A certain lady bought a Dublin flat as an investment four years ago, when the rent she took on it was £400 a month. She recently re-let. The rent? £800 a month. She is grateful to her financial advisers, but more than that, she is deeply grateful to Peter Bacon. He has been the greatest benefactor of the existing rental-property owners since Fianna Fail abolished rates on all properties in 1977.
If she's really greedy, she's praying that he'll launch another tax-based initiative to lower rents in Dublin. The effect will certainly be to increase rents, and maybe with her spare cash she and her fellow property-owners will raise a statue to him. He's certainly worth it. Through his reports, implemented by the Government, he has inadvertently made an awful lot of people extraordinarily rich, and made a major contribution to the shuffling queues of homeless students and immigrants unable to find anywhere to live.
High-minded taxes
His solution to the problems of the Dublin housing market was classically populist, classically bureaucratic, and classically crass. It was to intervene in the marketplace with high-minded taxes designed to make affordable accommodation available for first-time buyers. His intention was to curb what the left calls "speculation" in the residential property market. "Speculation" is the morally disapproving word for what in other areas of economic life is called "investment". So you invest your capital in a righteous stock such as Eircom, but you speculate it in the property market. Speculators are bad people, investors are good people.
That being the case, Bacon decided to punish the bad people. He more than doubled the stamp duty on the purchase of flats to be used for rental purposes to 9 per cent, adding a 2 per cent annual tax on the value of the property; and, of course, if the property is sold, the owner must pay a further 20 per cent capital gains tax on whatever profit remained. What was the intent of this splendidly virtuous initiative? To prevent those nasty people, speculators, buying the flats and keeping them for a couple of years, and selling them on at a big fat profit.
What was the (perfectly predictable) effect of this intervention in the property market? Well, it drove small investors looking for investment opportunities out of the rental accommodation marketplace into other areas. Surely, this would drive prices down, no? No. Quite the reverse. A low-taxed commodity is cheaper than a high-taxed one, always: and just as small-scale investment was driven out of the property market by the Bacon-slicer, fewer properties became available within a marketplace in which the demand is insatiable.
It's your first year at UCD. It's nine in the morning, your head feels like a bowl of dog-food, and your economics lecturer bowls this googly at you: Something is in short supply, but the demand for it is great; what happens to its price? Does it go down? Stay the same? Or increase rapidly?
Benefactor
Give up? All right. Read the first paragraph of this column again, and there's your answer. And that's why the statue-makers of Dublin are being invited to tender for the erection of a huge monument to the greatest benefactor the property owners of Dublin have encountered in a generation.
Of course, that's just those who were owners of the property before June this year, when Bacon launched his assault on property prices. And of course, not just them. Developers are immensely grateful to him too. Whereas in the pre-porcine era they built flats for sale to the rental market, post-porcine they rent them out themselves. Because there is no purchase, there is no stamp duty; but because of Senor Lardo's messing with the market and the resultant high prices, they are able to charge sumptuously large rents. Once again, the big boys win on the swings and they win on the roundabouts, as vast hordes of the homeless stampede around the city looking for affordable accommodation.
Marketplaces are like television sets and internal combustion engines. They are not moral devices. The market, to be sure, is prone to fits of hysteria and stupidity, and generally speaking carburettors and transistors are free of mood-swings and personal imbecilism. But otherwise, they all work to rules. Even allowing for the human factor, most of the rules governing the marketplace are intelligible even to that 18-year-old in Belfield at 9 a.m., with his jaw hanging open and a cranium full of Pedigree Chum.
One good rule of thumb is this: Don't enter the marketplace with a moral mission. Don't introduce a tariff of preferential taxes in order to achieve some desired social result. You can easily achieve the very opposite result of that you intend, as the post-porcine rental market has proven.
Morally laudable
There are other ingredients to this Bacon casserole as ripe with folly as his tax on rental property. They are, of course, populist and morally laudable - such as the £800 million spent on this beguiling chimera called "social" or "affordable" housing. Each would involve secret subsidies, and therefore further if concealed taxation, and would distort the market in all sorts of unpredictable ways. If Bacon's proposals cause local authorities to embark upon another council-house building spree, a further generation of the poor could well be lured into the trap of sink-housing estates, with an economic culture of dependency and inertia.
For years there has been a controversy about the true authorship of the plays attributed to William Shakespeare. Debate no more. Who could have written A Comedy of Errors but Bacon?