A taxing question: is SDLT suffocating the English housing market? A report for Family Building Society
On 14 November 2017, LSE London launched a report entitled, A taxing question: is Stamp Duty Land Tax suffocating the English housing market? The document was commissioned by Family Building Society and authored by Kath Scanlon, Christine Whitehead, and Fanny Blanc. The report looked at how Stamp Duty Land Tax (SLDT) has changed over the years and its impact on household behaviour, on the housing market, and the overall national economy.
While SDLT raises more than £8b per year for the Treasury, it is also partly to blame for England’s dysfunctional housing market. Revenues from SDLT have been rising since 2008/09, but housing market transactions on the other hand have remained weak post-2008 crash. Twenty years ago, buyers paid less than £1,000 in stamp duty for a median-priced home in London as elsewhere in England; since then, SDLT on a home of median price has quadrupled in England and for London, it has gone up by a factor of more than twelve (see graph below for reference). London and the South-East account for more than 2/3 of SDLT revenues despite having only 30% of the country’s dwellings.
The tax is progressive in terms of property value: a fifth of receipts in 2016/17 came from the purchases of properties in the highest tax band although such properties accounted for well under 1% of transactions. On the other hand, the majority of revenue came from sales of more typical homes worth between £250,000 and £1 million.
Our survey of customers of the Family Building Society revealed that SDLT is the second most important influence on their decision to whether or not to downsize. Ten years ago, respondents saw it as a much less significant factor. Possible downsizers continue to live in homes that may be unsuitable for their needs which in turn imposes additional costs on health and social services. This reduces demand for new housing for older households thereby reducing the choices available. In the developed world, the UK stands alone in having so few retirement communities which can help keep people healthier by decreasing social isolation.
Respondents with adult children said SDLT makes it hard for their children to buy without parental help, as it effectively adds to the deposit required. SDLT also means there are fewer homes on the market because older households are less likely to sell.
SDLT contributes to reduced household mobility. For instance, after buying a home, people may not be willing to move again soon because it would mean paying SDLT twice over. They may turn down new job opportunities, or commute long distances if they do change jobs. Ultimately, this is costly for the economy as it inhibits the efficient allocation of labour.
The near-consensus amongst academics and policy experts is that an annual tax on property or land value, or indeed an improved version of council tax, could:
- raise the same revenue as SDLT,
- distort the housing market less, and
- provide incentives that are aligned with housing-policy objectives instead of undermining them.
News coverage of the report:
- Financial Times, James Pickford (Feature): London stamp duty climbs to a third of average annual salary
- Your Mortgage, Christina Hoghton (Editor’s Pick): Temporary cut in Stamp Duty would boost housing market
- LSE News: Stamp Duty Land Tax is suffocating the housing market
- Family Building Society: Stamp Duty is Suffocating the Market
- Moneywise Magazine, Adam Williams: Give older homeowners tax break to ease housing crisis
- Business Reporter, Yui Mok: Stamp duty having ‘stifling’ impact on housing market, report finds
- Professional Adviser, Hannah Godfrey: Stamp duty reform would boost downsizing among elderly – report
- Mortgage Strategy, Sam Barker: Stamp Duty ‘suffocating’ market: Family Building Society
- Mortgage Solutions, Owain Thomas: Stamp Duty Land Tax (SDLT) is contributing to the dysfunctional housing market in many ways and needs to be reformed, ideally alongside Council Tax.
- The Law Society Gazette, Monidipa Fouzder: ‘Suffocating’ stamp duty threatens conveyancing demand
- This is Money, Sarah Davidson: ‘Axe tax that is suffocating the property market’: Chancellor called on to cut stamp duty for downsizers and first-time buyers
- Mortgage Introducer, Ryan Bembridge: Family Building Society urges government to review stamp duty