I understand the critics of the current government Help to buy scheme, who think more needs to be done to lower home prices. Yesterday I was seeking to explain the thinking behind the government’s policy, which is enabling more younger people to buy their first home. Sometimes it pays to understand where people are coming from when you disagree with them. The recent buyers then, of course, have an interest in prices staying up. It is a difficult cycle to break into, and all too easy from an armchair to assert you want home prices to halve without thinking about how many people would be put out of work or into bankruptcy by such a move.
One of the reasons homes are less affordable today than twenty years ago is the much costs of purchase. Successive governments have seen house buying as an easy means of collecting more tax revenue, by increasing Stamp Duties. It is another case of government taxing something they believe is a good, with perverse consequences. If government wanted to do more about affordability, a cut in Stamp Duty would help.
At the very least they could consider only charging the higher rates on the amount over each threshold. So the 3% duty would not be charged on the whole transaction of a £300,000 property, but just on the £50,000 above the threshold. The problem with the current system is it creates a series of prices just above a duty rate threshold that cannot function as market prices, because people refuse to pay so much extra tax for a modest change in the price of the property. If you move from a £250,000 to a £251,000 property you face a bill of an extra £5000 in duty, five times the price rise. If you are nearer the top end and move from a £2m property to a property just over £2m you face a total duty bill of £140,000 instead of £100,000.
Another reason is the fast rate of migration into the country, placing considerable pressure on the available housing stock. Under Labour the build rates were below the rates needed to keep up with the rapid rate of migration. The Coalition has brought net migration down by a third and plans further cuts, which should help ease the housing situation.
The build rate for new homes has been disappointing over the last decade. The government has taken action to allow more housing development. In hard pressed Lodnon, where considerably more space is required, there is a more permissive regime to allow high rise blocks of flats for private rent and purchase. There is also considerable work putting in basement and roof floors into the typical terraced housing in many a London Street, which allows more flats and maisonettes in each property. As someone who works some of the time in London and has a bedsit there, I am all in favour of more development in the popular parts of the city. Next to my flat they have just knocked down the old building of the government offices of London – a good sign in itself – and are replacing it with a taller block containing flats. That is good news.