As Jane Austen might have written had she been an economics commentator, it is a truth universally acknowledged that British people are obsessed with house prices. In fact Austen herself obsesses in her texts over house prices, land prices, and the incomes those assets generate. Thomas Piketty in ‘Capital’ writes that this is circumstantial evidence of a society where asset values and incomes from inherited assets determine wealth almost entirely, at the exclusion of social mobility. That’s not the direction I’m going in here – because whilst I believe he’s right and that our Media’s obsession with house prices is an important echo from that time, I think that there’s actually a section of our society more obsessed with housing than even the daily mail. Politicians. My thesis is that British government policy has, as its principle objective, increasing asset prices, especially house prices.
The evidence runs thus. Firstly, let’s look at the background of the British tax and subsidy system. Here’s how housing is treated:
– No capital gains tax on primary residences
– Stamp duty levy, transaction tax discouraging sales/purchases, encouraging holding on to properties
– Housing benefit – a direct subsidy to landlords- 3rd biggest source of state transfer payments after pensions and tax credits
– State sanctioned supply constraints in the form of planning laws
This is the policy background since the 80’s. Clearly this is highly favourable to house prices, and indeed, they haven’t done badly:
Whilst they have been far less stable than consumer prices, house prices have done very commendably.
Now, aside from the policy background, let’s examine the legislative program of the current Tory/Lib Dem coalition government and see what impacts we’d expect on house prices. Rather than do my own homework, I’ll let conservative home tell me what they think their best legislative achievements have been, and what impact they ought to have on housing.
5. The “right to buy” your council flat has been reinvigorated. The discount for council tenants has been boosted to as much as £75,000. Reducing the available stock of public housing. Good for prices.
18. The earnings link has been restored for pensioners. More money for pensioners means fewer have to capitalise their biggest asset, ie, sell their houses. Good for prices.
42. The New Homes Bonus has provided a local incentive for building property. Bad for prices, but housing starts continue to decline so it’s not working.
66. 7,000 acres of surplus state-owned land is being sold to provide a 100,000 new homes. Same as the above.
74. Squatting has been criminalised. Good for house prices.
79. The planning system has been simplified. Has not increased housebuilding.
The above was published in 2013, and we can now add to it the truly remarkable policy of pension reform that leaves retirees free to access their tax protected retirement savings and take them, tax free, as a cash amount. This will prove to be extremely good news for house prices, as British people, with some justification, view housing as the safest investment going.
And given the policies of our political class, can you blame them? The government spends as much subsidising rents, and therefore property valuations, as it does on Employment support allowance, jobseekers allowance and income support combined. The very clear aim of government policy is to support asset prices. Why?
Because that is what conservatism is. Asset prices being high represents a social order determined, Austen style, by who happened to be able to save and buy assets in a previous period. Declining asset values relative to incomes represents the social order being shaken up, and the possibility of movement. Conservatism is about preserving the existing order. In feudal times, assets were transferred by bloodline and there was no possibility of changing the social order. Birth and rank determined outcome. In extremis, raising asset prices relative to incomes such that they are never able to change hand returns us to this world. The great victory of conservatism in over the past 3 decades has been orientating public policy around moving us back to this world. Politicians now serve the interests of Bricks and Mortar, not the people inhabiting it.