Media Watch: Times blames Mansion tax fears for London house price drop. But where’s the evidence?

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The survey cited doesn't mention the Mansion tax, so the Times points to a 'general feeling'

 

A spectre is haunting London – the spectre of Labour’s Mansion tax. Fears over the proposed charge on £2million homes are driving down house prices in London, despite a rise in prices in the rest of the country. The Times has the scoop: ‘Mansion tax fears depress house prices across London’.

If we leave aside for a moment whether house prices in London couldn’t do with a bit of depression, what evidence is there that ‘Mansion tax-dread’ is the cause of this drop in prices?

Well, there isn’t any – at least, not in the Times story, which cites a survey by the Royal Institution of Chartered Surveyors (RICS) for February, released today, which found a rise in house prices nationally, and a price decrease in London.

Trouble is, the survey doesn’t mention the Mansion tax, either in its sample of responses or in it’s analysis. Neither does the RISC’s press release on its website. In fact, the only link made between lower prices in London and the Labour policy is in the Times piece itself:

“London homeowners are wary about moving because of extra fees and taxes they might face from a new government in May. Labour has already promised a tax on properties worth more than £2million, and there is a general feeling that politicians will step up their efforts to tap into property wealth for money to fund public spending.”

Ah yes, a “general feeling”. No evidence is provided for this assertion, or for “wariness” among homeowners.

Of the scores of RICS members quoted in the survey, which are only a sample of the 324 responses collected, just two mention the Mansion tax, and only one of these is based in London.

And with house prices rising nationally, and Labour’s policy intended for the whole country, why is this fear of the Mansion tax only gripping London?

Besides all of that, a 28 per cent drop in the ludicrously high price of a home in London will be music to the ears of many potential buyers. A report from the charity Shelter recently found the average house price in London is now almost 15 times the average wage.

Plus the Mansion tax will only affect homes worth over £2million – less than 0.5 per cent of all homes in the country – and only when the owners earn more than £42,000 a year.

So if the Times is going to claim fears about Labour’s Mansion tax are driving down house prices in London, their evidence ought to be more than a “feeling”.

Adam Barnett is a staff writer at Left Foot Forward. Follow him on Twitter

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64 Responses to “Media Watch: Times blames Mansion tax fears for London house price drop. But where’s the evidence?”

  1. Lorne Gifford

    here’s an example:

    “And with house prices rising nationally, and Labour’s policy intended for the whole country, why is this fear of the Mansion tax only gripping London?”

    I would have thought the answer is obvious; of around 108,000 homes valued at more than £2m 100,000 of them are in London. 87 apparently are in Wales, so I suspect the amount of fear in Wales is a bit lower.

  2. JamesTennant

    So you don’t actually have any evidence then.

  3. Lorne Gifford

    err, how can you say that when the very first thing I did was to present some evidence?

    here’s some more:

    http://www.thetimes.co.uk/tto/business/industries/construction-property/article4380701.ece

    https://www.primeresi.com/mansion-tax-creates-two-speed-market-in-prime-central-london/53467/

    http://www.theguardian.com/money/2015/feb/27/london-house-prices-slip-in-january-after-stream-of-rises-in-2014

    and here’s some mathematics:

    With 108,000 homes valued at more than £2m this means each home will pay on average £11,000 per year to raise the £1.2bn. 108,000 homes is about 0.5% of the total housing in this country.

    Stamp duty is paid proportionally more on more expensive homes. It’s often quoted that the top 1.5% of homes make up over half the stamp duty revenue. The top 0.5% therefore make up about a quarter of the total stamp duty revenue. (sliding scale remember).

    Stamp duty revenue is £12 bn per year, so ‘mansions’ generate a revenue of about £3 bn per year.

    If mansion tax is introduced at the average £11,000 a year then that cost becomes a debt burden on ‘mansion’ owners. It’s a debt burden that is reflected in the reduced amount people will be willing to pay. (for examples just look at every country in the world that has this type of property tax).

    £11,000 per year, every year into the future works out as an equivalent debt of about £1 million. (Use an NPV into perpetuity calculation to work this out)

    108,000 homes all now worth on average £1m less than they were before the tax came in has quite a dramatic effect on the stamp duty revenue that can be garnered from them.

    The stamp duty revenue loss is easy to calculate. An average person moves about once every 10 years, so 11,000 mansion are sold every year. 11,000 x £1 million less each x 12% stamp duty = £1.3 bn loss in revenue.

    So reference, evidence, and mathematics. To be honest I find mathematics is the only language that speaks the truth so I’d go with that assessment.

  4. JamesTennant

    All the supposed evidence you point to is merely speculation. The reasons for movement in the housing market are not necassairly due to a potential impending property tax. You may be convinced but its not the same thing as has having evidence.

  5. Lorne Gifford

    yes, agreed, but any effects of a future tax are by their nature going to be based on a lot of speculation, assessment and the opinions of the author. That’s why I like to do the mathematics, and I have to say it doesn’t look good.

    You could also take the past history of this type of tax introduction, but that involves looking across to Greece where it was introduced in 2008, and I think we’d all agree Greece is not a particularly stable economy to draw judgement from.

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