Research conducted by London School of Economics (LSE) revealed many key pressure points prompted by SDLT, especially for older and first-time buyers.
The report noted that there was “near-consensus among economists and policy experts” that an annual tax on property or land value, or an improved version of Council Tax would raise as much revenue as SDLT without distorting or disincentivising the market.
However, while the government appears set to cut first-time buyer stamp duty in next week’s Autumn Budget, the report authors argued that targeting it at retirees could have a greater effect.
Experts also noted there was a significant need to promote downsizing or moving on to more suitable accommodation by older people and that Stamp Duty played a significant role in this deterrent.
The key findings of the LSE research commissioned by the Family Building Society included:
- SDLT raises more than £8bn per year for Treasury but is a heavy, immediate tax on transactions that contributes to England’s dysfunctional housing market;
- SDLT revenues have been rising steadily due to increasing house prices despite falling transaction numbers;
- Twenty years ago median-priced home buyers paid less than £1,000 in SDLT – since then this has more than quadrupled in England and increased by more than 12 times in London;
- London and the South East accounts for more than two-thirds of SDLT but less than 30% of dwellings;
- SDLT contributes to reduced household mobility, meaning people may not take up new jobs or choose commute further instead and reduced consumer and household expenditure.
Get downsizers moving
Stamp Duty reform has been a contentious issue for the housing sector over the last two years and yesterday reports suggested chancellor Philip Hammond was likely to instigate a cut for first-time buyers.
However, LSE professor emeritus in housing economics Christine Whitehead said the government could be better off targeting older people with Stamp Duty-based incentives.
Speaking at the research launch, Whitehead agreed with a proposal from Lord Best that removing Stamp Duty only for older people buying a new purpose-built home could have a big impact for little cost.
Lord Best argued such a move would stimulate demand in house building and trigger further moves down the housing chain, producing more Stamp Duty revenue for Treasury.
Prof Whitehead said she thought the government was much more likely to try and start at the first-time buyer end, but there was a case for instead having something which helped older people move.
“It doesn’t necessarily have to be downsizing, but to something more sensible, and it has this chain impact, plus the fact older people are not very good at doing property maintenance,” she said.
“So it’s not just the fact you get three moves, you also probably get two sets of improving the housing stock and dealing with some aspects of the energy efficiency problems.
“The retirement part of our market is incredibly immature compared to any national comparable I can think of,” she added.
Co-author and LSE assistant professorial research fellow Kath Scanlon added that the inheritance tax system also promoted older people to stay put.
“In money terms it’s not an enormous amount but it sends a really powerful message that the government really wants you or expects you to stay in your own home and pass it on to your children, rather than downsizing,” she said.
Holidays are bad
The idea of a Stamp Duty holiday was also rejected for simply squeezing demand into a small window and typically forcing prices up.
Family Building Society chief executive Mark Bogard said there was no doubt SDLT was suffocating the housing market.
“People just don’t want to write out a big cheque to HMRC when they just don’t have to,” he said.
“The government should recognise that the housing market is a shambles and that supply simply isn’t meeting an ever growing demand.
“Without some serious reform of Stamp Duty and recognition that the Help to Buy scheme does not tackle the issue of helping older home owners downsize, ordinary families will continue to shoulder a heavy tax burden while continuing to face a serious shortage of appropriate housing supply,” he added.