Stamp Duty: best yet to come
Having demanded a stamp duty holiday, the housing industry ungratefully dismissed the one-year suspension as insignificant. But it’s not the start of the holiday that will make people buy, it will be the end.
When property prices are falling by more than 10 per cent a year, avoiding the 1 per cent duty on properties up to £175,000 is no incentive to buy. Nevermind that this is no time to purchase a home anyway, why rush to save the tax now when you can buy next year and still avoid it?
But by next summer, with the tax holiday coming to an end, the risk of delaying a purchase and missing the incentive will concentrate minds. If nothing else, people thinking of buying at the end of 2009 or in 2010 will want to get their deals done before next September.
And that increase in demand will not only support prices but also increase liquidity.
Estate agents and housebuilders lobbied for a suspension of stamp duty to stimulate the housing market (and their own businesses). When the government was not ready to say whether there would be a holiday, the housing industry blamed ministers for the market seizing up. But when they got what they wanted they complained it will make little difference.
That’s vested interests for you. But if they wait until next year they will see how the deadline for ending the tax-break can work in stimulating the market.
So if it’s the end of the holiday that causes the excitement, not the beginning, should the government have announced a shorter suspension so that the end comes earlier?
Perhaps, but three months would be far too short a time for buyers to get deals lined up and completed and even six months is probably too tight a timetable. Anyway, there’s little that can be done to halt a market in free fall: by summer 2009 the housing market could be bottoming and that is the time to inject the stimulus.
And if it works, should the tax holiday be extended? Why not if it’s working? But just don’t announce (or leak) the extension in advance. If people think it’ll still be there in 2010 they’ll delay buying until then.
The prime minister’s objective isn’t to help the housing industry, it is to help the economy, which is largely driven by housing sentiment. Oh, and there’ll be a general election in 2010 and a housing recovery might just save the prime minister too.
