We all dream of owning our own home, a place where we can spend time with friends and raise a family. Right to Buy was one of Margaret Thatcher’s most popular policies, as for the first time many households who had been previously excluded from home ownership could now own the most important thing in their lives: their home. They could for the first time do as they pleased with their home as it was their property and, perhaps most importantly, they had something of real financial value to pass onto their children.
For previous generations owning a home was taken for granted. For younger generations it is a dream which is becoming increasing unachievable.
The reason why young people are struggling to own their own home is because housing is incredibly unaffordable in the UK. House prices in the UK have increased by an average of 300 per cent since 1995 and in some areas of London by 1,000 per cent. Research by Cheshire et al found that: “In the Netherlands the price [of housing] per square metre was 45 per cent less than the UK”. The research also found that in Germany: “the real price of houses fell in both decades of the 1980’s and 1990’s and was completely stable over the whole period 1991 to 2002, compared to an annual percentage rate of increase in the UK of 3.6, which is the highest for any OECD country”.
Housing is very expensive in the UK. One major reason for this is stamp duty. The evidence would appear to suggest that this further exacerbates the problem as it would discourage people from downsizing their houses which would increase supply and thus reduce prices. For example, there are approximately 16.1 million households in the UK which are underoccupied.
In a joint report, the LSE and the Berkeley Group highlighted the negative impact of stamp duty. Moreover, research from the Institute of Public Care at Oxford Brookes University revealed that stamp duty provides a disincentive for elderly people to move to a smaller home and so its abolition would incentivise older people to move and thus free up the housing market.
Further support for this point is provided by a research paper from the LSE and the VATT Institution for Economic Research. The paper found that the rate of home moving would be 27 per cent higher if stamp duty on properties was abolished.
The evidence is overwhelming: stamp duty reduces the supply of housing. It was the 14th-century Syrian scholar, Ibn Taymiyyah who stated that: “If desire for a good increases while its availability decreases, its price rises. On the other hand, if availability of the good increases and the desire for it decreases, the price comes down.” The housing affordability crisis in the UK is a problem of supply and demand. There are simply not enough homes to go around.
Given the fact that stamp duty is decreasing housing affordability and exacerbating the housing crisis in the UK, it is disturbing that the burden of stamp duty is projected to increase over the next few years.
New TaxPayers’ Alliance research reveals that 9 out of every 10 homes sold in 2021-22 will be subject to Stamp Duty and that nearly half of all homes sold will be subject to stamp duty of five per cent or more, leaving buyers with an average bill of £9,221.
Using property price forecasts by Savills, TPA research shows that there will be a huge increase in the number of homes subject to increasingly punitive rates of stamp duty in five years time.
The research also reveals that eight per cent of residential property transactions will be subject to a rate of stamp duty of five per cent or higher by 2021-22, up from 41 per cent in 2016-17. Nearly 9 out of 10 residential property purchases will be subject to stamp duty by 2021-22, up from 8 out of 10 in 2016-17. In 2021-22, the average stamp duty bill will be £9,221. This is £828 higher than in 2016-17.
There is a housing crisis in the UK, and this is exacerbated by stamp duty. With an increasing number of properties set to be subject to stamp duty in the next few years the problem will get even worse. There will be a growing number of disaffected young people who will simply never be able to afford to own their own home who will rightly see the Conservative government as directly frustrating their dream of home ownership.
The chancellor announces his Budget on 22 November. If Philip Hammond is serious about fixing the housing crisis- and winning over young voters who dream of owning their own homes- then he will do the right thing and scrap stamp duty.