Can taxes control house prices?
With some people arguing that we have not yet got through the bust, thoughts are already turning to how to stop the next house-price boom. Adam Posen, a member of the Bank of England’s monetary policy committee, argued last week that interest rates alone would not be enough to stop prices from getting out of hand in the future. One way to do so, he suggested, would be to vary housing taxes according to the economy’s position in the cycle. So, when prices are rising too strongly, stamp duty should rise to deter buyers. Other taxes could also be used to cool overexuberance. When the market slows and prices fall, such levies could be cut. We have, of course, seen a stamp-duty holiday on properties below £175,000 during this recession. Could such a variable tax work? There is a month of data to go, and anything could happen, but it seems clear that on the Nationwide Building Society’s measure, house prices will end the year higher than they started. Prices rose by 0.5% last month, up 8.3%
