You can pry it from their cold, dead hands.

Mansion Wars and Mansion Taxes

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Apparently, the U.K. is considering a mansion tax. By "mansion tax," I mean a stiff tax on especially expensive homes, particularly in London. And by "considering," I mean that the Labour Party is proposing to enact one if it wins the next election. This naturally strikes fear into the heart of a certain sort of Briton -- the ones who inherit their posh addresses and have nothing like the income that would be needed to live there at current prices. The Financial Times calls them "Henrys," and if Labour wins, they are in big trouble.

This is not just a British phenomenon. Having grown up on Manhattan's Upper West Side, I know a lot of people my age who were born in New York City. Of the ones who are still there, probably 50 percent are living in . . . the house they were born in. Everyone else has left, because the solid middle- and upper-middle-class professions that our parents occupied are nowhere nearly enough to let us live in the New York City of 2014. And because we didn't have the foresight to become hedge fund managers or buy Park Slope rowhouses when we were 8 years old, we've migrated to less expensive climes.

As in Britain, however, this is made possible by the fact that New York City's real estate taxes are relatively low. If the Henrys had to pay any substantial fraction of their homes' value every year, they would have to sell it. In Britain, council taxes are an even smaller portion of an expensive home's value, because they're based on the price of the home in 1991, when England's economy was being surpassed by Italy's and the global real estate boom was not even a gleam in a real estate agent's eye. That's what allows the Henrys to hold on in the face of a rising market -- and sends aspiring Henrys to the suburbs, where they can nourish a sullen rage against the unfairness of it all.

Of course, displacing the Henrys won't actually do much to quiet the real estate prices that are forcing barristers and professors to dismal subdivisions; at best, it will free up some property for slightly more junior hedge fund managers, tech millionaires and Russian oil magnates to buy. The real problem with prices is not the Henrys or the low real estate taxes; it is that London, like many cities, has kept most of its skyline low, and thereby made property scarce. As globalization has produced superfortunes and the owners of those fortunes have sought second and third and eighth homes in "World Cities" from Rome to Vancouver, they've bid up the price of property to a point that ordinary locals can't afford.

But in a way, the problem is the Henrys, because, of course, they are frequently a leading force advocating against neighborhood change. They have an asset they couldn't possibly earn today, and they protect the price of that asset by fiercely lobbying against any proposal that would put a lot of extra property on the market while crowding their streets and damaging their view. Unlike the newcomers, they have fond childhood memories of the place where they grew up, as well as an emotional -- and financial -- investment in keeping it exactly the same. So perhaps displacing them would make it easier to build cities up and push prices down.

Of course, the power of the Henrys also makes it harder to displace them. If London is anything like New York, I suspect that a Labour leader who actually tries to implement a mansion tax would find that a large percentage of their supporters in the public intelligentsia are themselves sitting on real estate assets they could not possibly afford to buy today -- and that normally reliable left-wing supporters will come out against such a tax unless it contains some sort of grandfather clause to keep taxes from rising on people who have owned their houses for a long time. Perhaps the British will prove more resolute in the face of upper-middle-class self-protection than American politicians have proven to be. But I suspect they'll need an iron will if they want to actually give the Henrys the boot.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net