pay the government to get on the property ladder, whereas they wouldn't have had to pay anything a decade ago.

"The government cannot directly control house prices, but it does control stamp duty, and it should help first-time buyers by cutting it or even abolishing altogether for first-time buyers." '

I am not in favour of Stamp Duty on the sale of houses, but it is evident that neither the economists at the "Think Tank" nor Guardian's journalist have a proper understanding of the land market.

There are two effects at work here, the coarse one and the subtle one. If the tax came off, there would be more money in the pockets of house buyers, and they would bid up house prices by about the amount of the tax. Thus, the coarse effect of the tax is to take money from sellers, money which they would otherwise be able to realise through the sale of their houses.

The subtle effect is that the tax discourages people from selling property they already own as it adds to the cost of moving, This is creating a shortage of places to buy and discouraging people from moving into smaller accommodation when their homes are larger than they need. So to that extent, it is indeed keeping house prices higher than they might otherwise be. But this is not, apparently, what the commentators are saying.
The full article

The solution is to get rid of the tax and replace it, and all the other taxes which fall on the value of land, with a annual tax on site rental values.

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