Reducing the high tax burden of Stamp Duty would help to reverse housing problems in the UK, according to a new report by the Centre of Policy Studies (which can be read here).
Since the Government declared housing to be a priority in 2010 a lot has been said, but little has been done to solve the issue.
The ongoing crisis has affected nearly one in five of the population and with home ownership at less than half of what it was 20 years ago, it is a problem which is not going away.
The UK Housing Crisis at a Glance (figures from the National Housing Federation)
6 million people live with overcrowding
5 million people are not able to keep up with rent or mortgage repayments
4 million people are in substandard homes
340,000 new homes needed every year
Coincidentally, Residential Stamp Duty is at a 20 year high and according to the report by the Centre for Policy Studies, it is having far reaching negative effects on the housing market. One industry commentator described it as “a hand break on the housing market”.
The negative effects of such high levels of Residential Stamp Duty are detailed in the report compiled by Alexander Morten, the former advisor to David Cameron and now head of Policy at the Centre for Policy Studies.
A Tax on Mobility and Aspiration
The report states that Residential Stamp Duty has reached a point where it is counterproductive because, among other things, it reduces the overall number of transactions being undertaken, it pushes down the number of new properties being built, including social housing, and it is effectively a tax on mobility, aspiration and ownership of housing. All of which merely serve to compound the housing crisis which the government has committed to combat.
A Counter Intuitive Solution
It may seem counter intuitive but lowing stamp duty might actually generate more money in the long run. This is because stamp duty has a direct impact on the number of transactions taking place. The report by Alexander Morton identifies that a 1% decrease in Residential Stamp Duty might result in as much as a 20% increase in the overall number of transactions taking place in the housing market. This increased demand would be sure to have a positive effect spurring on new developments and causing a general boost to all areas of the housing market and the wider economy.
Developers in the UK operate on a “build to sell” policy. This means that new housing projects occur in direct response to market conditions. Given the short fall in housing stock identified in the earlier report by the National Housing Federation, it seems like a fairly logical move to stimulate the market and reducing the levels of taxation is one way to achieve that.