Politicians love a sticking plaster policy and housing seems particularly vulnerable.
Labour’s mansion tax has an inadequate relation to ability or responsibility to pay.
And now the Conservatives’ 20% discount to first time buyers offers help to people regardless of their worthiness of support.
At a time when the philosophy behind universal benefits is increasingly unpopular, it seems strange that these two recent policy ideas seem to be ever more untargeted.
I had always thought means testing was an obvious and essential criteria for receiving money from the state. So until recently I was sceptical of universal benefit. I changed my view when someone pointed out to me that people were getting something back in return for they had been promised for contribution.
The key issue here is a prior understanding.
The mansion tax policy and “discounts for first time-buyers under 40” policy fail to pass any form of accuracy test – desert, fulfilment of promise or means-testing.
The mansion tax will affect people who have homes worth over £5 million. So regardless of their liquidity, the mansion owners have financial options and the policy frees up under used housing.
But the 20% discount policy not only excludes the deserving over 40s but it creates a distortion in the market – ironic coming from the pro-free market Conservatives – by falsely affecting price because it does not limit who can benefit. The fact that after five years you can sell the house without paying back the discount leaves the policy open to exploitation from exactly the type of people who are causing the problem in the housing market by buying multiple homes as investments. It doesn’t take a game theory genius like John Nash to figure out that people with cash to invest can buy houses via amenable “first time buyers” and then reap an agreed portion of the 20% profit on the the sale of the house in five years time.
The discount price policy allows the Conservatives to appear to be helping first time buyers without devaluing the housing market by reducing the amount of competition in bidding. A drop in demand would allow prices to fall. But with housing investment seen by many as an alternative to a pension scheme, this is a potentially explosive policy area.
The mansion tax should simply be replaced by increased taxes on high income, capital gains and inheritance.
The discount policy should be replaced by policies to increase the supply of more homes and disincentives to buy housing as an investment property.
So why have we come down this route?
Firstly, sticking plaster policies are easy to sell.
Secondly, politicians are covering up their real motives.
Labour has failed to state that it is fair to tax people who are earning income disproportionate to their efforts – in particular those are gaining income from what Stiglitz and others call rent-seeking (ie returns on no-risk investments). Labour doesn’t want to be seen to targeting investors.
Equally the Conservatives have failed to admit that they do not want to cause a necessary devaluation of the housing stock – as so many people have their savings and pension money invested in housing.
The solution? Better independent and unbiased explanation of the angles in the media – and more debate about the real angles rather than the polemic and often distracting arguments of politicians.