The Governor of the Bank of England, Mark Carney, thinks aloud rather more than his predecessors. Where once the Bank refused to give any hint about the future path of policy, Mr Carney seems all too willing to tell us how it is, even if he gets accused of making U-turns.
This week he opened up about the housing market. With George Osborne’s latest grant of powers over home loans to the Bank, Mr Carney and his team have, in all but name, been lumbered with the job of managing the UK’s housing market, something of a fool’s errand for a central banker.
Mr Carney cannot buck markets, and the housing market probably least of all.
In fact, the problem of housing is political, and, thus, way beyond the remit of the Bank. It is also surprisingly amenable to solution, as it would be comparatively easy to increase supply and restrain demand, if only the political will existed. The Government has loosened planning laws, and the announcement by the Chancellor and the Mayor of London of 20 “housing zones”, with 20,000 homes, around London is obviously welcome.
However, our leaders still show themselves fundamentally unwilling to tackle vested interests in the South-east where Nimbyism is second nature and, it hardly needs saying, both Conservatives and Liberal Democrats hold many parliamentary seats. If only for that reason, we could build a great deal more than we do under a Labour government.
There is even a curious reluctance to revive the hearts of our towns and cities. It should not be beyond the capacity of local planning authorities to turn the many shops currently going unused into flats.
On the demand side, we do not have to search far before we stumble over the single biggest distortion in the British economy; the exemption from capital gains tax of profits made on principal private residences, or “An Englishman’s Home is his Pension Pot” to put it more bluntly. A traditional faith in “bricks and mortar” has transmuted into an obsession with what is perceived to be the only economic asset worth investing in – not least because of the huge tax break attached to it. Removing it would take some pressure off demand. Unlike a mansion tax, homeowners would only pay up when they had the means to do so. Obviously, it’s no vote winner, at least at first sight. The only possible gimmick that could be attached to such a move – which would have to be introduced gradually – is for the proceeds to be earmarked for an expansion in social housing (which would also push down prices and rents).
It is also worth recalling that, in what seems a lost world, we once subsidised house buying through a tax break called Miras (mortgage interest relief at source). That too was once thought holy writ, but was phased out in the 1990s. So perhaps a tax on the random profits generated by the housing bubble – gains entirely unrelated to work or enterprise – is not so unthinkable; but it will not arrive soon.
For the dirty secret lurking behind the curtains of our property-owning democracy is that rising prices, and the prospect of huge tax-free gains, suit many householders nicely; their sympathy for first-time buyers does not extend to eroding their own personal wealth, nor to allowing green-field development. Maybe Mr Carney should share his thoughts about all that with us.
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