Stamp Duty Land Tax is having a significant effect on the UK property market by impacting people who move more, according to a new report carried out by the Centre for Economics and Business Research (Cebr), commissioned by Santander Mortgages.
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 period, an additional 146,000 property transactions would have taken place if Stamp Duty had been removed. The report also highlights that as the UK undergoes demographic change its housing must adapt. There are currently 28.3m households in the UK. This number has been growing at an average rate of 0.7% every year over the past two decades.
In the 20 years to the end of 2015, the UK population grew by 12% while the number of households grew by 14%, with one or two person households, which make up the majority of UK households (63%), growing at the fastest rate. Property wealth is also heavily skewed, with those aged over 55 owning 63% 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 at 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 Cebr, added: “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 five 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.”
A temporary cut could urge around 20% of homeowners to move
New research from Aldermore Bank has revealed that over a fifth (22%) of recent home buyers (that bought less than three years ago) would consider moving home again if stamp duty was cut for a temporary period, even if they had not been planning to do so beforehand.
In addition to this, almost one in six (15%) longer-term home owners (bought over four years ago) would be incentivised to move property if this proposal was implemented. A temporary stamp duty cut is also supported by prospective first time buyers, as three in 10 (30%) would consider accelerating their plans to climb the first rung of the ladder if the Chancellor announced this measure in his Budget.
When asked what other measures should be put in place in the upcoming Budget to improve the housing market in the UK, over two fifths (41%) of the UK want to see more social housing built, and nearly four in 10 (39%) believe a stamp duty freeze for first time buyers would help the market, as would no stamp duty for older homeowners looking to downsize (35%), or relaxing inheritance tax rules (30%)
Charles McDowell, Aldermore’s commercial director, mortgages, says: “With the property market at risk of coming to a standstill, we would welcome any plans, temporary or otherwise, that reduce stamp duty. Our findings show that it would be a decision that could kick-start market activity.”
