Now, Britain wants to juice housing market

The English are obsessed with owning property but Boris Johnson’s government worries that they’ve not been buying nearly enough houses lately. As elsewhere, the UK housing market was put into suspended animation for several weeks to help contain Covid-19.
Now Johnson’s finance minister, Rishi Sunak, apparently plans to put a rocket under the market by temporarily scrapping transaction taxes — known as “stamp duty” — for homes that cost less than 500,000 pounds ($628,000), according to newspaper reports. The change would apply to England and Northern Ireland (Wales and Scotland have separate rules) and it’s possible the threshold and eligibility requirements could still change.
High transaction taxes constrain labour-market mobility, making people think twice before buying a property so they can switch jobs. They also stop elderly people from downsizing to smaller homes, which is a problem for a country that doesn’t have enough housing supply.
So, in theory, I’m all for cutting stamp duty, which is levied progressively at higher rates the more a home costs. However, temporary changes to property taxation risk distorting the market and creating a hangover later on. Moreover, it’s entirely rational to be cautious about buying a home right now. Britain is entering its worst recession in 300 years, and millions of workers are on furlough and don’t know whether they’ll still have a job come the autumn. Coronavirus infections could surge again, requiring lockdown measures to be reimposed.
The Bank of England’s chief economist, Andy Haldane, says uncertainty about the economy is the highest in his three-decade career, and his employer said previously that house prices could fall as much as 16%. Is it responsible for Johnson and Sunak to prod people to commit to the biggest financial commitment they’ll ever make at a time like this?
As with the government’s program of home-purchase subsidies, known as Help to Buy, this feels like another attempt to prop up high house prices by stimulating demand, even though what England needs desperately is more supply. Providing the latter might cause prices to fall and thus better help those trying to get on the property ladder.
In fairness, you can see why the government might see this as a good way to stimulate spending: English house prices are wildly over-inflated, but when they’re rising they create a certain feel-good factor for consumers. Saving your money might be the more prudent thing to do right now, but if everybody does it simultaneously, the economy will grind to a halt — a phenomenon John Maynard Keynes dubbed the “paradox of thrift.” When people move house they tend to spend heavily on renovations and the services of estate agents and lawyers.

—Bloomberg