There is no silver bullet to fixing the nation’s housing crisis, short of the obvious but politically challenging solution of building a lot more houses.
Nonetheless, certain taxes and regulations make an already flawed market even more distorted and act as additional barriers to those seeking to buy and sell homes. And in the case of the much-hated stamp duty, they do so at a cost to the Treasury.
Last week, consultancy firm London Central Portfolio crunched the numbers, and found that tax receipts for stamp duty in the first quarter of 2019 are down 26.2 per cent on the previous quarter, and have fallen by almost £0.75bn over the last year.
Why? Because transactions have slumped by 21.4 per cent.
Brexit is often blamed for cooling the market, but the counter-productive impact of stamp duty cannot be underestimated. By adding tens of thousands of pounds to the price of a home, it acts as a deterrent to move.
This incentivises people to stay in properties that may no longer be suitable for their needs – such as parents with grown-up children who might otherwise consider downsizing, or those with job offers in another part of the country. This means that the UK’s existing housing stock cannot be used most effectively, worsening the existing shortage and trapping workers in the wrong places (housing is cited as one factor behind the UK’s weak productivity).
In fact, the Adam Smith Institute has estimated that stamp duty is four times more harmful to economic efficiency than income tax, and eight times more harmful than VAT.
The government seems to be aware of stamp duty’s distortive effect, hence Philip Hammond’s move to exempt first-time buyers in 2017. But since most people selling a home will also be looking to buy one, the impact trickles down – even transactions involving First-Time Buyers Relief fell by 23 per cent in 2019.
The current system encourages people to either stay put in unsuitable homes, or to buy not on the basis of what they need now, but what they might need in decades’ time, as moving every few years is prohibitively expensive. People at every rung on the ladder, from first-time buyers to young families to retired downsizers, suffer as a result, and so do the government’s coffers.
If politicians want to smooth out this distorted market, they should make moving house as easy as possible for everyone. Scrapping stamp duty completely and making up the difference elsewhere – whether with more progressive council tax bands or a new land tax – is the only way to get the market moving again, regardless of Brexit.