The Scottish Parliament has set out plans to levy its first tax since 1707. In an effort to support first time buyers, it proposed reforming stamp duty into a marginal – rather than a “slab” – tax, meaning that house sales in Scotland will no longer incur the highest rate on the whole price.
These reforms recognise that stamp duty burdens many aspiring homeowners, although critics have pointed out that some of the higher rates are steep and kick-in too early. And given that more is raised from stamp duty in a single London borough than the whole of Scotland, it’s reasonable to debate the way this relates to London’s market. It’s part of the wider case to devolve property taxes to cities, supporting growth and long-term infrastructure planning.
But home ownership’s decline is not just the result of stamp duty. It has been accompanied by price inflation and a 30-year failure to build enough homes, something the mayor is turning around with ambitious building targets and innovative new measures, from Housing Zones to a Housing Bank. Of equal importance is growing the supply of mid-market products to provide more choice.
An often neglected option, however, is encouraging shared ownership – or part-buy, part-rent – helping people to buy without having to raise capital against the full cost of the house. Shared ownership allows people to buy a stake of the property with a mortgage, and pay rent on the remaining share of the property, which is owned by the local housing association.
In existence since the 1980s, it still represents only 1.7 per cent of London’s stock. Yet the consumer offer is tremendous. The average deposit for shared ownership is around £12,000 – less than the average annual rent – compared to £60,000 on the open market. Typically, buyers are younger, and have lower household income. In addition, shared ownership enables construction to be accelerated without undermining housebuilders’ plans.
Expansion has been encouraged by several City Hall-led reforms, including: widening eligibility in recognition that there are many “key workers” outside the public sector; discouraging restrictive income caps by local planning authorities; standardising the product to attract more mortgage lenders; reducing bureaucracy in the application process; and generally making it more consumer-friendly. By 2025, a quarter of a million Londoners should benefit.
Next, we want to harness institutional investment. The mayor has asked the Greater London Authority (GLA) to work up plans for a new equity fund to build 4,000 homes for shared ownership. This should attract long-term capital (like pension funds), which housebuilding desperately needs to increase supply. Indeed, by offering long leases and index-linked rents without management costs, investing in shared ownership closely reflects commercial property.
Institutions are increasingly looking at purpose-built rent housing, following policy changes and land disposals by the GLA. The same could happen with shared ownership, offering an alternative route to equity in property.