@djh
to take your example, someones in a house they bought for 100k 10 years ago. They need to move.
Assume that house prices have kept pace with inflation only. At 2% per year we get a new price of ~125k. As the cg tax has an allowance for inflation if the house issold at 125k the capital gain is zero therefore no tax is due and all the person has to deal with is the usual housemoving costs. so no change to labour mobility.

Is house prices had risen slightly above inflation, say because the local area was getting better, then the house is sold for 150k, giving a 25k capital gain. As the seller has a cg tax allowance of (lets say) 15k tax is due on 10k of capital gain I.e. 4k tax. But that's tax that's on unearned income. Still the mobility of the seller has not been significantly impaired.

In the case of a bubble where the price had shot way above inflation and earnings, the cg after allowances could be 100k, so 40k tax.

What a cg tax would do is close the anomaly where you pay no tax on an unearned income. Say you bought a house and suddenly the previous owner becomes super famous. The house you bought for 100k is now worth 900k just because that fsmouse bloke used to live there. Id it fair that you get an 800k windfall (that's banker bonus sized) totaly free of tax?

on another issue, assuming any restriction in supply, the avalibikity of cheap credit has a massive impact on prices.

Ok, lets turn the cg tax question in its head.

Why should you not have to pay cgt on your main residence but pay it on:
- a second residence or buy to let
- industrial machinery or plant
- art or antiques
- land


As for mobility of workforce, renting is one option. Only one months notice, no selling fees, no bridging loans etc

Posted By: beelbeebubOk, lets turn the cg tax question in its head.

We are all quite comfortable with the concept of tax, though we may disagree with the different rates charged for different earnings, purchases and sales (if your trading). What is really the problem with taxing a sale of a house, or split it 50/50 with the buyer. It is the rate that becomes important, not really the concept of extending CGT.
Though this is digressing from the original question.

Posted By: djhTry to keep up!

Thought I had, why I mentioned the rate that is charged rather then the just dismissing the concept
Just had a look at the HMRC website and there are a few building related things that are 0% rated as opposed to except. 0% Rated can easily be changed to a higher figure, so we all live pretty comfortably with the idea.

Sales volumes do not normally affect the market price apart from at the bigging and end of the products life cycle. If something is sold out, it was begin sold too cheaply.

I am not sold on the mobility problem being caused by the high cost of moving. I live in a poor area that has a highly skilled, mobile and flexible labour force. We seem to survive down here by changing what we think is important in life, possibly why this area came second in the UKs 'happiness' index (Cumbria came first, so must be rain that makes us happy).

Posted By: SteamyTeaI am not sold on the mobility problem being caused by the high cost of moving. I live in a poor area that has a highly skilled, mobile and flexible labour force.

I don't understand. I can recognize your first sentence as an opinion and I recognize your second sentence as an assertion of fact. But I don't see any connection. In particular, I don't see how the second sentence supports the first. It appears to be just a random observation. In short, I don't follow your logic.

House prices are pretty static where I am, but we're right next to one of the major new development areas (Ebbsfleet valley). We're expecting it to improve our property value due to the improved services and transport links.

I think investing in other forms of infrastructure would be better at the moment.

Isn't it also a bit daft to be taxing house building (via the CIL) and then subsidising it? Why not cut the CIL and directly subsidise the infrastructure building that the CIL was intended to finance?

I think you want to tax at the wrong point in the housing sequence. In my opinion the main gains are made after land is declared building land - a massive increase in value due to no productive costs or other inputs. In Germany a capital gains tax of 35% used to apply, don't know what it is at the moment At this point the L.A. could also take a third of the land instead of the tax, if they chose to.
If you applied a capital gains tax on first homes, 'people like us' wouldn't so easily invest in our homes and improve buildings, because they will easily go beyond the average inflation increase. OK, on the other hand you woudn't get that many extensions built and there would be more smaller properties for the massively increased number of single households.

I think that CG tax is levied on the increase in land value after PP is granted.

I agree that in the quest for labour mobility any extra obstacle is unwelcome, but the biggest obstacle is the high price of houses. If CG tax on (primary) house sales were levied and that made housing a less attractive speculative investment then that might (ong term) bring the price of housing (in real terms) down. This would be improve labour mobility.

Bear in mind that CG tax would only be levied *if* the increase in the value of the home (i.e. the difference between the price you bought it and the price you sold it) is greater than the calculated allowance (i.e. the allowance for inflation plus your personal allowance). If we did not have house price inflation, then there would be no CG tax, and thus no increase in the drag on labour mobility.

As a side effect if the CG was negative (i.e. you sold the house for less than you bought it) you should be able to claim tax relief (reverse tax if you like) which you could offset against any other capital gains! Nice way for HMRC to share the pain of a housing crash!

To sum up: (feel free to disagree with anything below just explain why )

I am in total agreement that labour mobility should be kept high (or at least low mobility is bad).

I think that high house prices (relative to average incomes) lower labour mobility.

I think that one of the factors feeding into high house prices is the attractiveness (from a tax point of view) of speculating on the value of your primary home.

The attractiveness of this mode of speculation is partly due to the loophole that allows you to avoid CG (and hence all) taxes on any profits made from speculating on your own house.

I put forward that is CG tax were applied to all house sales (after allowances etc) it may reduce speculation of the kind above. This may reduce upward pressure on house prices and, in the long term, reduce house prices. In turn this may help labour mobility amongst other things.

