Dublin Opinion

One market closes, another one opens.

Stamp duty is at the forefront of political promises at the moment, but not for the reasons given by the political parties. Stamp duty reform is not about the consumer, but is, in fact, another example of vested interests getting their agenda to the table, while we’re left to fund it. Even if it means bankruptcy.

Top-up mortgages accounted for over 15 per cent of Irish loans in 2006, as banks move from selling mortgages to selling loans on houses. Banks sell money, and they’re running out of people who want or can afford mortgages. The move now is to sell money to people who already own a house, with the house as collateral.

In the case of auctioneers, they have already targeted the “downsizing” market as their next growth area. The next few months will see an even greater emphasis – in ad campaigns and economic discourse – on convincing householders to sell up and buy a smaller house or apartment.

Last week in the Sunday Business Post, Dr. John McCartney, economist and head of research at estate agents Lisney, noted that:

“…so far, downsizing has been relatively limited due to Ireland’s punitive stamp duty regime. However, if stamp duty on downsizing transactions was eliminated or reduced in an effort to achieve a better distribution of the country’s housing amenities, there would be a further injection of liquidity into the economy, leading to higher consumption.”

The problem for auctioneers in their pursuit of this new growth market of downsizing is that property prices have to maintain their current level. The whole idea of downsizing is to make a profit on the difference between your own home and the new one. The impending property crash would put a dampener on this new market.

A reform of stamp duty would help to offset this crash, at least for the auctioneers. This, I believe, is for two reasons, only one of which Dr John McCartney, who is in the service of an estate agent, mentions in his article – “a further injection of liquidity”.

There is little doubt that any savings in stamp duty will not be passed onto the consumer, but rather absorbed into the auctioneer’s cut and the house sellers’ price. Stamp duty reform would not release funds so much as boost consumer confidence in the housing market. It is an illusion.

This is because the true factor in extortionate house prices in Ireland occurs at the planning stage. That is where the real money is made, and that is where the real profits are made. After that, everyone else is chasing a pyramid scheme.

And as with any pyramid scheme, confidence is the key. The elimination of stamp duty gives the potential buyer the illusion that they will have around £20,000 more in their pocket. In reality, it is the auctioneers and the seller who will gain from this, but the illusion is what matters here.
Stamp duty reform will only help to maintain inflated house prices, now that demand has been sated. However, this is the key, as it gives life to the downsizing market, the auctioneers’ next little goldmine.

All well and good, but what’s the link with politics?

Stamp duty reform is the best of both worlds for political parties, especially of the right. It gives out a populist analysis of why property prices are so high – goddamn taxes – while hiding the real reason for our housing problems – land speculation. And land speculators and auctioneers are well regarded by our political parties.

Ladies and Gentlemen, the con is on.

The sheer recklessness of releasing more money into the Irish economy - money based on inflated house prices – is noted somewhat by Dr. McCartney, head of research at Lisney estate agents.

He writes that top-up mortgages:

“Of course… could contribute inflationary pressures that cannot be ignored, but as an increasingly important component of GDP, personal consumption increases are generally to be welcomed. The problem, if there is one, could occur if the housing market capsized. With consumption becoming more sensitive to housing wealth this could, in theory, provoke a sharp retrenchment in spending that might potentially spill out into the wider economy. Thankfully, this scenario is most unlikely”.

Dr. McCartney, head of research… well, you know where he’s coming from… cites the American economy as proof that “a sustained correction in the housing market” does not mean a meltdown for the Irish economy.

In which parallel universe is the Irish economy – its strengths and weaknesses – comparable to the American economy?

The American economy - the largest in the world - is equal in size to the economies of China and Japan put together. According to the World Bank, the Irish economy, in terms of purchasing power, lies between Venezuela and Finland. The CIA fact book puts Ireland between Peru and Venezuela, while the IMF puts us between Hungary and Peru.

They don’t put us between China and Japan. Certainly not between America and China and Japan.

So why the analogy to the American economy, one with which we have as much in common as a cat has with pyjamas?

That’s one for Dr. McCartney, head of research at an estate agent to answer, not for me.
To my eyes, stamp duty reform is about releasing confidence to keep the pyramid going for a little while longer. In political terms, it is a sure-fire vote-getter, while at the same time taking the heat off land speculators and their political protectors – good ol’ fashioned clientism.

Dr. McCartney believes that it could be irresponsible to reform stamp duty.

I believe it is irresponsible. And the social cost for the future of an Irish economy based on overpriced housing is a very real return to 1980s style emigration and depression. Whatever happened to releasing money into the economy through jobs and wages, rather than loans?