Banning the export of houses is one of those…odd…ideas

Spain has a new entry in the idiot economic policy races:

British buyers will be forced to pay 100pc tax on their holiday home in Spain under new measures to fix the country’s housing crisis.

That’s British and all non-EU that is:

Spanish prime minister, Pedro Sánchez, announced 12 reforms amid an ongoing row over the impact of foreigners on local house prices.

This includes the introduction of a tax for those from outside the European Union (EU) who do not currently live in Spain, which will be paid when they purchase a property.

Proposals from the Spanish government suggest this levy could be as high as 100pc of the value of the home, much higher than current rates. Real estate purchases in Spain are currently subject to 10pc tax on newly-built homes and 6pc on old properties.

Just no, really.

The impulse is obvious, it’s the usual lefty nonsense of concentrating on the distribution of a fixed pie without thinking about baking a larger one. The solution to not enough houses is not to ban - a 100% tax is a ban, obviously - buyers from the market, it’s to increase supply. So, build more houses and sell some of those more to foreigners.

But it’s also necessary to go a little deeper. A foreigner buying a house is an export. True, it turns up on the capital account not the current but still. It’s not possible to package up a house or building - well, unless it’s some Arizona town looking for a London bridge as a talking point - and send it off. But the money flows into the country for the building so that is, indeed, the export of a house to those foreigners.

We tend to think that exports are good. Not because they are good but because that’s how we get the money for what we want, the imports. Our trade balance - deficit - is financed by the surplus on that capital account, us selling assets to foreigners. A house is an asset, the money flows inwards etc - the sale of houses to foreigners finances our imports of other things.

Now, if we had some limited number of houses that would eventually run out. But we don’t - we can build more houses.

To use an English example, take one acre of Home Counties farmland at £10,000. Build four solid houses at £250k each. We’d have foreigners lined up around the block to buy those at £2 million ea. Outlay £1,010,000, sales £8,000,000 and net margin £6,990,000. There are few other exports quite that profitable.

If people want to buy a house in a country then the correct answer is to build houses for foreigners to buy in that country. Not to go around banning the very thing that pays for the imports.

But then we do get fools who think that the economy is some fixed pie that must be distributed rather than something that can be grown.

Don’t we?

Tim Worstall