Taxpayer to take on mortgage risks of first-time buyers

[PhilipT]

I don't think that you quite understood what I meant; whist the trading examples that you mention might at times be to the advantage of both trader and customer, someone else will still lose out. Try arguing the case for VAT as we understanding it on those terms! The expression "robbing Peter to pay Paul" is hardly meaningless, after all. And there are now some who are indeed beginning to question the very point of money (not that I'm one of them).

Perhaps I still don't understand what you mean. If trade is advantageous to both parties, trade will take place. If it isn't, it won't. If a tax reduces the value of a trade to each party, but not to zero, the trade will still take place.

As for VAT, if I had that whiteboard I'd go on to explain the meaning of "the deadweight cost of a tax". Roughly speaking, taxing trade raises less revenue for the taxing authority than the value lost to the traders. The difference is the deadweight cost. The heavier the tax the greater the proportion of deadweight cost to revenue raised. (The next step in the exercise is to show that an external subsidy costs the subsidiser more than the additional value seen by the traders.) But taxes need to be raised somehow, whether they are raised on the trading of goods and services, or on the trading of labour, or on business profits, or on something else. Spreading them out over many activities has the advantages of minimising the deadweight costs and making tax harder to evade entirely.

[Flosshilde]

Teamsaint, have you worked out how much you have really paid, or will pay, for your house, including all the interest on the loan? It might not be 10 times (& it would be interesting to know how your grandfather-in-law arrived at that figure) but it will be considerably more than what was on the price ticket. (and, of course, you don't actually own the house until you've paid off the mortgage - & if you move several times you are in effect renting a succession of houses)

[teamsaint]

Teamsaint, have you worked out how much you have really paid, or will pay, for your house, including all the interest on the loan? It might not be 10 times (& it would be interesting to know how your grandfather-in-law arrived at that figure) but it will be considerably more than what was on the price ticket. (and, of course, you don't actually own the house until you've paid off the mortgage - & if you move several times you are in effect renting a succession of houses)

I can do sums. I also know where power and control lies.
Why don't the rich rent?

[Flosshilde]

Why don't the rich rent?

How do you know they don't?

The simple answer is that if they don't rent because they are different from us. & it does rather depend on which particular 'rich' you have in mind - the 'landed gentry' (not all of whom are rich); the Russian oligarchs & newspaper proprieters; the bank chief executives?

[teamsaint]

How do you know they don't?

The simple answer is that if they don't rent because they are different from us. & it does rather depend on which particular 'rich' you have in mind - the 'landed gentry' (not all of whom are rich); the Russian oligarchs & newspaper proprieters; the bank chief executives?

any rich people. In general they buy property.
different ? how?
luckier?

Rich people stay rich because, amongst other things, they do things that help them keep their cash.
Like renting out their property to other people.

A mortgage may be a tough thing to pay off, but renting forever is putting money into other wealthier peoples pockets.

The problems with the cost of housing in this country are to do with lack of supply, actually, not really with the bias towards buying or renting. Also, the tax system is skewed towards ownership of your main residence.

Rich I would define as meaning people who can afford to own several properties at least.

[ahinton]

But why should people in their 30s expect to 'get on the property ladder'? In most Europen countries, & also the major USA cities, people expect to rent. Why are we in the UK so sold on the idea of property ownership? especially when we are told, from Tebbit onwards, that we can't expect a job for life & should expect to move frequently to find work - owning your home makes that so much more difficult.

True as some of that may be, people cannot expect to rent unless other people own, otherwise from whom could they expect to rent their homes?

[ahinton]

Perhaps I still don't understand what you mean. If trade is advantageous to both parties, trade will take place. If it isn't, it won't. If a tax reduces the value of a trade to each party, but not to zero, the trade will still take place.

So it would seem. Let's leave the tax aspect out of it for a moment. A trade that might be advantageous to the parties involved in it can at the same time be disadvantageous to other parties not involved in it purely by reason of its having taken place; A and B therefore secure an advantage and the expense of C and D. Were this not the case, the market for bribery and other forms of commercial corruption would be rather small...

As for VAT, if I had that whiteboard I'd go on to explain the meaning of "the deadweight cost of a tax". Roughly speaking, taxing trade raises less revenue for the taxing authority than the value lost to the traders. The difference is the deadweight cost. The heavier the tax the greater the proportion of deadweight cost to revenue raised. (The next step in the exercise is to show that an external subsidy costs the subsidiser more than the additional value seen by the traders.) But taxes need to be raised somehow, whether they are raised on the trading of goods and services, or on the trading of labour, or on business profits, or on something else. Spreading them out over many activities has the advantages of minimising the deadweight costs and making tax harder to evade entirely.

