Of all the measures taken by the Government to keep the UK economy motoring in the pandemic, the tax break for house purchases under £500,000 is the most counter-productive.
Residential housing historically has been a huge driver of output in the UK. Each purchase lifts consumption as the new owners refurbish.
That consumer uplift may be what is intended but the stamp duty holiday, which tapers from June 30, is producing distortions.
Hot property: Residential housing historically has been a huge driver of output in the UK. Each purchase lifts consumption as the new owners refurbish
The most obvious is the surge in home prices. The nation’s biggest mortgage lender, the Halifax, part of Lloyds Bank, reports a further 1.3 per cent jump in the cost of houses in May, lifting the annual increase to a seven-year high of 9.5 per cent.
The Treasury is also supporting the property market through the low-deposit mortgage scheme, the extension of furlough and access to Help to Buy.
The Tories might see themselves as keepers of the flame of a home-owning democracy but in the process they are lighting a forest fire.
Assistance from the Exchequer is in addition to the cheapest mortgage rates on record (with bank rate at 0.1 per cent) and mortgage repayment holidays.
The boom is underpinned by a change in living and working habits triggered by the pandemic as city residents seek more space out of town.
Tax relief on mortgage interest payments finally was abolished two decades ago by Gordon Brown but a panoply of subsidies have replaced it.
For those on the middle rungs of the housing ladder there will be no complaints about wealth accumulation in the pandemic.
But for those seeking to climb on to the ladder or acquire more space, the hike in prices creates a mirage.
The higher they go, the less affordable a home becomes after a decade when real incomes stagnated and a pandemic during which they fell.
The current upsurge replicates some of the worst behaviours of the past – gung-ho, cigar-smoking estate agents talking multi-million apartments over breakfast.
There are reports from Mansfield of up to 16 buyers for every home which comes on the market. In Brighton, there were two offers on a £1.25million house with a swimming pool before the estate agent had even circulated the details.
Money remains free and easy and the cost of borrowing is low. This isn’t going to last. Prices for raw materials from timber to steel are soaring.
Inflation is rearing its head and for a generation brought up on low interest rates, sustaining bigger-than-wise mortgages, a reckoning is on its way.
Feeding the wealth of the haves, estate agents and rapacious housebuilders is not a good or safe look.
Coal dust
A half-century has passed since smoking was found to be dangerous and scrupulous shareholders stood well clear.
Yet even though the market value of BAT and Imperial Brands has halved over the last five years, tobacco is the gift which keeps on giving with strong dividend flows.
Coal, with its high carbon emissions, has become the new tobacco.
The effort to open a new cleaner coal mine in Whitehaven, using some advanced technology and creating jobs has stalled in the face of a green outcry.
In the rush to present a new face to the world, platinum and diamond miner Anglo American has hived off its coal interests into a separate company and floated it in London as Thungela Resources.
With the Jolly Roger flying over coal, the new company is valued at just £180million. That is about one-third of its likely earnings in the current year which means it stands a good chance of being a cash gusher.
Broker Wood Mackenzie reckons it is far for over from coal, which will still account for 31 per cent of global energy at the end of this decade. Who knows, by then there could be new carbon capture tech around.
As long as green activists don’t force more coal mine closures, shares in the black stuff could be the next annuity stocks.
Sugar baby
Private equity does have some uses. China’s Primavera has relieved Reckitt Benckiser of a big problem by taking its Chinese infant formula offshoot – part of the ill-fated Mead Johnson acquisition – off its hands for £1.6billion.
Primavera clearly is hoping that Beijing’s new three-child-per-family dictum will eventually pay off.
As for superbrand masters Reckitt, it is left with a £2.5billion goodwill write-off. Ouch!
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