Known for bending the truth? Check. Slick, but not very sincere? Check. Everyone hates them? Check. The list of similarities between estate agents and politicians is already surprisingly long. But now there is another.
They are both a largely parasitic class living off a percentage of property sales and with a big stake in keeping the market artificially frothy.
Government finances are becoming increasingly dependent on stamp duty. What used to be a relatively insignificant tax has become a major revenue source for the state, with higher rates and more and more transactions being pushed into the top brackets. That is hardly wise.
Just like an estate agency, it makes the government dangerously dependent on the property market for its own finances – and gives it an incentive to meddle.
Go back a couple of decades and stamp duty was just a small, irritating charge that got added on when you bought a property. In 1993, there was a single rate of stamp duty of 1%, and it only kicked in when a transaction was worth more than £60,000 – more than the average house price at the time.
Most ordinary people didn’t pay it, and when they did it was not a huge sum. It was similar to the solicitor’s bills, and less than buying the furniture or redecorating. Most people paid it without noticing.
But since then, it has kept on rising. After a series of reforms, we now have seven different rates of stamp duty, ranging from 0% for properties worth less than £125,000, to 3% for properties between £250,000 and £500,000, all the way up to 7% for those worth over £2m (and a punitive 15% if you buy through a corporation).
The very top end could be dismissed as a tax on the super-rich: £2m houses are not exactly mass-market products, even in London. But £250,000 is hardly a fortune to spend on a family home these days, and for that middle section of the market, stamp duty is now a major expense.
According to the Taxpayers’ Alliance, a lobby group, two in every five homes bought in 2012-13 will be clobbered with the 3% rate, creating a bill of at least £7,500. By 2017 it predicts that 80% of homes will be hit by some form of stamp duty.
In London, where prices are highest, many first-time buyers now have to pay the 3% rate, creating a huge bill that already cash-strapped young people struggle to pay.
A combination of rising stamp duty rates and house prices means that the revenue it brings in for the government keeps going up.
Accountants Grant Thornton predict receipts will go up from £4.9bn a year now to £13.7bn in a decade. That is roughly the same as the tax raised from tobacco duty, and five times that raised through the bank levy. The Office for Budget Responsibility expects revenue raised from the tax to rise by 73% by 2018, bringing in an extra £6bn a year.
A big slice of government revenues are now a geared play on the housing market. Just like an estate agency, the higher house prices go, and the more turnover in the market, the more money it makes. That is fine for private-sector companies. But it is hardly wise for the government.
There are two problems here. The minor one is that housing-market revenues are inevitably volatile. All markets go through boom and bust cycles, and the British property market is hardly an exception – indeed, it is usually an extreme example.
When prices are rising strongly, as they are now, revenues shoot up. But if the market collapses, the cash raised from the tax will collapse as well. A well-designed tax should aim to bring in a stable, predictable stream of revenue – and stamp duty is far from that.
The major problem is that the government is hardly a disinterested player in the housing market. It controls both supply and demand. Planning laws dictate the supply of new homes, and in the medium term that sets prices for the whole market.
As for demand, the government, via the Bank of England, controls interest rates; it influences the availability of mortgage through schemes such as Help to Buy; and it also controls immigration – the major short-term determinant of the number of homes that are needed. Pretty much everything that happens to the property market is influenced by the government.
But it now also has a financial stake in a buoyant market. Whether conscious of it or not, it has a big incentive to manipulate the market.
If it wants prices to keep rising, it can achieve that by restricting supply and boosting demand. And the frothier the market gets, the more money flows into its coffers. It may not do it deliberately, but it is hard to believe it will not be influenced by that.
And yet, higher property prices are not necessarily good for the country. Young people find it too hard to get a foot on the ladder. And too much capital gets tied up in one sector that could be better used elsewhere. It might well be better for everyone if prices fell to more reasonable levels.
But, through stamp duty, the government has turned itself into a giant estate agent, with a vested interest in rising prices. It shouldn’t be surprised if everyone ends up hating it as much as they do estate agents.