This is largely true, although it takes no account either of (a) the administrative costs to the traders, their customers and the tax collectors or (b) the raft of anomalies arising from differences in the tax treatment of different goods and services, the changes in these that take place from time to time or indeed the VAT registration thresholds that can offer advantages to some and disadvantages to others merely by reason of their very existence. VAT is certainly harder to avoid than some other taxes (although those sufficiently determined to minimise their liability can - and no doubt do - consider purchasing at least some of their taxable goods and services from a country whose VAT régime is the least punitive at any given time, just as firms relocate their registration and heads of operation to places where the corporation tax régime is the least onerous).

[ahinton]

Perhaps the fetishisation of home ownership is tied up with such expressions as 'An Englishman's home is his castle', & the past restriction of the franchise to property owners.

It might not be helped by that kind of expression but I don't believe that the situation is as you say; some people who try to purchase their own homes do so out of fear that they'll be unable to guarantee the length of time that their landlords would otherwise agree to continue to rent their properties out to them; let's not forget that one of the incidental but important and largely unavoidable costs associated with housing is that of moving home and, with that in mind, some people prefer to have as much control as they can over when, to where and how often they relocate.

There is also the factor that some people like to have greater control over what they can do with their homes rather than having always to consult landlords before making any alterations that they might like.

[french frank]

A mortgage may be a tough thing to pay off, but renting forever is putting money into other wealthier peoples pockets.

I've been trying to find the source of the saying which goes something like:

"Everyone should own the house they live in and no one should own the house that someone else lives in."

These things are relative. 'Rich people' certainly do rent. They rent the highly desirable addresses which aren't for sale - and which are so expensive even they probably wouldn't want to fork out for them.

[johnb]

For as long as I can remember politicians have been encouraging people to buy their own homes and they have consistently taken misguided measures that have resulted in house prices spiralling out of reach. Finding ways of making it easier for first time buyers to buy their first house might seem laudable but in fact doing do helps to maintain and even push up house prices even further.

House prices are still way too high and need to come down to their historic level of around three times average earnings. It is only then that they will be within reach of first time buyers.

PS I am always puzzled by the "plight" of the house building industry. House prices have spiralled over the last few decades - much more than the cost of labour or materials, so the building firms, if run efficiently, should have been raking in the profits.

[teamsaint]

high house prices (and rents) are due to lack of supply, which can be, and needs to be, urgently addressed.

I would also say that renting might be much more attractive(in its flexibility etc) IF other areas of our financial lives were not so insecure.
However, for many ordinary people, good, secure jobs, and the likelihood of a decent pension, are rapidly becoming things of the past, leaving home ownership as one possible, (though not certain) source of financial security.

There is no reason at all why in a rich economy like ours, it should not be a sensible aim for most people to aspire to own one home.

[Anna]

House prices are still way too high and need to come down to their historic level of around three times average earnings. It is only then that they will be within reach of first time buyers.

Exactly. But how could it be achieved? Those who bought at the peak of the boom are now, in many cases, finding they have negative equity, they cannot sell (it would leave them in debt and thus unable to buy again) First-time buyers, on average salaries, cannot 'get on the ladder' without help from Mum & Dad or Grandparents, without first-time buyers the market stagnates as no-one can move upwards, from a 2 to a 3 to a 4 bedroomed property. No, I think we are stuck with the situation and the only ones who can benefit are those who bought when prices were reasonable and can afford to downsize but again, that's no help to first-time buyers. Personally, I think the right to buy should never have been introduced, thus depleting the stock of affordable housing. Did anyone see Ian Hislop's programme last night about philanthropic bankers and in particular, George Peabody? I ask because, doing family research, so many of mine lived on various Peabody Estates.

[teamsaint]

Anna is right that there are lots of built in problems in the market.

But the solution to the supply problem, which is a huge problem, is simple: build more houses and flats. This involves allowing more redevelopment, more use of land etc, some of which may not be popular with everybody.

It can be done. But there is no political will.(presumably because politicians kids aren't the ones struggling to buy or rent a house.

[ahinton]

Anna is right that there are lots of built in problems in the market.

But the solution to the supply problem, which is a huge problem, is simple: build more houses and flats. This involves allowing more redevelopment, more use of land etc, some of which may not be popular with everybody.

It can be done. But there is no political will.(presumably because politicians kids aren't the ones struggling to buy or rent a house.

Also, perhaps, beause the money isn't easily sourced and allocatable for this purpose - and, in any case, even if it were, there's no guarantee that the building of more houses would bring the average house price down; one has only to look at the often absurd results of enforced construction of so-called "affordable housing" which have as often than not escalated in price to the point where it's become unaffordable to those for whom it was presumably intended in principle, even before the houses have been completed. Where I used to live in Bath, there was a joke circulating (admitedly back in the days when the property market was more buoyant than it's been of late) that it won't be much longer before an outside toilet there will reach £1m...

[teamsaint]

even in our skewed housing markets, the laws of supply and demand pretty much apply.
The availabilty of land for housing, and its consequent cost are a major factor.
I accept that there is a built in problem of land banks bought by builders at top prices.......but that could be sorted out.