Freezing House Prices

The rise in house prices in the UK is a brake on the economy and a major challenge to social mobility as buying a house for many people has become, especially in London, nigh-on impossible without the bank of Mum and Dad.

It is a difficult issue to address as much British wealth is tied up in property; a crash in house prices would leave many in negative equity.

So, if we can’t decrease property prices, can we at least freeze them?

A possible solution is a land tax on any increase in property value from a 2025 baseline; any house sold for a higher price than its 2025 value would immediately attract a 5% annual land tax on the gain.

For example, if a house was worth £1 million in 2025 and was sold for £1.2 million five years later, the buyer would have to pay £10,000 every year they owned the property in land tax (5% of £200,000). They would not get anything in return (unlike council tax), so it would provide a major disincentive to pay anything more for a house than its 2025 value, placing a powerful pressure to freeze property prices at that value.

The dramatic drop in property price growth would also help to dissuade overseas buyers from investing in UK property, which is also a source of house price inflation, as the value would be unlikely to increase.

While some may argue it is unfair to prevent increase in wealth in this way, it is important to note that high house prices are terrible for society. They eat up salaries in mortgage or rental payments which otherwise could be spent and invested to grow the economy and build a private pension to reduce pressure on the state.

Capitalism is designed to make things cheaper and more accessible to people; houses are doing the opposite, as people must now in some cases pay over £1 million for a single-bed, basement apartment.

For those facing high taxes, student debt repayments and high house prices, the UK is a less attractive place to be; even a 6-figure salary does not buy you an amazing life, in large part due to the price of housing.

As everyone has to live somewhere, increasing house prices are not a good source of wealth creation; far better to freeze prices and focus on growth in the stock market and salaries.

Other countries have different systems; a land tax in Texas has helped keep house prices down, and in Japan many houses lose value with time (people want a new-build house due to the earthquake risk).

We need to stop house prices rising without destroying wealth; the land tax on house price growth could be an effective way to do just that. It would have been great if we had done it 10 or 20 years ago, but at least doing it today would freeze prices and gradually start to make housing more affordable as wages steadily increased while houses prices remained the same.