Stamp Duty puts the brakes on the housing market

Stamp Duty puts the brakes on the housing market

A new report carried out by the Centre for Economics and Business Research and commissioned by Santander Mortgages, has found that amongst other things, Stamp Duty Land Tax (Stamp Duty) is having a significant effect on the UK property market by impacting people who move more.

The report looks at the effect of Stamp Duty on the UK’s residential property market. Titled “An examination of residential Stamp Duty Land Tax”, the findings reveal that over the course of a five-year period2, an additional 146,000 property transactions would have taken place if Stamp Duty had been removed. It also argues that the incentive to build more property would have been higher as under Stamp Duty the seller bears some of the tax burden by selling at a lower price. This lessens profits and reduces the incentive to develop supply in cases where profitability is more marginal, fuelling the lack of housing in the UK.

The report highlights that as the UK undergoes demographic change its housing must adapt. There are currently 28.3 million3 households in the UK. This number has been growing at an average rate of 0.7 per cent every year over the past two decades.

In the 20 years to the end of 2015, the UK population grew by 12 per cent while the number of households grew by 14 per cent, with one or two person households, which make up the majority of UK households (63 per cent), growing at the fastest rate. Property wealth is also heavily skewed, with those aged over 55 owning 63 per cent of UK residential property.

The report shows there are fundamental issues which have been exposed with this form of tax – it discourages mutually beneficial transactions and therefore prevents an efficient allocation of housing stock between different sized households, from first time buyers to the elderly. It also dampens the growth of the UK’s housing stock, by making it less profitable for developers to build and sell the properties that are much needed to combat the housing shortage. House building has slowed in recent decades, from 327,000 per year in the 1970s to just 164,000 in the decade up to 2016.

Miguel Sard, Managing Director of Mortgages, Santander UK said: “The report highlights the unintended consequences of Stamp Duty. First time buyers struggle to get on the ladder, young families want to move up it and the elderly want to downsize, but all are stifled by Stamp Duty.

Those aged between 65 and 74 have the greatest average property wealth in this country, and youths have the least. The housing market needs to allow for adjustments in demographics to be mirrored by the supply of accommodation.”

Additionally, the report states that Stamp Duty reduces labour market flexibility – people need to be able to move home easily and inexpensively so they can live near work or move for family reasons such as schooling. Stamp Duty in its current form does not reflect the way UK residents live as it reduces the incentive for people to take on profitable labour market opportunities. In turn, this could reduce the ability of the UK economy to react to gradual or sudden changes in economic conditions in different geographies.

Christian Jaccarini, Economist at the Centre for Economics and Business Research, commented: “While the under-supply of housing has rightly received much attention, our research shows that Stamp Duty significantly impedes housing transactions, meaning that we don’t maximise the benefit from the existing housing stock. In fact, we estimate that 146,000 more transactions would have taken place in the 5 years to June 2017 if Stamp Duty was removed entirely. The Chancellor should seize this opportunity and make Stamp Duty reform a priority at the upcoming Autumn Budget.”

Join our mailing list:

Leave a comment

Latest Comments

Scott Garnet
Scott Garnet 06 Nov 2017

If you have a patio or a porch it is important to make sure that any connecting doors are secured. Good advice for sliding glass doors is replacing the panels with storm resistant glass and getting heavier...

view article
richardrawlings 01 Nov 2017

What has not been mentioned here is the effect of not only higher interest payments, but also that these payments are less likely to be offsettable as a business cost due to the scaling back of mortgage...

view article
Kelvin Lloyd
Kelvin Lloyd 09 Oct 2017

IT is up, to the Planners. If they will only give permission for bungalows on certain (suitable) sites, they will be built.

view article
maggie swift
maggie swift 09 Oct 2017

It's just the beginning of the shocking rise.

view article
maggie swift
maggie swift 09 Oct 2017

I have recently read that the bungalows can provide social housing for elderly residents in London.

view article
zoe glover
zoe glover 05 Oct 2017

Update! Worst company I have ever dealt with. Undervalued a Cambridge property by over 100k, wont take on any evidence of valuation including a RICS valuation done 3 years ago for the very same value...

view article
Paul Edwards
Paul Edwards 27 Sep 2017

Its nonsense articles such as this that make it harder to get clients to realise just how difficult the market is out there. When you see Rightmove and there are more 'price reduced' then 'new' most days...

view article
Tom Allen
Tom Allen 20 Sep 2017

Absolutely agree with you!

view article
RyanGeo 18 Sep 2017

A sharp correction would be a less dramatic expression to use. That is already underway in certain sectors in Reading where I practice as Chartered Surveyor

view article
sean benton
sean benton 01 Sep 2017

Identity theft is a thread for any profession. So,people should stay alarmed. I once take help from a letting agent and came to know that letting agents are taking every precaution to prevent fraudulent...

view article
Mark N.
Mark N. 30 Aug 2017

We have seen a surge in instructions over August and that should continue into September too.

view article
Chris 30 Aug 2017

Unfortunately, all the legislation bears its force on Landlords and ignores, naively, the effect of Rogue Tenants on the ability of landlords to keep houses in repair and offer properties for rent at reasonable...

view article

Related stories

More articles from Finance