Friday, 27 November 2015

There's a case for looking at how we tax housing but it's not the reason for the supply problem


That housing is taxed differently and, for most housing, doesn't get clobbered with capital gains taxes does make housing a more attractive proposition. Perhaps reducing capital gains taxes to a sensible level and applying them to all capital sales might work?

But this conclusion is wrong:

The biggest distortion to the housing market is our tax system. This not only increases demand for housing as an asset but it also encourages owners to be less flexible about allowing developments which might affect their wealth. We suspect that this is the root cause of much of the supply problem which needs to be addressed if we are to deal with the longer-term housing challenges.

The first part might be true except that most of us buy houses because we want to use them and the capital gain is nice. The second part is rubbish. Owners are not in charge of the development process (other than by ganging together to stop development) plus there's precious little link between new development and house prices at the very local level - i.e. those 100 new homes round the corner won't affect the value of your house by much, if at all.

The reason for the supply problem is because we don't provide enough land for housing in places where people want to live. And this is entirely down to the planning system. Not the housing delivery and development management part of that system but the local plan bit - this allocates the land. We can fiddle around with the taxation of housing until the cows come home but the supply problem remains if we don't have enough land available to build houses.


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