Liberals vat on new houses

[OldNick]

Watching the leaders debates the other night, nobody really pressed Clegg about his plans to charge vat on new build and new houses.

Has anyone details of what they say about that in their referendum.

I may have misunderstood the issue and it is only on new build extensions etc, but if it covers new houses that would add a massive amount to costs.

PS I forgot to put ? mark on the thread title sorry

[buctootim]

I may have misunderstood the issue and it is only on new build extensions etc, but if it covers new houses that would add a massive amount to costs.

PS I forgot to put ? mark on the thread title sorry

 

Actually it wouldnt. The price of houses has got almost nothing to do with the cost of building them and everything to do with what people are prepared to pay. If a new build currently cost £300,000 slapping a 20% tax on them wouldnt push the price up by 20% because no-one would pay the higher figure, they'd buy an exisiting home instead.

 

Currently, on average, about one third of the price of a new build is the actual construction cost and the rest an inflated value for the tiny scrap of land it sits on. A tax would push down land values, no bad thing. A pretty painless way of raising money imo.

[OldNick]

Actually it wouldnt. The price of houses has got almost nothing to do with the cost of building them and everything to do with what people are prepared to pay. If a new build currently cost £300,000 slapping a 20% tax on them wouldnt push the price up by 20% because no-one would pay the higher figure, they'd buy an exisiting home instead.

 

Currently, on average, about one third of the price of a new build is the actual construction cost and the rest an inflated value for the tiny scrap of land it sits on. A tax would push down land values, no bad thing. A pretty painless way of raising money imo.

Of course , the builders would take a 20% hit!!!!!. Are you sure you are not Gordon Brown

When vat goes up on fuel do the petrol companies just absorb it or on any other products?

Adding VAT ot building costs would be passed on. They of course may make it a lower rate eg 5% but once it has been but on it will be a progressive tax.

[buctootim]

Of course , the builders would take a 20% hit!!!!!. Are you sure you are not Gordon Brown

When vat goes up on fuel do the petrol companies just absorb it or on any other products?

Adding VAT ot building costs would be passed on. They of course may make it a lower rate eg 5% but once it has been but on it will be a progressive tax.

 

Just like Pompey's administration you havent quite grasped it have you Nick? Land has no set intrinsic value. UK land prices are very inflated because builders compete with each other and drive up the price of plots to the extent their margins are quite small. Put a tax on the price of new houses, the margin between construction costs and sell price will narrow - driving down land values. Builders profits will be unaffected (apart from a writedown on existing land banks).

Edited 3 May, 2010 by buctootim

[$$$]

Second homes, buy to let and capital gains associated with them should also be taxed heavily. Funny how all the parties have skated around the subject of house prices...

 

Guess where we are at the moment?

 

 

Bring it on!!!

[OldNick]

Just like Pompey's administration you havent quite grasped it have you Nick? Land has no set intrinsic value. UK land prices are very inflated because builders compete with each other and drive up the price of plots to the extent their margins are quite small. Put a tax on the price of new houses, the margin between construction costs and sell price will narrow - driving down land values. Builders profits will be unaffected (apart from a writedown on existing land banks).

Well at present Iam not wrong about Pompey, they have gone against all normal business practice and are winning.

Building land value is high due to the fact that it is a finite product. Putting tax on the sell price will give the builders the same margin? I doubt it as a house say now with a value of 100k would be shall we say if a 10% vat rate (as an example) would be £110k

So with the tight rules the lenders are giving and their expectantcy of wanting a 30% downpayment makes it harder for buyers.Therefore less buyers, the builders may try and adjust their prices, so less profit smaller margin. In turn land does drop in value, but not before many builders will go out of business as their land bank would be purchased at the current rates and also many tradesmen laid off.

To think a vat levy on house prices would help builders is bizarre IMO.I can't think of any tax that has helped business but you obviously know better.

[OldNick]

Second homes, buy to let and capital gains associated with them should also be taxed heavily. Funny how all the parties have skated around the subject of house prices...

 

Guess where we are at the moment?

 

 

Bring it on!!!

Interesting graph, I assume we are at the blow off stage/ return to normal.

The lack of supply is keeping prices up IMO

We have sold up and are living in rented at present awaiting an opportunity, so far it has surprised that prices have stayed firm. Lack of decent properties coming up has kept the prices on the high side. I have seen a few high value repos come to the market and that may become greater. Our decision to sell and wait may then become the right one. If prices rise (not in my expectation)then our gamble would have failed. That's life I suppose we will just have to keep looking and waiting .At least we have the cash to move if and when an oppoortunity arises.

Edited 3 May, 2010 by OldNick

[buctootim]

Well at present Iam not wrong about Pompey, they have gone against all normal business practice and are winning.

