Stamp duty is holding up the housing market in England and Wales
Stamp duty, the property tax paid by buyers in England and Wales, is making the current housing crisis worse by causing a bottleneck in the residential real estate market, according to a new report.
It is deterring older buyers from downsizing and therefore freeing up homes for those further down the housing ladder and moving would rise by 27% if the tax was abolished, says the research from the London School of Economics and the VATT Institute for Economic Research.
The cost of the tax, which is zero up to £125,000, then rising in increments to 10% for properties worth over £925,000, is affecting buyers at many levels, meaning that they are staying put rather than moving, it suggests.
First time buyers, particularly those in London where prices are much higher than the rest of the UK, face paying stamp duty in many parts of the country. Second steppers looking for family homes are put off by the level of tax.
In addition, many pensioners in larger homes in more expensive areas are unable to move because buyers are put off by stamp duty, which costs £20,000 on a £600,000 home and £143,000 on a £2 million property.
‘The key message is that stamp duty hampers mobility significantly, it create a mismatch and distortions in the housing market. Our analysis suggests that mobility would be 27% higher if stamp duty was abolished or replaced with an annual tax on the value of property,’ said professor Christian Hilber, co-author of the report.
‘If you are a young family and you have an additional child, you’ll need an additional room, but the stamp duty is discouraging this kind of move because of the additional cost and lack of available homes to move into,’ he added.
‘Almost 90% of people want to own a home, but only 63% do. We reformed property taxes including stamp duty to help more people get onto the property ladder,’ said a UK Treasure spokesman.
‘In addition, we are helping people, including young families, to buy their first homes through policies such as Help to Buy and the Lifetime Isa, and the recent £2.3 billion Housing Infrastructure Fund which will free up over 100,000 properties in high demand areas,’ he added.
However, the report points out that economists have long criticised stamp duty as being inefficient. It concludes that this is indeed the case.