Moans may mask agents' joy

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The Independent Online
Another day, another tax year. What is more it is an election tax year with the prospect of a change of government in sight. That brings a moment of joy for those whose job it is to build and sell houses and a shiver down the spine of those whose job it is to live in them.

Already, foolish Brussels directives aside, we have seen grim predictions that a Labour government will put VAT on house sales and rip away tax relief on mortgage payments. Given half a chance they would no doubt also nationalise the nation's housing stock and turn us all into public sector tenants.

I am sure those directly involved in the property industry talk of little else over the dinner table, slumping as they do, head in hands, ever closer towards their bowls of carrot and orange soup.

This concern for the well being of the property owning classes masks, however, an element of self interest. For while substantial changes to the taxation of property may be to the long-term detriment of the market, in the short term they tend to yield an almighty bonanza.

The last time a chancellor made a substantive change to property taxation was a decade ago when Nigel Lawson restricted mortgage relief to a property rather than an individual.

The effect of this was to fuel an artificial boom in property purchases as the unattached unmortgaged decided the time had come to settle down. Prices soared and romances blossomed as these tax evaders invested prematurely in bricks and mortar.

The property bubble inflated in the late eighties later burst in dramatic fashion, creating a slump of unparalleled proportions in the early nineties.

Only in the past few months have the glory days returned to the property market. I wonder then whether those who moan, wail and gnash their teeth at the prospect of VAT on housing and the abolition of mortgage relief are merely struggling to contain unmitigated joy brought on by the impending boom.

Call me an old cynic if you like but the property market will need some fillip if it is ever to translate the current artificial surge in prices into a more widespread and sustainable increase. The recent rise owes more to an acute shortage of properties than any universal uplift in demand.

This random boom will peter out largely because of boredom on the part of prospective buyers. The point is being reached where unless you really have to move there is no incentive to venture into the property market. With interest rates bound to rise shortly after the election, property prices will begin to flag.

What the market needs, therefore, is some deus ex machina to magically appear and persuade the nation at large to move house. Step forward Gordon Brown, chancellor in waiting. With three magic words - "VAT on houses" or "no more MIRAS" - he will be able to transform a fading rally into a fully fledged boom.

If tax relief were to be abolished on new mortgages or VAT imposed on new house sales, people would immediately take out mortgages and buy new houses just to spite the tax man.

Is it worth it though if it means buying a house which in five years' time is worth pounds 30,000 less than you paid for it? Ask those still caught in the negative equity trap. So who is the winner? Not the tax man. Not the home owner. Perhaps the property professional doth protest too much.