Building land value is high due to the fact that it is a finite product. Putting tax on the sell price will give the builders the same margin? I doubt it as a house say now with a value of 100k would be shall we say if a 10% vat rate (as an example) would be £110k

So with the tight rules the lenders are giving and their expectantcy of wanting a 30% downpayment makes it harder for buyers.Therefore less buyers, the builders may try and adjust their prices, so less profit smaller margin. In turn land does drop in value, but not before many builders will go out of business as their land bank would be purchased at the current rates and also many tradesmen laid off.

To think a vat levy on house prices would help builders is bizarre IMO.I can't think of any tax that has helped business but you obviously know better.

 

 

'Building land is high because it is a finite product' is such a trite argument. You do know its finite everywhere - and yet land values are different everywhere. Surely it cant be that the prices are determined by what people are prepared to pay rather than supply?

 

The price of new build house are around 10% more than directly comparable 'used' houses. That is the premium people are prepared to pay to have that 'box fresh' appeal. That premium wont change because the LDs put a 20% tax on new houses. People wont suddenly pay 30% more for a new house. New build prices ex tax will fall in line with what the market will bear. The construction costs are pretty fixed, but land values arent.

[GenevaSaint]

Watching the leaders debates the other night, nobody really pressed Clegg about his plans to charge vat on new build and new houses.

Has anyone details of what they say about that in their referendum.

I may have misunderstood the issue and it is only on new build extensions etc, but if it covers new houses that would add a massive amount to costs.

PS I forgot to put ? mark on the thread title sorry

 

I thought I heard a figure of 5% in the debate.......

[OldNick]

I thought I heard a figure of 5% in the debate.......

 

I didnt hear that but Clear did say something about a flat rate nad like the utilities it may be 5%

Of course once the tax has been put on the item, it will never go away and then is tempting for any chancellor in the future to raise it.After the initial taking away of that perk, it becomnes easier for the exchequor to push that tax a bit more.

Stop it before it is applied would be best for all of us.

I do wonder that as none of the other leaders crucified Clegg on this issue they may well have similar ideas

[OldNick]

'Building land is high because it is a finite product' is such a trite argument. You do know its finite everywhere - and yet land values are different everywhere. Surely it cant be that the prices are determined by what people are prepared to pay rather than supply?

 

The price of new build house are around 10% more than directly comparable 'used' houses. That is the premium people are prepared to pay to have that 'box fresh' appeal. That premium wont change because the LDs put a 20% tax on new houses. People wont suddenly pay 30% more for a new house. New build prices ex tax will fall in line with what the market will bear. The construction costs are pretty fixed, but land values arent.

Supply of prime land , prime position commands a premium that is obvious.How long do you think it will take for land prices to drop to the level that the 20% could be absorbed so that the builders would not be losing their margin?

My understanding would be that the builders have bought the land a year or so before the houses come to market. They cant adjust the next day and still take a 20%hit on prices.

[buctootim]

Supply of prime land , prime position commands a premium that is obvious.How long do you think it will take for land prices to drop to the level that the 20% could be absorbed so that the builders would not be losing their margin?

My understanding would be that the builders have bought the land a year or so before the houses come to market. They cant adjust the next day and still take a 20%hit on prices.

 

Agreed. 20% imposed overnight would casue massive market dislocation, but built up to over a period of years it could raise a very large sum without anybody, except land speculators, losing out.

[OldNick]

Agreed. 20% imposed overnight would casue massive market dislocation, but built up to over a period of years it could raise a very large sum without anybody, except land speculators, losing out.

The buyers would lose out as they still will pay more than they would do so as the conditions are now.

[$$$]

Interesting graph, I assume we are at the blow off stage/ return to normal.

 

By a chap called Jean-Paul Rodrigue. Interview with him here http://canadianfinanceblog.com/2009/08/06/is-the-current-market-a-return-to-normal.htm which explains it in more detail.

 

The lack of supply is keeping prices up IMO

 

From that article -

 

At some point statements are made about entirely new fundamentals implying that a “permanent high plateau” has been reached to justify future price increases

 

and

 

If the bubble is linked with lax sources of credit, then it will endure far longer than many observers would expect.

 

We have sold up and are living in rented at present awaiting an opportunity, so far it has surprised that prices have stayed firm. Lack of decent properties coming up has kept the prices on the high side. I have seen a few high value repos come to the market and that may become greater. Our decision to sell and wait may then become the right one. If prices rise (not in my expectation)then our gamble would have failed. That's life I suppose we will just have to keep looking and waiting .At least we have the cash to move if and when an oppoortunity arises.

