A Tax on All Your Houses

This may not (yet) be a nation seriously addicted to gambling, but it has become dangerously hooked on house price inflation. Labour's Britain has inhabited a bubble as property values have shot through the roof. Flick the remote to see how many over-excited, bubbling, property-lust programmes offer the fantasy of trading up, trading abroad or making another killing. As for the 30% who have nothing to makeover, frankly, lifestyle programme-makers couldn't give a damn.

The Halifax, the biggest mortgage lender, yesterday said house prices had dipped slightly in the past month - down 1.1%. Cue panic? No, they are not predicting any kind of crash: they think house prices this year will rise by 16%, instead of 18%. The shortage of housing and high demand will sustain prices, they reassure the worried. So we lucky 70% who own homes can go on gloating over the untaxed wealth cascading in by just doing nothing.

As the property gap widens between the 70% and the 30%, the left-behind find themselves pressing their noses against the TV screens of normal lives that are realms beyond their means. Home ownership is now normal. Not to own a home is to be excluded from the great boom that has made the gap all but uncrossable now for all those without a home. To live in social housing is to be socially excluded from the nation's prime obsession. In the past 10 years, there has been no change in that 70-30 divide, despite a 30% increase in the standard of living. The aim must now be for everyone who wants one to be able to earn enough to buy an affordable home and acquire assets for themselves and their children - or that gap will just go on getting wider.

Here are the facts: in the past five years property values have doubled. No wonder that 30% never got a toe on the property ladder. According to the Halifax, a first-time buyer's average deposit was just £2,500 in 1996. Now, a first-time buyer must put down £15,000.

Where are they to find money like that? Mainly, Halifax says, it comes from parents remortgaging their homes to help their children. Not surprisingly, the number of first-time buyers is dropping and the average age of the first-time buyer has gone up - from 31 in 1996 to 34 now. Those with no assets have no way to help their children. Just as university expansion has mainly helped the dimmer children of the middle classes to get degrees, ensuring higher incomes than they might have had, so the property boom has ensured a foot on the property ladder for middle-class children, and no hope for the rest.

The knock-on effect lower down the chain has seen a rise in official homeless figures. Shelter's director says there are now more people in emergency housing, with a million children living in bad conditions. One reason Labour built little social housing was the inheritance of decades of decay. The government put all its first housing money into repairing 1m council houses, with a backlog of another million to go.

The house price boom was partially caused by a shortage of housing. Fewer houses have been built since 1981 - private or social - than at any time since the second world war, with Labour doing slightly worse since 1997. This is a mind-boggling failure of the private market: how can developers have failed to build to cash in on a market whose value doubled in five years? It is a perfect case study in the mythology that entrepreneurs in the private market function best.

Labour says developers are hoarding vast land-banks with full planning permission, which appreciate faster if they don't build on them. The developers say getting planning permission out of councils harassed by nimby voters is what stops them. Both are true. Why doesn't the chancellor get developers building fast by putting swingeing VAT on unused development land? It would make them build, or sell to someone who would.

The recent Barker review said rapid building is the only way to cut house prices. John Prescott has plans for 200,000 more in four south-east zones, including the Thames Gateway. The comprehensive spending review promised 10,000 more social homes a year in the next three years; but latest official figures say 189,000 are needed every single year. Even though building rose for the first time in years, only 143,000 were completed last year.

The housing crisis and the plight of no-hope non-owners is high on Labour's manifesto agenda. The Tories put out their housing policy, hoping to recapture that first Thatcher right-to-buy electoral triumph. So they are offering the right to buy to over 1m housing association tenants - but, as ever, without replacing those homes. They would also give tenants a chunk of money (unspecified) to go out and buy on the private market. To do that now, without a rapid expansion in private building, would pour extra demand on to an overheated market - prices would rise, leaving people no more able to buy than before.

Labour is pondering. Something of a three-way tussle is in progress between the Milburn/Byers manifesto writers, the Treasury, and the Office of the Deputy Prime Minister. The manifesto writers want to dramatically extend home ownership, but whichever way they do it is expensive. The Treasury balks at anything that would do the same as the Tories - inflate prices before there was enough new building done. Since millions will live in social housing for the foreseeable future, the priority is to create a better social mix of tenure, to break the one-class poverty of housing estates. Prescott's scheme is to keep state ownership of land, while selling first-time buyers the house, keeping the price down. But that is only a relatively small key-worker scheme to join the 10,000 already built.

All are agreed that only a big increase in supply can radically change the housing horizon: the rest is shuffling the deckchairs. A few progressive Tories agree - but most are eager to support the nimbys in their own rural and suburban backyards. The worst planning blockages are from Tory-controlled councils.

At least the government will soon introduce Barker's planning gain supplement - claiming back a fat slice of profits from developers who make a fortune out of planning permission. The money will go into social housing, or part-owned, part-rented homes, interwoven with new private developments that need schools, buses and roads.

The Bank of England yesterday decided to keep interest rates at 4.75%, as house prices have slowed. It's just a reminder of how property prices distort the whole economy, making UK interest rates far higher than in the EU, damaging industry. Taxes, not interest rates, are the best instrument to hold down house prices. Prices could be controlled by making private homes liable for capital gains tax, like any other investment. Those of us whose property doubled in value have made our profit directly out of prices that stop others being able to buy. When we cash it in, paying something back towards more house building would be a fair earmarked tax. Why not?