Back in 1990, when my wife and I were buying our first flat in London, I was writing advertising copy for a little-known American software company. The people seemed remarkably impressive and I considered buying shares in them. A banker friend advised caution, however, arguing that overseas stock exposed you to exchange rate fluctuations.
The company was called Microsoft. Had I put the £68,000 I used to buy that flat into Microsoft stock, it would now be worth £54 million.
Naturally, every time I meet my friend, I thank him for his helpful advice. But in truth my jibe is unfair.
You see, I didn’t have £68,000 to spare. And, while there was no shortage of financial institutions happy to lend me £60,000 to buy a flat, no one would lend me anything to buy stock. Besides, in the fantastically unlikely event that I had held it long enough to realise a six-figure gain, I would have promptly sold it… and just bought a bigger flat. That’s what Brits do.
Just as all roads once led to Rome, in Britain, all money heads to Knight Frank. By ratio, more than twice the proportion of UK household wealth lies in the property market compared with the US. There is a case to be made that the UK’s obsession with the housing market lies at the root of many of its woes. This view holds that a combination of herd mentality, planning constraints, media propaganda, distorted lending practices, artificially low interest rates and one-off events (e.g. the rise of the dual-income household) have combined to make the property market the default repository for Britain’s disposable wealth: an intergenerational Ponzi scheme in which everyone is forced to take part.
Three assumptions underpin this. First, that property prices always go up – even if this isn’t strictly true. (It didn’t help that property prices were artificially inflated after the 2008 financial crash, averting a much-needed, corrective ‘Minsky moment’).
Second, it is an article of faith that any gain in value of your primary residence is somehow free of tax, and that property is a sanctified asset, guaranteed by the fact that old people vote.
Third, it is much easier to borrow large sums to buy housing than for any other purpose. If you want to place a big leveraged bet, for most people housing is your only option.
These three beliefs combine so that we have bought houses as if there were no opportunity cost. Scrape together whatever you can, then borrow as much as you’re allowed.
Yet, none of those three assumptions holds any more. Interest rates aside, the ‘mansion’ tax is a shot across the bows of anyone who believes a home is safe from HMRC. Stamp duty and council tax are so utterly stupid, it’s inevitable they’ll be replaced by some form of land value tax. Moreover, I suspect our Prime Minister is a secret Georgist, who also appears to be the first premier in the past 50 years who does not own more than £1 million of housing (the technical term for such people is ‘northerners’).
Just as all roads once led to Rome, in Britain, all money heads to Knight Frank
In any normal market, things would unwind through a fall in prices. Unfortunately, our housing is in the hands of an extraordinarily self-entitled generation of boomer retirees. Even if they bought a house for £150,000, if they believe, however deludedly, that it was once worth £900,000, they will be insanely reluctant to sell for £750,000. It is a kind of perceptual loss-aversion. Stamp duty and the fear of care costs exacerbate this.
The result will be a kind of market stalemate. Buyers unwilling to buy, sellers reluctant to sell. Andy Burnham has noticed we tax income too much and unearned wealth too little. Tax working people at 40 to 45 per cent, thus preventing them from buying any house, and that’s somehow fine. Yet when an empty-nester in a five-bedroom house is forced to downsize, it’s a human rights violation.
I have often thought that the most disheartening job is that of a young journalist writing for the money pages of the Times or Telegraph. There you must spend every day compiling gerontophile sob-stories about Surrey retirees tragically reduced to one golf-club membership, before returning to your bedsit in Walthamstow.
Comments