Stamp Duty Land Tax changes ‘won’t address housing market issues’
Proposed changes to stamp duty land tax rates and ways of charging will not address housing issues and could make things worse, a property management firm has argued.
Apropos by DJ Alexander said that the recent suggestions given by Prime Minister Boris Johnson and his Chancellor Sajid Javid about where stamp duty begins and who pays for it, are using the tax system to deal with larger issues in the property market. Rather than helping to fix the problems, such suggestions will create greater uncertainty which will make problems worse, the firm argued.
The Prime Ministers’ suggestion of removing stamp duty for all property under £500,000 and the Chancellor’s idea of making the seller pay all of the Stamp Duty Land Tax (SDLT) are ideas which often resurface and are then rejected when their impact is realised. Both politicians propose using a UK wide legislative change to address a London property market problem. The results in both cases would be inflationary, unfairly punitive to parts of the market, and unsuccessful.
David Alexander, joint managing director of Apropos by DJ Alexander Ltd, said: “Politicians seem to be clutching at straws in an attempt to reform the housing market and are using simple means to address complex issues. Changing the level at which SDLT in England and Wales starts will not resolve anything other than potentially provide a short-term boost to the currently flagging London property market. But this is the wrong solution for the wrong problem. There will also be a knock-on effect on the rest of the UK which we can see in the growing disparity in property tax levels between Scotland and the rest of the UK.”
He added: “The downturn in the London property market is driven by a number of reasons including the loss of confidence of overseas cash investors who find the uncertainty over Brexit of concern; a correction to an overheated market; and affordability issues. Investors believe there are other, safer, investment opportunities which they are attracted to and consequently these investors, who made up a disproportionately large percentage of buyers, have moved their cash elsewhere. Is this a permanent change to the London market? No. This market will pick up again. It may take a few years but anyone buying now will see an increase in their property value over the next five years. When the market fell 17.8% from its peak in January 2008 it took until April 2012 for average prices to recover. London prices began to fall from their July 2017 and so far, the lowest month was March 2019 when average prices had fallen 5.2%.”
Mr Alexander said: “The issue is that you cannot develop policy which benefits one part of the country at the expense of the rest of the UK. Changes to SDLT might make London more attractive in the short term but could have the unforeseen consequence of driving more people to the capital and consequently increasing prices in the medium to long term which will resolve nothing.”
He further explained why making the seller pay the stamp duty would be inflationary. He argued that sellers would be determined to recoup the additional cost of selling their home and would be tempted to add on whatever the SDLT cost would be.
Mr Alexande added: “There is also the issue of fairness. Why should someone who has paid SDLT to buy a property then have to pay it again to sell? This is penalising those who have owned a property for some period and benefiting those who are new to the market which is clearly unfair. First-time buyers moving to their new home would find they had lower funds to put into their new property which would clog up the lower to middle end of the market while those who had accumulated large sums in their property might delay selling to avoid the additional tax. Rather than free up the market it would make it very stodgy indeed.
“The housing market is a complex mix which requires sensitive handling. It is market-driven and sentiment is important. Sending signals out about rising costs, higher taxes, and penalties for accumulating value do not instil confidence. These constant suggestions and proposals are detrimental to the market, making buyers and sellers even more uncertain. The property market, like most markets, needs certainty and assuredness. Postulating and hypothesising on different changes will make things worse.
“Politicians would be better served liaising with property professionals for solutions to taxation, housing supply, and market behaviour rather than pouncing on single ideas and running with them in the media for a few days until they are shot down in flames. The Prime Minister and Chancellor are clearly testing out potential ideas for the Autumn Budget, but these need to be clearly thought through with more than cheap headlines in mind. Better to develop a long term, stable approach to the property market which involves private ownership, the private rented sector and social housing to create a housing system which is fair, provides homes for everyone, and is sustainable in the long term. This requires sensible debate among all interested parties and appropriate planning for the future.”