Azara Blog: UK government wants to throw money at the housing industry

Date published: 2008/09/02

Homebuyers will not have to pay stamp duty on properties costing £175,000 or less for the next 12 months.
The current £125,000 threshold will be raised as part of a package of measures aimed at boosting the housing market.
Someone buying a home for £175,000 will save £1,750 under the scheme, which is likely to cost the Treasury £600m.
The government estimates half of all property transactions will now be exempt from stamp duty - up from one third when the threshold was £125,000.
...
Other housing moves announced by the government include:

"Free" five year loans of up to 30% of a property's value for first time buyers of new homes in England

Extension of powers for councils and housing associations to be able to pay off debt for homeowners who can no longer afford mortgage payments and then charge rent.

Shortening from 39 weeks to 13 weeks the period before Income Support for Mortgage Interest is paid

Bringing forward spending from future years to encourage more social housing to be built

The funding for these measures, which unlike the stamp duty move will only apply in England, has been previously allocated and brought forward, the Treasury said.

Under the new loans system, called HomeBuy Direct, households in England earning less than £60,000 will be offered loans free of charge for five years on new properties, co-funded by the state and developers.
Once the five-year "free" period is up, homebuyers will be asked to pay a fee, the Department for Communities and Local Government said - although no more detail of this was provided.
In a statement, the DCLG said: "Not only will this [HomeBuy Direct] help first-time buyers... it will help the housebuilding industry weather difficult conditions."

Most of the substantive announcements are bad policy, with Gordon Brown yet again putting what he perceives as his narrow partisan interest above the interest of the country (not that this will avoid him getting defeated at the next election).

The one bad thing about stamp duty is that the rate is absolute, not marginal. Unfortunately this one bad thing is never discussed. Instead here we have an arbitrary raising of the base threshold for an arbitrary period of one year. So now, temporarily, someone buying a home for 175k will pay no stamp duty, and someone buying a home for 176k will pay 1760 pounds in stamp duty. Well that makes sense.

And because the rate is absolute, not marginal, this raising of the base threshold will mainly help people buying houses in northern, rather than southern, England. It seems likely that the 600m pounds to pay for this will just be shoved on national debt, but in effect, it is yet another transfer of wealth from the south to the north, for no particularly good reason.

And this new loans system, HomeBuy Direct, seems really ripe for corruption. For example, if an unmarried couple wants to claim they are really two households, in order to get under the 60k earning threshold, then no doubt they will easily be able to do so. Why should households earning under 60k be given special handouts? And more importantly, why should the country be bailing out the housebuilding industry? It will be interesting to see the details of this scheme. Again, how is this going to be paid for?

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