Thursday, 4 September 2008

Cowen to "help" first time buyers

Political U-turn specialist Brian Cowen - who has previously given in to lobbying by Fianna Fail's benefactors, the construction sector - has announced he is bringing the budget forward by two months. Furthermore, his budget will contain a "plan" to help first-time-buyers get on the still-too-expensive property ladder.

In previous budgets, Fianna Fail have reduced stamp duty to "stimulate the market" under pressure from builders. Never mind the fact that stamp duty rates had, up until then, presented no obstacle to rampant house price inflation, which reached its peak in 2006.

And what caused the inflation? The Government's continuous interference in the housing market through tax breaks and incentives for selected interest groups - Section 23 tax shelters, for example, which allowed investors with multiple properties to avoid paying tax on rental income and resulted in the market being flooded by speculators.

The problem with tax intervention is that fact that it distorts the market, by making property more affordable - through subsidy - for some sectors of the population (investors, for instance) and hence more expensive for others, as it feeds into real prices.

So what is Cowen going to do to help his construction industry friends? I mean help first time buyers?

Fianna Fail has already scrapped stamp duty for this sector, meaning that a first-time-buyer can buy a terraced starter home on Wellington Road for EUR 4,000,000 and not pay any stamp duty on it. So what further help do they need? It seems that he is looking at further grants and subsidies, which must be funded by someone. In this case, those who want to trade up.

The answer is that Cowen should stop interfering in the market and simply let the overpriced property market drop back down to a level where ordinary people people can afford to buy homes again. Simple.

I think they call it market forces.

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