The first week back has been a busy one for Housing Minister Grant Shapps MP. Still beaming from being tipped as a future Prime Minister by the Daily Mail, Shapps has spent the last week telling us that house prices need to stabilise (or fall in real terms), encouraging us to get out there and build our own homes, and then he started picking fights with anyone standing in the way. First it was with the FSA over their plans to introduce tougher restrictions for mortgage lending, and then it was with local councils for not collecting rubbish frequently enough (that’s localism for you).
I can understand why he has been berating the FSA and local authorities – mortgages and weekly bin collections are stereotypical Daily Mail political issues after all. But reducing house prices? Really?
Most twenty-somethings will of course welcome this news, but it’s not twenty-somethings that typically vote Conservative. It’s the older property owners who have benefited from the boom years, and whose sense of financial security is largely based on the value of their property. Many of these older property owners will have also invested in the buy-to-let market to boost their income in retirement.
They have the most to lose from house price stabilisation, and you can bet that if the Government does begin introducing polices designed to depress house prices they will be very quick to react. The Government is acutely aware that confidence in house prices supports wider consumer confidence, which is desperately needed to encourage more people to be out spending and boost the economy. Shapps knows that proposing policies designed to reduce house prices would be a political nightmare.
But this is the key issue here – there is very little the Government can actually do to stabilise house prices, and Shapps knows it.
Significantly raising interest rates and restricting lending for mortgages are unpalatable politically, would make things harder for first time buyers and would see the number of repossessions rise. What’s more, the Government no longer has direct responsibility for making these decisions.
The Government could change the planning system to increase the supply of new homes, and of course this is the aim of the Government’s ‘New Homes Bonus’. But at the same time the Government’s Localism Bill is introducing new levers to enable local people to have more of a say in planning in their area, which will almost inevitably lead to a rise in NIMBY-ism. This will simply lead to fewer homes in the leafy suburbs where people want to live, thereby leading to more geographical distortion in prices than before.
The one area where the Government can act is housing taxation. Many commentators point out that a tax on the profits made on property would surely lead to more stabling pricing in the housing market. However, no matter how unpopular Stamp Duty is, Capital Gains Tax is feared even more by the property owning middle classes. Something tells me we’re unlikely to see many concrete proposals from the Government on this, but well done to Grant Shapps MP for beating his ministerial colleagues to generate some news headlines in the first week back. Top of the class.