Is your house your pension, or a curse for the next generation?
Rising house prices are not just a kind of “free money” or an alternative pension, Professor Chris Leishman warns. As Britain’s housing crisis continues to deepen due to increasingly scarce and expensive housing, he has embarked on a new research project that aims to find a way to reform property taxation fairly, and help to stabilise house prices.
Free money and the idea that your home will become your pension are powerful factors in the motivation of British people (and voters). I have found tremendous enjoyment, as a private individual, in following the recent debate following George Osborne’s 2013 UK budget announcement of a Help to Buy scheme. Recalling that the construction industry was (once) seen as a ‘barometer of the economy’ by economists, I am once again reminded of the enormous vote potential that UK politicians see in the housing market. It is a curiosity that while wider economic inflation is correctly portrayed as a ‘bad thing’ for the economic wellbeing of society, inflation in the housing market is greatly loved by the British people. Discreetly, and perhaps cheekily, repackaged as ‘appreciation’, house price inflation offers a great many households comfort in the face of what many see as dismal pension prospects. How many of us have said, or have friends, colleagues or family who have said “my house is my pension”? I have empathy with those taking comfort from what seems like manna from heaven, but we might occasionally recognise that increasingly higher house prices for those who already own tend to mean diminishing probability of owning a home for those who are not already home owners.
The UK’s main political parties seem to be similarly misguided about the merits of house price inflation. To a point, the last government recognised the moral and the economic imperatives in helping to generate a reasonable supply of decent and affordable housing for Britain’s people. But I still clearly remember my dismay on hearing former Prime Minster Gordon Brown saying that his main priority was to “get the housing market…moving again.” This, of course, was an allusion to the importance to British people of seeing house prices rising, and preferably rapidly. This despite the focus of the last government on promoting housing supply, and affordable housing. The recent debate over ‘Help to Buy’ and the re-appearance of casual journalistic forecasts of another housing market boom reminded me of the later Gordon Brown years. A global financial crisis and credit crunch encouraged him to seek refuge in promising a return to rising house prices. Meanwhile, the recent bad press on the current Chancellor’s macroeconomic policies seems to have stimulated a similar retreat to what always appears to be safe ground when dealing with British voters.
But politicians are politicians (and survivors). Policy advisors, and particularly applied economists, deal with the safer but more mundane. Occasionally we are asked to undertake a piece of work that we know stands to make an important and long-standing contribution to improving the economic wellbeing of society overall, and it’s in this context that IHURER is delighted to have been commissioned by the Joseph Rowntree Foundation to ‘model the impacts of property tax reform’.
This project will end late in 2013. Of course, we cannot pre-guess the findings, but it is worth noting that the regressivity, and perceived unfairness, or the Council Tax have been rising since its inception. Over time, the burden of meeting council tax payments has increased for those on low and middle incomes. At the same time, relatively light taxation at the higher end of the housing market appears to have fuelled market volatility, increasing risk for highly leveraged buyers and people with uncertain contracts or income. Successive governments have ignored the pressing need for reform or replacement of the Council Tax, despite the accumulation of evidence of its unintended distributional effects (see the Lyons Inquiry).
Our project is a challenging one and requires us to estimate the current value of all domestic (residential) dwellings in England, Wales and Scotland. We will estimate the impacts, on people and local authorities, of a range of scenarios of property tax reform including Council Tax revaluation, and abolition of the Council Tax and Stamp Duty with a view to their replacement by a National Property Tax on residential property. The project is an important follow-on exercise to the Joseph Rowntree Foundation’s Housing Market Taskforce and its final report Tackling Housing Market Volatility in the UK. I am delighted that my colleague Professor Mark Stephens, lead author of the Taskforce report, has joined myself, and research associate David Watkins, on the research team for this important new piece of work.