Budget comment: More money for Maths teachers, but a missed opportunity on housing and property
Mark Davies shared his thoughts upon, and reaction to, chancellor Philip Hammond’s Budget yesterday, and his thoughtful essay is reproduced below.
First, speaking to International Investment, Davies summarised his primary concern over the Budget thus:
“The big story here is the property matters.
“The UK has been a place for investing in commercial property. This has been a safe haven as you paid modest income tax, no capital gains tax and no inheritance tax. But Brexit fears are having an impact and these proposed provisions will discourage inward investment. It is a trade off that the UK got very little tax on capital gains.
“But think of the PAYE collected from builders, shop fitters, suppliers etc and all the infrastructure around office blocks, new cafes and so on all employing people. I don’t know if the Office for Budget Responsibility (OBR) has considered this but the lost revenue will be significant.
“It’s also a lost opportunity because the government could have offered tax breaks for foreign investment in building new homes.”
II: “Though there is a case to be made, isn’t there, that unfettered foreign acquisition of housing stock in London as a safe haven or piggy bank has contributed to the overheated property bubble that has made home ownership a far-off dream for an entire generation of Londoners?”
MD: “That’s what Diane Abbot would say, but I don’t think that foreign investors alone have pushed up prices. It’s pure economics of supply and demand. If you think of geography there is a limited supply of houses say in Mayfair so as its desirable demand will mean prices are high.
“Foreigners do buy buy-to-lets so taking then off the housing stock, but not everybody wants to buy. But I also think you will find that there are many Brits who have more than one home.
“The government is trying to tackle this but the solution is supply, because they have changed the taxes to limit foreign demand. So you have to ask what is limiting supply, and the answer is often cash, a developer has to borrow to buy the land and fund development.
“So my suggestion is that government should find a way to give tax breaks to foreigners to help build new houses. They want to invest in the UK, so rather than blocking all routes to market, make one route attractive to achieve that policy aim [of increasing the housing supply].”