"Experts" from the Royal Institution of Chartered Surveyors (Rics) has today told the Bank of England that it should take action to restrict the annual rise in house prices to no more than an average of 5%; this would be achieved not by controlling house prices directly but by introducing strict limits on the amounts that purchasers could borrow. Other "experts" have already suggested that such an idea would be unworkable.
In my simple mind, the fact that such a scheme wouldn't work is so blindingly obvious that one has to wonder who are these "experts" from the Rics and why should any of us ever again take the advice of a surveyor seriously. They seem to have ignored the enormous diversity in the housing market across the country and come up with a piece of nonsense.
It is a fact that house prices in some parts, notably London and the south east of England, are very much higher than in other parts, notably Wales; it's also a fact that prices are increasing fairly rapidly in the south east while they're falling in Wales. How can a policy such as that proposed by the Rics cater for both of these scenarios ?
We are told constantly that there's an inadequate supply of houses and that this is the principal reason for the rise in prices - so why are prices still falling, or at least not rising, in many parts ? There can, of course, be no doubt that prices in the south east have risen much more than in the rest of the country over a period of many years, but it costs no more to build a house in London than it does in Lancashire, Durham or south Wales, so why is there the huge disparity in the ultimate price charged for new homes in these areas ? Partly the answer is demand, partly it's the price of land and partly it's profiteering by the builders; the biggest element in all of this is the price of land.
Today, those who already own property in London and the south east are asset rich compared with their counterparts elsewhere in the country. They can afford to sell and move almost anywhere that they choose, quite probably buying a better property for less money and putting a tidy profit in the bank; those who live outside of this privileged area can rarely, if ever, afford to move into it without being prepared to take a massive cut in their living standards. The concept of a "2-nation country" can rarely have been more plainly apparent.
Bringing my simplistic mind to this issue, I see a simple solution which will at least limit any further increase in the nationwide disparities that exist. Firstly, introduce controls on land prices, either making the land on which houses stand a 'free good' or introduce a standard price for land across the country; there would have to be transitional arrangements for all existing properties but I'm sure that the "experts" at the Rics could work something out. Secondly, extend capital gains tax to include any profit resulting from a house sale that exceeds the increase in CPI over the period from when the property was purchased; all such excessive surpluses would be subject to tax at 100%.
These measures would ensure that the artificial and highly damaging house price bubbles of recent years don't recur, though there might be some short-term pain. Individuals who'd hoped to spend the profit from their nice London house on buying a villa in Spain or a Lamborghini or 2 might be upset; meanwhile, the government would be able to use the forfeited surplus to build more houses and/or invest in other parts of the country.
I am no economist and these ideas might be every bit as unworkable as those put forward by the Rics, but then I don't claim to be an "expert". Then again, they, or some part of them, might just work.
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