Merryn's Blog

Devolution: another reason for London property prices to fall

More tax-raising powers for London would be another bearish signal for the capital's property market, says Merryn Somerset Webb.

I wrote at the weekend that London home owners should be aware that what politics gives, politics can take away.

Global quantitative easing (QE), super-low rates and political instability elsewhere have not just insulated them from the property crash in much of the rest of the UK, but made them rich too: prime central London prices are now 30% higher than they were at their peak in 2007.

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Now, domestic politics are intervening to reverse at least some of the gains. The mansion tax is hitting prices* even despite the fact that its main proponents aren't in power (and might not be for some time).

The rise of Ukip, general anti-EU rhetoric and sanctions against Russia suggest foreigners might not feel quite as welcome in Fulham as they did a year ago. And of course, monetary tightening might not be that far off.

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But there's one more political factor London's property rich should chuck into the mix keeping them up at night: devolution.

And article in the FT today makes the point. The Centre for London, a think tank, is calling for a "radical transfer of powers" from Whitehall to City Hall.

If there is a move to devolve tax raising and borrowing powers to Scotland and to some of the big northern cities, they say, then London, (the economy of which is rather bigger than that of Scotland) should get them too.

That sounds fine after all, hardly any of the tax paid in London is retained locally in London. But anyone worried about property prices should note the top post-devolution priority on the think tank's list: London's "housing crisis".

Fixing it is the main reason it thinks London should have control over "in particular, property taxes" (see page 48 of their report here). That doesn't exactly suggest an inclination to have fewer property taxes, does it?

* Here's a nice piece from The Telegraph about how fast people hit by wealth taxes become forced sellers.

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