The Fallacy of Housing's 'Free Market'

There are many genuine reasons why people may oppose what current or past governments have done when intervening in the housing market - it’s not enough, it’s too much, the emphasis has been on the wrong sector. But one of the most spurious reasons is that initiatives like underwriting mortgages or providing incentives for the building of first time buyers' properties somehow undermine the sanctity of the ‘free market in homes’.

This is specious. The market is no more free now than it has ever been since governments of any colour imposed taxation related to property deals, set rules over health and safety or energy efficiency, or tried to control the location and appearance of new development.

Indeed many estate agents and pundits - including some now complaining about the coalition government’s latest bid to breathe life into the housing market - actively participate in other forms of ‘intervention’ in the free market.

Three interventions are commonly supported by agents, usually to artificially inflate prices:

1. Planning consent and building regulations. How many times do sellers, egged on by estate agents, seek planning consent for expansion or converting outbuildings to accommodation prior to sale, in order to artificially inflate prices?

2. The liability and payment of stamp duty (which significantly influences pricing of residential property as agents sometimes inflate prices well above a stamp duty threshold and some buyers barter down to the lowest possible threshold);

3. New build homes carry a premium from which, inevitably, selling agents get boosted fees.

There are other regulations, too, which may not have a direct influence on price but certainly ‘distort’ the free market in house sales:

- the legal designation of property as residential, as opposed to commercial;

- rules for buying and selling homes (regulation exists through the Property Misdescriptions Act as well as energy efficiency, money laundering and transparent accounting rules);

- mandatory administrative and legal processes of conveyancing and registration of ownership changes with the Land Registry;

- rules surrounding boundary disputes, between property sales as well as part of the conveyancing process.

Would anyone say all of these should be removed because they distort the market? Would those same hard liners want a complete free for all? Probably not: but when it comes to measures, often to help first time buyers break into the existing club of more affluent homeowners, complaints are raised. That’s a shame - and also just a bit hypocritical.

If you would like to to comment on this article, click HERE to e-mail Graham.Follow PropertyJourn on Twitter