Tuesday, 2 September 2008

The price is wrong

You know it, I know it, hell, even Norman Lamont knows it: introducing a stamp duty holiday will not help the housing market to recover.

A stamp duty holiday was introduced by Lamont during the Tory recession of the early 1990s. He was quoted on Channel 4 News tonight as saying that it had precious little impact. Stumbling and Mumbling points out that if anything, it probably had a negative impact.

And as Nick Clegg pointed out today, the package is designed as a bribe to get people to enter the market when prices are falling. Why should anyone be tempted to buy a house by a 1% cut in stamp duty, when prices have apparently fallen by more than 10% over the past year and are still dropping? The fall is already at the higher end of Caroline Flint's unwitting prediction and it looks like continuing for the foreseeable future.

There are problems with the rest of today's package. The government's proposed free loans for five years of up to 30% of a property's value for shared equity schemes is, as Charlotte Gore points out, a potentially inflationary measure. There is also the issue of whether it is just repeating the mistakes of the last few years, by encouraging those without sufficient assets of their own to mortgage themselves to the hilt.

And the whole package has the flaw that in total it's only about £1 billion. As Ross Clark pointed out in today's Times, mortgage lending has fallen from £17.2 billion in July last year to just £4.3 billion in July this year. The package therefore will do nothing to address the central problem in the housing market, which is the availability of mortgages. But that £1 billion will add to the Government's already unsustainably high public borrowing.

The importance of house prices to the UK economy is shown by the fact that, according to the OECD, this country is alone amongst leading industrial nations in facing the prospect of recession this year. But the Government's rescue package amounts to just fiddling while the housing market burns.

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