How Gordon keeps us firmly in our place
Before settling down to enjoy the pleasures of middle age, most of us have passed through a time when we lived with a special, even desperate intensity. We knew in those turbulent months or years that our whole happiness, our whole future was at stake. Time and again our overtures were spurned, but failure made us audacious to the point of madness. We pressed on to the very limits of our endurance, and then beyond anything we had ever imagined we could endure, until our quest was crowned by the joy of possession.
I refer, of course, to the ordeal on which one embarks when buying a house, at least when one is not quite rich enough to afford the house in question. It is an experience most of us would rather not repeat. Since buying a scruffy house in Gospel Oak, just south of Hampstead Heath. for £385,000 last August, I have reflected with immense relief that provided I can somehow keep up the payments to the building society. I need never go looking for another house again. Nor need I pay another set of moving costs, of which by far the most onerous is stamp duty.
If I did happen to have £11,555 to spare, which is the amount I paid in stamp duty last August, I would spend it on repairs and improvements rather than put it towards buying anywhere else. Even if, for the sake of argument, I had £200,000 to spare, I would invest it in my present house rather than attempt to move. For under Gordon Brown's stamp duty regime, which requires one to pay 1 per cent duty on houses costing between £60,000 and £250,000 but 3 per cent between £250,000 and £500,000 and 4 per cent thereafter. moving house in any but the cheapest districts is a mug's game.
All Mr Brown's talk about flexibility is so much cant as far as the British housing market is concerned. By imposing such a high level of stamp duty, he has encouraged people to sit tight. Nick Beaney, at the estate agents Beaney Pearce which operates in Kensington and Chelsea, is certain that the level of stamp duty has reduced the volume of transactions in central London. He observes that owners on his patch who get married and have children, and therefore want more space, now tend to omit the intermediate stage of buying a larger house in London and instead move direct to the country.
Jonathan Walsh is a solicitor specialising in conveyancing in Barnes, south-west London. He recalls the brief, 'exciting' period when the price of the houses in the road where he lives reached a million pounds. This did not encourage the owners to sell up. Money they might have devoted to paying stamp duty they instead invested in loft conversions and sideways extensions in order to create extra space in their existing houses. Most of this work, one can guess, was done by builders who took cash in hand and passed as little as possible of it on to Mr Brown. The likelihood is that, by increasing the level of stamp duty, he has reduced the amount of revenue received by the Treasury.
David Smith, chief economist at the stockbrokers Williams de Broe, observes that stamp duty also discourages old people from trading down, which reduces the supply of housing. The high cost of moving house will make it harder and harder, Mr Smith reckons, for employers to persuade members of staff to go where they are needed. It is, he observes, a good example of Mr Brown's 'ossification' of the British economy.
This is not to say that Mr Brown is a complete fool. We all know he is a brilliant man, so presumably he foresaw one of the other effects of raising the cost of moving house, which has been to help keep house prices artificially high. When the volume of transactions is low, prices are much less likely to plummet. In a road where the houses are said to be worth a million pounds each, that price is far less likely to collapse to a more reasonable level if only one house comes on the market than if three are offered simultaneously. Scarcity keeps the market high. Mr Beaney estimates that prices have fallen by only 12 to 15 per cent in central London since their peak, which he places in the summer of 2001, before the World Trade Center was removed from the face of the earth.
So I was wrong to suggest. in The Spectator of 27 May 2000. that a property crash was imminent. Under the headline 'A city of spivs and speculators', I described my shock and disgust when I returned to London after six years in Berlin and found our capital 'in the grip of a mad speculative boom'. It seemed to me that property prices in London and the South-east
were so preposterously high that they were bound to plummet.
It is true that in the three years since that article appeared the City has lost huge numbers of jobs and the Internet boom has collapsed. Why, then, have house prices fallen by only a paltry 15 per cent so far? Why do we still have to pay such extortionate amounts for a roof over our heads? Why are we waiting for the reality to become apparent that houses cost nothing like as much to build as they do to buy? The main reasons, I suppose, are that credit is exceptionally cheap, people from all over the world still want to live in London, and our planning system keeps the price of building land absurdly high, which prevents anything like enough houses being built in the places people want to live. In other words the market has been rigged. Before delivering further lectures to the Europeans about how to run their affairs. perhaps Mr Brown could unrig the British property market. But given the warm feelings of satisfaction that suffuse many millions of voters as they contemplate the supposedly huge value of their dwellings, it is perhaps a bit much to expect any British politician to help bring prices back down to a level where teachers, firemen, police officers and nurses can once again afford to buy a place of their own.
Rents have fallen faster than house prices: in London by 25 to 30 per cent since 11 September 2001, according to Helen Kovari, who runs the Admiral Property Partnership in Belsize Park. She describes the present market as 'erratic and wobbly — not dead, but it's not easy'.
Investors piled into the buy-to-let market just as demand from visiting Americans collapsed. A north London property man said the rental market in 'tired' properties is now 'awful'.
But perhaps we should be wary of reforming our property market with the aim of ensuring an adequate supply of cheap houses. For it could be that ridiculously high property prices, and the huge borrowings so many of us find ourselves obliged to make in order to pay them, are the driving force of the British economy. When you ask people why they work, they often say with a grimace that they do it to pay the mortgage. We are a nation of debtors, who actually quite like being in debt. Disraeli was dreadfully in debt, and created a character Fakredeen, in the novel Tancred, who is 'fond of his debts' and who exclaims, 'The two greatest stimulants in the world, Youth and Debt!' Youth soon flees, but debt stays loyally by our side, thanks to the British housing market, for another 25 years.
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