 

Makes sense the bigger the bubble is, the bigger the bull trap and capitulation stages will be. There is an advert/article here http://info.moneyweek.com/special_report11.php?jchk=1&nolog=1&jlnk=LSL0070#/that has some other graphs you may be interested in...

[Johnny Bognor]

Just a point to consider, for those that think VAT on houses will not make any difference, is what was all the fuss about regarding stamp duty?

 

If reducing stamp duty stimulates demand (which recently happened), how can VAT on property not adversely affect demand?

 

VAT on property is akin to extra stamp duty on new builds.

[$$$]

I believe that the removal of stamp duty only had a very minor affect on demand if that. Increased mortgage availability and affordability due to low base rate combined with increased confidence in the market are far more responsible. Transaction volumes are still less than half peak volumes and a good 30k+ off the volume historically needed to keep neutral HPI.

 

End of the day, the price is set by what the purchaser can afford/borrow. If people can borrow 10x salary and 100%+ value of property, values will shoot up. If people can only borrow 3x salary, need 25% deposit and pay stamp duty, sellers will need to drop their prices to have any hope of selling. VAT on new builds will just mean the builder will offer less for the land he wants to build on.

 

Not directly to you Johnny but have stolen this from another forum which sums up how seriously the different parties are viewing the current housing crisis -

 

Lib Dems:

They say we must undo the financial manipulation that allowed uncontrolled inflation in house prices. They oppose the construction of tower blocks of one-bed apartments, built largely to cater for BTL speculation. They want to build more of the family homes that people want and need. They accurately predicted the problems of the housing market and openly say it is one of the two most important issues to voters.

 

Labour:

Want to promote more shared ownership in order to artificially prop up the housing market with taxpayers' money.

 

Conservatives:

Appoint Kirsty Alsopp as housing adviser.

 

High house prices are bad for this country. Each rise makes this country less competitive and sucks more money into a black hole.

[Johnny Bognor]

/\

 

I am not sure I agree.

http://news.bbc.co.uk/1/hi/business/8511473.stm

 

The suspension of stamp duty at 1% did have an effect, albeit mild. Add 5% or 7% to the price of a house and it will definately have an impact.

 

First time buyers are struggling as it is and they are often the buyers of new build starter homes.

 

As for the other forum, was that SWF (Sandal Wearers Forum)?

[buctootim]

Just a point to consider, for those that think VAT on houses will not make any difference, is what was all the fuss about regarding stamp duty?

 

If reducing stamp duty stimulates demand (which recently happened), how can VAT on property not adversely affect demand?

 

VAT on property is akin to extra stamp duty on new builds.

 

 

There are 22m existing dwellings in the UK, and only around 50,000 new builds each year. With VAT only on new builds there wont be an effect on the overall market. Stamp duty by contrast applies to the whole market.

[Johnny Bognor]

There are 22m existing dwellings in the UK, and only around 50,000 new builds each year. With VAT only on new builds there wont be an effect on the overall market. Stamp duty by contrast applies to the whole market.

 

I think this is slightly misleading because as far as I was aware, all 22m dwellings were not for sale last year.

 

According to this site, 188,400 houses were sold last year:

http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/houses.stm

 

I also think that 50,000 is on the low side, as these guys reckon 122,000 were built last year

http://www.politics.co.uk/opinion-formers/press-releases/housing-and-planning/nhf-house-building-to-hit-lowest-levels-since-1923-as-housing-waiting-lists-hit-record-high-$1358759$364344.htm of which 45,000 were housing association, so the net new builds are 77,000.

 

Taking this into account, VAT on these homes would affect more than 40% of the market, so much more significant than you are letting on. Even on your 50k estimate, 25%+ of the market would be affected.

 

While searching for the stats, I stumbled across this: http://www.sandalstore.co.uk/, I hope it is of interest.

Edited 4 May, 2010 by Johnny Bognor

[buctootim]

I think this is slightly misleading because as far as I was aware, all 22m dwellings were not for sale last year.

 

According to this site, 188,400 houses were sold last year:

http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/houses.stm

 

I also think that 50,000 is on the low side, as these guys reckon 118,000 were built last year http://www.24dash.com/news/Housing/2010-02-18-Number-of-new-homes-built-falls-to-lowest-level-for-64-years

 

Taking this into account, VAT on these homes would affect nearly 66% of the market, so much more significant than you are letting on. Even on your 50k estimate, 25%+ of the market would be affected.

 

While searching for the stats, I stumbled across this: http://www.sandalstore.co.uk/

I hope it is of interest.

 

Fair point about the whole 22m not being for sale, and yes 50,000 new houses is historically low. However your figures from the link were for just for 1 quarter, in a depressed market, not a whole year. In 2007, a more 'normal' year, around 1.6 million homes were sold, so your figure of 118,000 new houses would constitute only about 6.5% of the market.

