There was no need to put a rocket under the housing market. The consequences are now all too clear
Last modified on Tue 24 Aug 2021 08.57 EDT
Rishi Sunak’s approval ratings tell their own story. The chancellor’s stock is high, because the Treasury’s furlough scheme has limited the job losses from the pandemic. But while Sunak has had a much better crisis than some of his colleagues, his record is far from flawless.
Two errors of judgment stick out: the “eat out to help out” discounts for diners, blamed for a wave of infections last autumn, and the decision to raise the threshold on stamp duty for home purchases in England and Northern Ireland from £125,000 to £500,000.
Of the two, the stamp duty holiday is the more inexplicable. There was some justification for giving consumers – unvaccinated at the time – a nudge towards going out for a meal last August. There was no need whatsoever to put a rocket under the housing market.
The consequences of this decision are now all too apparent. House prices rose at their fastest annual rate for 17 years in June as buyers scrambled to beat the deadline for the stamp duty threshold being cut to £250,000. Then, as the latest HMRC figures have shown, there was a 63% fall in transactions in July. A further mini boom can be expected in September before the return of stamp duty to its pre-crisis level of £125,000.
There are structural factors that mean house prices in Britain are skewed to the upside. This is a small country with a large population and tough planning laws. Add in ultra-low interest rates, strong competition from mortgage lenders and a large dollop of pent-up demand resulting from last spring’s lockdown, and it was obvious the market was going to take off even without a helping hand from the chancellor.
Extending the stamp duty holiday for a further six months in this year’s budget has compounded a policy blunder that has resulted in prices rising by £2,500 a month on average over the past year, pushing home ownership further out of reach for Generation Rent and exacerbating Britain’s intergenerational divide. The government is ostensibly committed to levelling up. It’s hard to square that with a scheme whose major beneficiaries are estate agents, big builders and the already comfortably off.
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