As London property prices continue to skyrocket, is the recent Lib Dem ‘mansion tax’ proposal the answer to curbing this rise?
According to the February Land Registry (LR) statistics, over the last 12 months London house prices have experienced an increase of 13.8%. The statistics also show that the number of properties sold in England and Wales for over £1 million increased from 642 in December 2012 to 898 in December 2013, an increase of 44%. It is clear that there is a huge demand for multi-million pound properties in London and the South East, which is only adding fuel to the already over inflated UK property market.
So what is the answer to curbing London property prices?
The current Westminster government has already given several indicators to suggest that they are considering a wide range of measures.
Liberal Democrat MP and Treasury Chief Secretary, Danny Alexander, has recently unveiled proposals to introduce a new council tax on properties worth more than £2 million, dubbed the ‘mansion tax’, the proposal has already been given the nod by George Osborne.
Nine in ten people who would be affected by the new tax live in London and the South East.
Danny Alexander has said that the tax would “release a wee bit of steam” from the London property market, but would the introduction of this tax release too much steam?
The tax would bring property taxes in London into line with taxes in New York, Paris and Frankfurt, but it is important to remember that these countries have experienced nowhere near the same level of growth as the UK.
With the majority of foreign buyers buying properties worth over £1 million in London and the South East, it is little wonder that concerns have been raised over this policy. It has the potential to drive away foreign direct investment into London and the South East, which would have a significant effect on the UK economy as a whole.
The answer isn’t to make the UK look less attractive to potential foreign buyers, since it would lead to the decline in foreign direct investment, which we all benefit from, but it comes down to simple economics of supply and demand.
Rather than creating policies aimed at attracting voters ahead of the 2015 general election, perhaps the government should be looking at ways to increase the supply of houses on the property market.
Jonathan Hudson, Founder and Director, Hudsons Property, London