 

http://www.guardian.co.uk/money/2008/oct/21/property-house-prices

 

I assume you directed me to sandalstore because you want to hit me with this http://www.sandalstore.co.uk/-c-11.html?osCsid=176f445114457518c4353ebc09fddcc7

[Johnny Bognor]

Fair point about the whole 22m not being for sale, and yes 50,000 new houses is historically low. However your figures from the link were for just for 1 quarter, in a depressed market, not a whole year. In 2007, a more 'normal' year, around 1.6 million homes were sold, so your figure of 118,000 new houses would constitute only about 6.5% of the market.

 

http://www.guardian.co.uk/money/2008/oct/21/property-house-prices

 

OK, I missed the quarter, but the 118,000 built were in 2009-2010, and your are comparing this to 2007, the height of the housing boom.

 

If I accept that your 1.6m homes were sold in 2007, then these guys reckon 675,000 were built in 2007 (http://www.communities.gov.uk/news/corporate/696795)

 

... which still equates to 40% of the market. i.e. the effect on the market is more than you are letting on.

 

I can only assume that you have been distracted by sandal store and are looking for a nice new pair for polling day. These guys are doing free delivery on sandals if you buy more than £30 worth. They may be able to deliver by thursday morning.

 

http://www.johnlewis.com/Women/Women%27s+Shoes/Women%27s+Shoes/Women%27s+Shoes/Sandals/-/Type+Women%27s+Footwear/7887/ProductCategory.aspx?s_kwcid=TC|16177|sandals%20online||S|p|4350078545

Edited 4 May, 2010 by Johnny Bognor

[buctootim]

OK, I missed the quarter, but the 118,000 built were in 2009-2010, and your are comparing this to 2007, the height of the housing boom.

 

If I accept that your 1.6m homes were sold in 2007, then these guys reckon 675,000 were built in 2007 (http://www.communities.gov.uk/news/corporate/696795)

 

... which still equates to 40% of the market.

 

I can only assume that you have been distracted by sandal store and are looking for a nice new pair for polling day.

 

Do you have problems with charts and figures Johnny? Thats two simple errors in two posts. Read that link again its 175,000 for the whole year - 11% of the market that year. The sandalstore handbags are so you.

Edited 4 May, 2010 by buctootim

[$$$]

Hey Johnny, the forum I got that quote from is http://www.housepricecrash.co.uk/.

 

Overall it is pretty right wing, just watch out for the tin foil hat wearing nutters who are buying gold and stockpiling tins of beans in preparation for the forthcoming financial armageddon.

 

Talking of sandal wearing, what are your views on this site? http://www.libdemsalter.org.uk/

[Johnny Bognor]

Do you have problems with charts and figures Johnny? Thats two simple errors in two posts. Read that link again its 175,000 for the whole year - 11% of the market that year. Handbags are so you.

 

Sorry, posting on 2 forums at the same time...should never fight battles on two fronts. I went to Table A and added up completions by quarter, but missed the "12 month rolling total" in the heading. So you got your figures wrong (22m houses for sale FFS) and I missed the table heading.

 

Having said that, we are agreed that 175,000 were completed in the 12 months to 2007 which represents more than 11% of the market. This is still more significant than you were first letting on.

 

Have you thought about a holiday this year?

http://www.sandals.com/

Edited 4 May, 2010 by Johnny Bognor

[buctootim]

Sorry, went to Table A and added up completions by quarter, but missed the "12 month rolling total" in the heading. So you got your figures wrong (22m houses for sale FFS) and I missed the table heading.

 

Having said that, we are agreed that 175,000 were completed in the 12 months to 2007 which represents more than 11% of the market. This is still more significant than you were first letting on.

 

Have you thought about a holiday this year?

http://www.sandals.com/

 

Okay 11% would have an effect, but not much of one over time I'd wager.

 

Thanks for the invite. I notice their advertising strapline is

 

Whilst we've made up a bit, Im not sure we're ready for that.

[Johnny Bognor]

Okay 11% would have an effect, but not much of one over time I'd wager.

 

Thanks for the invite. I notice their advertising strapline is

 

Whilst we've made up a bit, Im not sure we're ready for that.

 

I thought you would take Nick with you. Fortunately I am spoken for ......and she now thinks that I have a foot fetish :)

Edited 4 May, 2010 by Johnny Bognor

[buctootim]

I thought you would take Nick with you. Fortunately I am spoken for ......and she now thinks that I have a foot fetish :)

 

lol

Edited 4 May, 2010 by buctootim

[Wes Tender]

I agree with Nick.