The economy needs investors - but in business, not property

The property market is undergoing what economists impassively call ‘a correction’. After years of outrageous booms, which have enabled home owners to make huge capital games and that have fuelled a rampant buy-to-let market, finally reality has rejoined the picture. Some people seemed to think this would never happen but anything that appreciates can depreciate and property as an investment can still be a risk.

The growth in house prices means that many people who had the bad luck to be born in the past thirty or so years might never own a house as they cannot afford the mortgage. Instead they will see their money sucked away by high rents and their chance of owning a real stake in society diminished. This is a strange paradox of a policy advanced during the 1980s which aimed to empower people through economic independence and home ownership – something entrepreneurs embraced fully but has turned around to bite us all.

People that invest in businesses take risks but when these risks pay off they aren’t the only ones to gain; new jobs are created, innovations made and customers and clients benefit in a myriad of ways. Investment in businesses is not a zero sum game - it can create ‘win win’ situations and should therefore be encouraged.

Property investment on the other hand leads to a concentration in wealth and pushes prices up. It creates few jobs which wouldn’t have existed anyway and the capital gains have for years been out of all proportion to the risk. Nevertheless, the rate of Capital Gains Tax is no higher for the sellers of Victorian homes than it is for the founders of breakthrough software companies. Surely the latter should be encouraged more than the former.