Stamp Duty Makes Its Mark On Properties
31 August 2017
Considering recent headlines on stamp duty and its effects upon the housing market and broader economy, it seems that opinions are as varied and changeable as has been the weather this August.
And as the weather confounds us daily, so does the perceived effect of this tax.
Background first: in 2014 George Osborne reformed stamp duty so that the then new rates of stamp duty only applied to the amount of the purchase price that falls within the particular duty band, making it more like income tax. Then a stamp duty surcharge, introduced in April 2016, means those buying a second property – a student house for the kids, a buy-to-let or a holiday home – must pay an additional 3% duty on top of the standard rate.
And these changes are a burden or a boon, depending on who you listen to.
In the last couple of weeks, Halifax Insurance claimed that research showed the number of planning permission (PP) applications for extensions increased by 27% on the last five years – something it attributes to stamp duty levels suppressing house moves and impacting upon churn levels. A classic case of ‘improve don’t move’.
As is usually the case, the south east seemed to largely driving this, where the increase in PP applications in London was 60%, while in Scotland it was 3%.
This would seem a good thing, especially for those of us in home improvement product manufacture.
All the while, the £11.6bn in stamp duty we pay to the exchequer per year is estimated by the Adam Smith Institute to cost the country, in terms of economic impact, £9.68bn p.a.
And another hidden cost to the country is the hollowing out of cities: as our town centres become increasingly unaffordable, people inevitably move out, leaving them empty and in the hands of the speculator or super-rich (remember all those tales we hear of blocks of flats being bought unseen – and left unoccupied – by overseas investors).
This also results in all employees having longer and more expensive commutes (time is money, and money is money) and a smaller pool of the low-paid, low-skill workers – cleaners, shelf stackers, road sweepers etc – necessary to make a metropolis function.
Now this does give rise to a moment of confusion through imperfect data. What we don’t have is a sense of the economic benefit of home improvement activity – materials and employment from small businesses. We’re not saying it doesn’t account for this, yet it would help if the Adam Smith assertion made it plain either way.
And we’re conflicted here too. Eurocell wants and relies on volume housebuild as one of its most important markets and anything that could stifle demand and stymie starts –inflated prices, high taxes like stamp duty – could hurt us.
Similarly, we want and rely on a vibrant secondary housing market with an active number of transactions, as house moves normally result in major works as new owners remodel properties to their own tastes (the old: ‘and what was it you liked about it in the first place?’ paradox).
Whatever your view on it, one doesn’t expect the Government to change tack anytime soon. The reason: the stamp duty changes are bringing in £2bn a year from buy-to-let purchasers and second home owners. This is as twice as much as expected from the so-called ‘Landlord Tax’. And don’t expect that to give it up any time soon! Regardless of Adam Smith’s 10 billion quid in the bush, no Government ever is likely to surrender £2bn already in the hand.