Overall I think high house prices are a bad thing for any economy. The cash tied up in investing in houses would be better put to more productive uses.

All very interesting! I think its the constraint of a less then open market, i.e. the lack of new housing. If you live on the outskirts of a desirable place to live, say Oxford. Living in your three bedroomed house, worth £400k and a developer wants to build 2000 houses on the field across the road from you, what will you do? Say thats great, my children will (eventually) be able to buy one or think thats going to bring the value of my house down by £50K and start to object to the lack of dog walking space. This is what the Conservatives localism means, the major building has been for flats to rent in city centres, where no one will object.
Until the supply/demand ratio is settled the price of houses will always increase slightly faster then inflation, what will happen is that the grade of house any one lives in will be slightly lower then the equivalent twenty years ago. As an example my fathers house is now worth £500K and as a ware house foreman there would be no way he could afford it now, while 40 years ago he could (and did at £10,500).
I take exception to the term "speculate" with respect to ones own home. I presume this "speculation" is involved when one buys a new HiFi or a new car. Its only speculation if the gains (or losses) are unknown, as house prices always rise over any medium term, the term to use is invest.
What is required is to bring the present rate of house price down gently, this I think must be done by building more houses with some genuine reason to buy one (Bring back Parker Morris). There are about 32,000 Parishes in the country, it would be a good idea for every one to have to build ten new houses for low income purchasers with relaxed planning rules, the trouble is no one is in charge of the parishes so such an idea has no hope of succeeding.
Grrr!
Frank

Posted By: beelbeebubMy point is that when house prices are well out of line with rental prices, i.e. it is noticeably cheaper to rent than buy, buying a house is only rational if you expect house prices to increase so that that you will end up better off when you sell.

I hate to bring this up, (and I am not anti the former prime minister) but the selling off of council houses has been a major factor in all this as it did inflate rents (an unexpected consequence).

I think one way of tackling this is for councils/govt/housing associations to start a major building programme of building for rent. The aim of this is to keep house prices static for an extended period, to allow wages/disposable income to recover and give those renting the chance to build some sort of deposit. A comment on Wake Up To Money on Five Live the other day, suggested that pension funds may start to look at this as an ROI of 4% would be better than they can get almost anywhere else and they have the cash to spend.

I have just had a look at the census data and second homes accounts for between 170,000(1994/5) to 210,000 (2003/4), 50% are holiday homes, 20% are second residencies (work related), leaving 30% for others (maybe refurbs, bought for kids at college, pure speculation etc).
Not sure of the actual average house price in that period, probably went form a historic low of about 2.5 times average income to 8 times average income. But I fail to see how less than 1% of the housing stock can influence the price at the national level.
Regional and local may be different (I live in an area with more than a couple of holiday homes).

So let's think about purely holiday areas (call it Porthleven or Sennen Cove if you like). These are both fishing villages, both were small 50 years ago, both had failing economies because of legislation/global/finance trade against the two major industries (fishing and mining).
So did 'local' sell up and move to work other places, or did they get forced out by the changing nature of second home owners.
They went to work other places (hence down every mine you find a Cornishman).
Now taking Porthleven and Sennen Cove as two similar places 50 years ago, they took different paths. Sennen because a place of second homes and holiday lets and now relies on tourism (there are a few boats left, and the life boat of course) but because of the geography it is unable to expand to any great extent. Porthleven on the other had, which also has a thriving tourist industry, lively pubs and cafes, the best restaurant in Cornwall (Kota/Kota Kia) but also has two relatively new housing developments, keeping the locals local. Some of these houses are rented or sold to people at the Airbase (the ones that keep our sailors safe), but most are still in local ownership. Now there was a plan to build 300 new houses, guess who complained, not the wealthy second home owners, no, the locals., the very same people that had housing built for them to help them stay. Strange that. They have all become property speculators!

But back to the finance. There is a big difference between wealth and income. You can easily change the wealth of an area by just claiming that your assets are worth more. There is no real check on this until the time to sell comes.
So say I bought a house in 1983 for £15,000, was easy to do back then down here. I can claim that it has gone up 20 times to £300,000 (not unrealistic down here) or I can claim that it has gone up with inflation, so about £43,000 or I can claim that it has kept up with wage inflation, so about £35,000 in today's money. Which one is true, who knows.
So is the real problem the price, unrealistic over-valuation, lack or oversupply of housing or low incomes. Low incomes in my opinion with more people below the mean wage than above it. But we use median household income to set borrowing amounts (the 2, 3, 4, 5 times income), but if you think of money as a mass on a scales and find the mid point, it will tip to the higher income side (the geometric median rather than the arithmetic one), so this is really the problem, the distribution of income because quite simply, if all houses are sold they are too cheap and the supply needs to be increased (and we are not doing that).
So is there a simple solution, well not really, but next time you go to a shop, cafe, bar, tyre centre, supermarket, just think that by buying a cheap product you are helping to skew the income distribution even more. If you want to get property prices down then you have to spread income more evenly, which will have the effect of reducing relative property prices at the lower end more than at the higher end (exclusivity can still command a premium for those that do not need to borrow).
The main thing we need to do is increase the housing stock, the accumulative wealth will be the same, just better spread out amongst the population, and we may then get out of the circle of creating ghettos of affordable housing and allow people to live decent lives.
My rant over