The Chancellor wasted billions on making homes more expensive
According to the latest Nationwide figures, house prices went up by 2% in August. That’s something like a £5,000 increase in the ‘value’ of an average dwelling. In just one month. In the dead of summer. And Covid isn’t over yet.
But perhaps this is just a bounce-back effect. Doom-laden predictions about the slowdown of the post-pandemic economy have been proven wrong (at least so far). The entire economy is now recovering from an almighty shock, so we can expect all sorts of sudden rebounds. However, the trend in the level of house price inflation is upwards across the whole period of the pandemic.
Instant Info – Nationwide House Price Index pic.twitter.com/OCwj3jWMsl
— BuiltPlace (@BuiltPlace) September 1, 2021
In the five years immediately before Covid, the trend was heading gently downwards, getting closer to reaching some price stability. A period of zero house price inflation (i.e. no increase in prices) would have been a much needed change in the market, allowing for more people to have a fighting chance to raise a deposit and get a foot on the property ladder.
Instead, we’ve seen prices rocketing up again. To say this is contrary to expectations is putting it mildly. Last year, the Government was so worried about the property market crashing that they slashed stamp duty rates. There’s been no duty at all to pay on the first £500,000 of a purchase.
So, did Rishi Sunak’s tax holiday cause all of this? Or did the pandemic unleash inflationary forces that would, at least in part, have happened anyway? A report, last month, from the Resolution Foundation strongly suggests the latter. Indeed, with the pandemic bringing about profound changes in our economic geography, we’ve seen knock-on effects on property markets around the world. And needless to say, the financial sector has been piling in on the speculative opportunities.
However, that doesn’t get the Chancellor off the hook. Indeed, it looks like he’s just blown at least £4.7 billion on cutting a tax that clearly didn’t need cutting. And because this will have added to the inflationary mix, there’s no benefit to buyers. Instead, the gains are captured by those who make money out of property transactions — i.e. the already wealthy.
In a sane world, Rishi Sunak would be pilloried for this error — but instead he continues on as the most popular politician in the country, even higher than Boris Johnson.
How long can it last? One day, perhaps quite soon, voters will wake up to what uncontrolled property speculation does to a country. If the Chancellor doesn’t want to be buried by this revolution he should think about leading it.