How the politicians are skewing the property market

As the parties slug it out pre-Election, homeowners are rushing to put their properties on the market.

Last Updated: 31 Aug 2010

The housing market is clearly a big preoccupation for lots of voters, so it’s no surprise that it figured prominently as Labour and the Conservatives launched their manifestos this week. But it’s worth remembering that all this political manoeuvring often just serves to distort the market in unhelpful ways. Today the Royal Institution of Chartered Surveyors reported a three-year high in sales activity – the theory being that people are keen to sell their homes before the Election, because they’re worried about what will happen afterwards. In other words, the market is getting an artificial boost, even though fundamentally there’s no reason for prices to be going anywhere but downwards…

As he launched Labour’s manifesto yesterday, Prime Minister Gordon Brown talked a lot about extending home ownership in the UK: Labour plans to increase stamp duty to 5% for property worth over £1m, to fund a two-year exemption for homes worth less than £250,000. Today David Cameron went one step further, promising to raise the stamp duty threshold to £250,000 permanently for first-time buyers. It’s easy to see how the introduction of these measures – and other such interventions – could temporarily skew the market.

It’s also easy to see why all this political uncertainty might encourage would-be house sellers to get on with it, since the result of the Election could affect not only the rules of the market, but also the general economic conditions (depending on the aggressiveness of the deficit-cutting measures). Sure enough, RICS reports that the number of people trying to sell their houses in March hit its highest level since May 2007.

What’s more, prices actually edged up again. Given that there are now more sellers than buyers in the market, that the general economic outlook (in terms of personal incomes, taxation and employment) remains pretty grim, and that houses still look overvalued in historical terms, that makes absolutely no sense. Unless you factor in external intervention: as well as political interference, Prof. Andrew Clare of Fathom Consulting also blames lax monetary policy (which leads to cheap mortgages). If so, the market almost certainly has further to fall in the long run. Maybe we’d be better off if the politicians let it normalise sooner rather than later.

This week’s manifestos haven’t contained too much for UK plc to get excited about, since all the highlights had already been leaked – although some calculated vote-winners have gone down badly (notably the Tory plan to cap the immigration of a highly-skilled workers, and Labour’s questionable ‘Cadbury law’ and extension to paternity leave). But these housing market figures remind us that when Government tries to get involved in the operation of free markets – something Labour seems keen to do more of, given its plan for an ‘activist industrial strategy’ – it can often have damaging unintended consequences.

In today's bulletin:

How the politicians are skewing the property market
Debenhams cashes in - and Easter boosts high street sales
At last: Twitter has a plan for making money
Ryanair tries to confiscate journo's flat over 'bet'
The Parent Project: Who am I?

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