Stimulating the Housing Market
I was reading about Nick Clegg’s proposal at the Liberal Democrat conference to impose an additional tax on empty homes the other day with the aim of stimulating the housing market and it got me thinking about a couple things. Firstly, why oh why did I think voting Liberal was a good idea and secondly, what could be done to stimulate the housing market?
It is an important question for both the national economy and for society generally, given the chronic housing shortage we are seeing at the moment. It is something however that the coalition Government, despite David Cameron apparently putting society at the head of his agenda, have done little to address.
Why Is The Housing Market So Important?
This is a fair question, particularly from someone not planning on moving home or buying a first home in the foreseeable future. You might ask why we would invest time and money in the housing market when we have rising crime and unemployment and the NHS is in such turmoil.
The answer is that a healthy housing market could help address all of these problems. You might be wondering how the housing market and crime rates can possibly be linked. During the Labour Government’s last period in power crimes rates fell significantly. They will put this down to their policies on law and O]order but in my opinion it was down to the fact that as a nation we were better off financially than we had been for a long time so less people were poor. It’s a simple equation, poverty = desperation = crime. Now that the economy has slowed and more people are slipping back into poverty, crime rates are rising.
The housing market is fundamental to the British economy. Think about the scope for jobs in a healthy housing market. It isn’t just conveyancers and estate agents who benefit. A healthy economy needs people to be spending money. If you move house, you spend money. Not just on the house itself but on furniture, carpets, wallpaper, and paint – the list goes on and on. So throughout the supply chain, from manufacturer to shop assistant, jobs are created.
Furthermore, when homes start selling, builders start building. This means jobs for builders, plumbers, joiners, electricians, labourers, sales staff, logistical support etc. A job on a decent sized housing development is generally long term, giving the employee the confidence to spend rather than save. So a healthy housing market means more jobs, which means more taxes, less benefits and more money for public services such as the NHS. So what can we do?
Nick Clegg’s Empty Tax Is An Empty Promise
I mentioned above that Nick Clegg proposed to the Liberal Democrat conference a tax on empty properties as a way of kick starting the property market and creating new homes for those in need (apparently there are 300,000 empty homes in Britain). His proposals would allow local authorities to charge additional council tax on empty houses. His hope is that this would encourage the owners to sell rather than waiting for the market to improve and would generate extra revenue to allow the councils to buy some of the properties for social housing.
This idea smacks of another attempt to over tax the wealthy to me. Not that I’m against the wealthy paying higher taxes, but there must be a limit. It is they after all who provide investment to fund the creation of new employment which is needed to improve the economy. Take away all of their money in taxes and you begin a downward spiral. In any event, this does nothing to address the real problem, which is the lack of available buyers. There are already plenty of willing sellers who cannot find a buyer at a sensible price.
Making Mortgages More Available
The State owns large shareholdings in several banks and is owed favours by the whole industry. In my view it needs to start putting this power to use to encourage an increase in mortgage lending. Having a willing seller and buyer is one thing, but if the buyer does not have the funds to buy the property you have no sale. It is understandable that banks are wary but no one sensible person is suggesting a return to 100% mortgages to those who plainly cannot afford the repayments. Widely available 85% – 90% mortgages should be sufficient.
Banks must realise that it is only by trading again that they will ever recover completely.
Fixing Interest Rates
The Bank of England base rate is currently at its lowest ever level, which is good news for the housing market as it is keeping mortgage interests rates low, however there is still a concern among buyers, particularly first time buyers, that they could rise at any time, potentially leaving them in difficulty.
It would be helpful to the housing market (and no doubt other markets) if the base rate were to be fixed for say two or three years. This would give buyers the confidence to borrow at the best rates (fixed rate mortgages being more expensive) and so stimulate growth.
State Backed Equity Loans
The state has for some time now provided equity loans, used to make up the shortfall between mortgage loan and purchase price, to certain key workers such as police officers and nurses, as well as army personnel. A similar scheme should be introduced for the benefit of the general population. Rather than concentrating on the poorest members of society who are more likely to default, such a scheme ought to be targeted at financially secure people, such as young professionals, who do not have the savings to fund a deposit.
These loans would be profit making, a loan of £20,000 against a property bought for £100,000 would buy a 20% share. If the property sells for £120,000 in five years’ time the State pockets a profit of £4,000 (its 20% share being now worth £24,000).
By targeting middle income buyers the Government avoids leading people down a path that is likely to end in insolvency as many lenders did during the housing boom. The people that benefit from the scheme will leave their rental accommodation thus opening this up for those who need it. Many buyers will be introduced to the market and a levelling out of the market should follow.
Written by an anonymous guest author.
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