Bank's Posen calls for housing bubble taxes

mystic_trev

Adam Posen, one of the independent members of the Bank of England's Monetary Policy Committee, called today for taxes on houses, such as stamp duty and capital gains, to be raised in line with house price inflation to fend off future bubbles.

Speaking at the MPR Monetary Policy and Markets Conference in London, Mr Posen said that the Bank's role of raising interest rates to bring down inflation was too blunt an instrument to stop boom-and-bust cycles, and that what was needed was an "automatic stabiliser for housing prices".

http://business.timesonline.co.uk/tol/business/economics/article6939233.ece

Graham_Devon

Actually agree with this in a way.

I don't want to pay more tax to own a house however. If prices do run away, the treasury gets richer, which could allow for more social housing, instead of "lucky" individuals getting richer and speculating.

Can see this as more self serving though. Would put off speculators, should keep a lid on rampant HPI and the inevitable crash later.

lostinrates

Isn't the amount paid as stamp duty raised by the percentage remaining the same and house prices rising? Doesn't this risk making the problem of getting on/moving up lower rung.. of the ''ladder'' harder and therefore penalise those benefiting least from HPI?

I'm sure I've misunderstood this, where is Generali....?

carolt

Good point, lir.

michaels

Good, another chance to state my preference for scrapping stamp duty and introducing CGT on the PPR - with the proviso that it should be RPI linked, adjusted for improvements and deferable until death/downsizing. Unfortunately the Lib Dems are the only ones who listen to my fiscal suggestions

Graham_Devon

lostinrates wrote: »

Isn't the amount paid as stamp duty raised by the percentage remaining the same and house prices rising? Doesn't this risk making the problem of getting on/moving up lower rung.. of the ''ladder'' harder and therefore penalise those benefiting least from HPI?

I'm sure I've misunderstood this, where is Generali....?

The way I read it, stamp duty would increase the further prices go up, say from 2% to 5% or something for example.

As stamp duty has to be paid up front, people wouldn't just be able to borrow more to pay for the increased price.

Meaning that less people would be able to buy, but also meaning less people speculating to push up prices.

These two factors in themselves should help keep prices at a more affordable, stable level. Prices go too high and people won't be able to pay the upfront stamp duty costs, meaning lower demand. Also, the incentive to push prices forever higher for those in it in an investment, wouldn't be so attractive any longer.

That's simply how I read it.

Same sort of principle with raising the car tax bands if you see what I mean. People may really like a big sports car, I did, but when they put the tax up to £400 a year, I soon got rid, and the price plummeted.

lostinrates

Graham_Devon wrote: »

The way I read it, stamp duty would increase the further prices go up, say from 2% to 5% or something for example.

As stamp duty has to be paid up front, people wouldn't just be able to borrow more to pay for the increased price.

Meaning that less people would be able to buy, but also meaning less people speculating to push up prices. .

I think thats how I read it too...but, of course, property HAS gone up in price, and people HAVE kept paying the price, albeit the deals which allowed them to borrow the stamp duty/fees are now not available, but with this change who knows what the market would offer. Again. of you are going to pay, say 30% more for a trade up, and have equity....would the tax increase being a greater percentage of what you'd pay make a difference?

edgex

an alternative, to get rid of speculators:

scrap stamp duty, & apply VAT (standard rate) to all property purchases

vat-registered businesses would just continue as they currently do
primary residences would be exempted, with proper checks that it is indeed that persons primary residence

the btl crowd would then be hit by having to pay standard rate vat on top of the purchase price that a resident would be paying

Graham_Devon

lostinrates wrote: »

I think thats how I read it too...but, of course, property HAS gone up in price, and people HAVE kept paying the price, albeit the deals which allowed them to borrow the stamp duty/fees are now not available, but with this change who knows what the market would offer. Again. of you are going to pay, say 30% more for a trade up, and have equity....would the tax increase being a greater percentage of what you'd pay make a difference?

The tax increase in trading up wouldn't make too much difference, but as houses are a chain, it could make a differnce if you are trying to sell to say a FTB or something, which would in effect, pull the whole chain down.

I don't think the policy would particularly hurt houses, or buyers. I do think it may just keep high HPI a little further at bay.

lostinrates

Graham_Devon wrote: »

The tax increase in trading up wouldn't make too much difference, but as houses are a chain, it could make a differnce if you are trying to sell to say a FTB or something, which would in effect, pull the whole chain down.

I don't think the policy would particularly hurt houses, or buyers. I do think it may just keep high HPI a little further at bay.

But in the last bubble rising prices weren't pulled down buy FTBs. (of course, until...BANG.)

Graham_Devon

lostinrates wrote: »

But in the last bubble rising prices weren't pulled down buy FTBs. (of course, until...BANG.)

Yes, because they were pulled up, and a lot of that pull up was entirely profit making, which would also be, not punished, but less worthwhile with these plans.