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Stamp Duty….an alternative?

1st February 2012

John Stevenson, Conservative MP for Carlisle, wrote on the 15th January 2012 about how we can “improve the property market without increasing tax”. He recommends shifting the stamp duty burden from the buyer to the seller. He says this would benefit first time buyers. He also says this would aid mobility in that those trading up would be taxed on the cheaper property rather than the one they are buying, and lastly it would focus on the seller who is in a better position to pay the tax.

Mr Stevenson’s ideas are interesting but are open to question. This is robbing Peter to pay Paul, merely switching one negative from one side of the equation to the other. Demographically it is just as likely there will be as many people trading down as well as up over the next 5-10 years and so if the seller should be discouraged from selling then supply will further dry up and prices will increase. This hardly helps the first time buyer and what also of those who have recently already bought and paid thousands in stamp duty only to face a second round of tax when they come to sell. There is also human psychology. Buying property is aspirational, people enjoy buying and owning a property of their own. The reverse can be said of selling. Most sales still tend to be as a result of death, divorce, or financial difficulties. A further disincentive to sell property will simply result in sustaining artificially high prices.

What is needed is a fluid market in which buyers want and are able to buy, matching or slightly exceeding those who want and are able to sell. This may appear simplistic but unless one begins from a common starting point all subsequent policies are bound to fail.

Forcing banks to lend has been on the agenda for some time while governments will be reluctant to loose vital tax revenue with a reduction in stamp duty. Equal emphasis, therefore, must be focused also on the seller, with billions locked up, but in a different way to that purported by Mr Stevenson.

First are those 5.5m homeowners who are “at risk of flooding” who might wish to move but are unable to do so. In June 2013 the present deal forcing insurers to provide cover comes to an end. There is an opportunity to look at this topic which needs a radical overhaul.

Second is the issue of empty homes. According to the Halifax this number is close to 700,000 in the UK but other sources which include flats above shops for example, say the figure is much closer to 1m. Whilst measures to force landlords to either rent out or sell the property would be welcome, geographical differences will have to be taken into account. Rows of derelict homes in Yorkshire (which has the worst record) may be harder to bring back into the market than an isolated flat in South Kensington. Nevertheless this is also an area that must be tackled with a firm brush, while not forgetting that the Coalition is keen to reduce legislation, not increase it.

Third is development on brown field sites. In England, 66,000 hectares of brownfield land (equivalent to an area the size of the West Midlands conurbation) are either vacant, derelict or available for redevelopment according to a survey conducted by the Environment Agency in 2001. While planning regulations for development on green field sites should either remain unaltered or even bolstered, we should ease those areas of red tape concerning brown field sites which are where new and more affordable homes can and ought to be built. This may also help to avoid development on flood plains.

The macroeconomic effects of helping people to move will manifest itself over time so while we can agree with Mr Stevenson’s switch of focus to the seller we should be careful lest in paying Paul, we drive Peter into refusing to sell.