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How to access the pool of wealth in home equity

    This letter from Michael Johnson, CPS Research Fellow, was originally published by the Financial Times (£)/

     

    Sir, Follow the money.

    By far the largest pool of wealth is tied up as home equity: some £5tn net of mortgage debt, 2.6 times gross domestic product (FT Money, May 13).

    In addition, it is concentrated among those soonest to need care: the elderly. But how to get at it? Notwithstanding politics, a mansion tax (or higher council taxes) is impractical for one reason: cash flow.

    Many of the retired have lived in their homes for decades: their incomes have (massively) lagged behind rising property prices. Higher inheritance tax is one option but, by planning ahead, it is easy to avoid. Better to introduce a property gains tax payable upon sale, when the cash would be available to pay it. Such an approach would effectively socialise the uplift in land values across society (via the Treasury’s coffers). In parallel, stamp duty could be scrapped to remove a barrier to mobility and to help the next generation get on the property ladder.

    Homeowners are becoming wealthier by doing nothing, at the expense of the non-home-owning next generation.

    Michael Johnson

    Michael trained with JP Morgan in New York and, after 21 years in investment banking, joined Towers Watson, the actuarial consultants. Subsequently he was responsible for the running of David Cameron’s Economic Competitiveness Policy Group.

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    Comments

    Anonymous - About 445 days ago

    This is a series of statements of the obvious, dressed up as problems. Capital is tied up in illiquid assets (because people are living in them?); it is concentrated in the elderly (because they have had more time to acquire assets and for those assets to appreciate?); many of the retired have lived in their homes for decades (retirees tend to be older and less mobile?); their incomes have lagged asset prices (they're living on a pension?); asset-owners are becoming wealthier while (mysteriously?) non asset owners are not.
    = Capitalism 101. Unfair, or the law of consequences?

    The question is how to "get at it"? How can the elderly get at their equity to access healthcare? Well no, this is about grabbing money from people whose crime is to have lived (in their houses) a long time. Back to the idea that people apparently cannot prosper save at the expense of others, because the communal pie is a fixed size.

    When self-confessed Marxists are preparing to take office, it's a weird world when Conservative policy concentrates on thinking (a) how can we make income tax revenues dependent on the smallest number of most mobile people (b) how can we reduce the incentives to save for retirement by changing the rules negatively every few months, (c) how can we make it more expensive for people to protect their homes and families but most of all (d) how can we penalise the elderly for accumulating capital?

    Perhaps Mr Corbyn has an Economic Non-Competitiveness Policy Group.

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