What’s wrong with rising house prices?

The government’s ‘Help to Buy’ scheme could raise house prices by 20% in the next couple of years, according to a report by Fathom Consultancy.

This is not being heralded as good news by everyone (although The Express has followed its time honoured tradition of solely reporting on speculation about house prices with a very positive story)

But why would it be a bad thing for house prices to go up? We don’t worry so much when share prices go up, why are house prices any different?

Three of the most important reasons for concern about booming house prices are;

• It could be a bubble followed by a housing crash leaving people in ‘negative equity’

• Rising house prices can make it harder for first time buyers to afford to buy (especially if they do not have help from the bank of mum and dad)

• Less commented on, but still important, richer people might benefit disproportionately from rising house prices since they own more property wealth than the rest of us

So, as Lenin famously once said, what is to be done?

There is a healthy debate in think-tank land about so-called ‘de-coupling’, the idea that as the economy grows middle and low income people do not benefit because their wages do not keep up. This has lead to proposals such as living wage zones and representation of low paid workers on remuneration committees.

Perhaps we need a similar debate around how we can ensure that everyone benefits from rising house prices.

This could involve ways of re-distributing housing wealth including;

– A land value tax

– A ‘mansion tax’

– Or even more technical reforms of how we tax land and property which can be found in the Mirrelees Review

The money that these measures raise could then in turn be used to benefit those who do not have the good fortune of owning expensive properties that have gone up in value.

This could happen, for example, through;

– Funding a programme of housing associations or council built starter homes

– Funding part of the state pension as it becomes increasingly contributory

– Paying for part of a new universal adult social care system

Of course, as with so many questions of public policy, there is a possibility that any attempt to both take the heat out of the housing market and distribute gains more fairly, could be self defeating if they dampen the market too much.

However, this does not take away from the principle, that, currently, wealthy people disproportionately benefit from rising house prices and that we need to think about how we create a system in which more and more people, especially those on low and middle incomes, can benefit.

In defense of ‘pre-distribution’

Ed Miliband’s speech today has attracted some comment, especially over his use of the term ‘predistribution’.

Putting debates about language to one side, this is an excellent approach to age old questions about income inequality and one which is in step with the British public’s views.

‘Predistribution’ means how wages are spread out before tax and benefits. Some societies (e.g. Japan) have more income equality than Britain or America while actually distributing less through the tax and benefits system. Wages are just more equal.

What do the public think about these questions?

People in England certainly think that there is too much income inequality.

 

 

 

They also think that the current system is rigged and that there is one rule for the rich and one for the poor.

 

And that ordinary workers do not get a fair share of the nation’s income.

 

However, there is little support for government to take a more active role in redistributing money (for example through the tax and benefits system).

 

What this means is that there is great potential for Labour to promote policies which will bring about greater income inequality, without requiring redistribution of income through the tax and benefit system.

These could be policies around reforming the way pay levels are decided within companies, efforts to modernize the Trade Union movement or even efforts to make businesses less hierarchical.

The High Pay Commission have some interesting thoughts on this, as does Duncan Weldon at the TUC.

Whatever you want to call this theme and whatever policies come from it, it is clear that the public are firmly behind the idea of ‘predistribution’.

P.S. These numbers are taken from the British Social Attitudes Survey. I am indebited to this blog post for inspiration for this article.