How come whenever there is a problem in the economy or society, the first reaction by the politicians is to raise taxes. A skeptic would think that they use problems to increase the power and scope of government (see “You never want a serious crisis to go to waste,” Rahm Emanuel).
So there is no surprise when the chief policy maker at the Bank of England wants to raise housing taxes to stop bubbles.
Bank of England policy maker Adam Posen said the property market should be taxed to keep a lid on price swings that may destabilize the economy as officials develop tools to prevent another financial crisis.
The point is to consider changing the incentives and leaning against the wind in the real estate market directly, rather than at one remove via the banks, or taking on the economy as a whole via monetary policy,” Posen said in a speech in London today. A new levy should act as an automatic stabilizer that counters “unrealistic” price swings, he said. via Bloomberg
If you have read this site you understand that I am a free market type. We had a housing bubble created by really cheap money. Really cheap. Banks and Lenders were incented to lend it to get through the emotional crisis of 9/11 and the stock market bubble. Add in new technology that was being tested in real time provided results that were not expected.
Add to that a governmental policy that was aimed at increasing home ownership you had banks being penalized for being prudent lenders. They were told to lend as much as they could and as quickly as they could.
They followed the government edicts and a housing bubble was born.
Now the government is doing all it can to slow down the popping of the bubble and create a soft landing by spending money it does not have. This is working to a degree but it is prolonging the downturn while making the upturn less emphatic. A weak economy does not motivate people to invest and strive for a better life, they hunker down instead.
The analogy that comes to mind is taking off a big band-aid. You can rip it off quickly and deal with that intense searing pain for a few seconds. Or you can pull the band-aid off slowly, feeling every little bit of skin stretch and pull over a long period of time. The slow approach hurts less but the pain lasts much longer.
That is where we are in the real estate market. We accepted the politicians message that managing the downturn was the right thing. Instead of a rapid decline to a solid bottom we are wallowing our way down. The result is a weak market, more foreclosures, and an agony that is stretched out.
And now the British are thinking let us tax the market, filling the governments coffers even more, and constantly hurt the real estate market trying to avoid that big pain.
I can not say I agree.
Give me a quick pain knowing I will be able to go on with the rest of my day and I will be very happy. Bubbles happen, always have, and always will. Fortunes will be made or lost in a capitalistic society.
Ask any real estate professional now if they would have preferred a terrible 2007 knowing that by late 2008 the market would come back to normal volume and to person they would say yes. Instead we are hoping year in and year out for the market to come back.
We have forgotten a very important lesson:
To protect against bubbles is to remove the ability and motivation to create fortunes. It is a form of socialism that is insidious as it provides safety but destroys motivation.
Something we must fight tooth and nail against.
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I cant agree 100%, I feel like purchasing a home should be between you and the agents and the seller, it should not involve tons of banks and third parties. Less than 50 years ago most people owned their home without a mortgage, but now banks have insinuated themselves into every aspect of the home buying process making home costs skyrocket and now no average American can buy a home without the help of a bank.
-Tyler