Permanent scrapping of stamp duty land tax a possibility? (Image: Getty)
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The Institute of Economic Affairs has sounded the alarm bell about the “unaffordability” of homes, warning that high prices are stopping people getting married and calling for an overhaul of planning rules so more houses get built.
This warning comes as the homebuyers and sellers are braced for the phasing out of the stamp duty relief that was introduced last year to help the market survive the effects of Covid-19.
On October 1 the stamp duty threshold will fall from £250,000 to £125,000. This follows a previous reduction in the threshold from £500,000 to the present level which came into force on July 1.
The stamp duty holiday was widely seen as contributing to house price growth with home hunters keen to benefit from the potential saving, and surveyors reported a fall in the number of buyer inquiries last month.
But the IEA’s Alexander Hammond argues the tax causes so many distortions in the market which push up the cost of a home that the Government should consider axing it altogether.
He said: “Policies such as stamp duty land tax make purchasing a home more expensive and, as it penalises people moving houses, it acts as a disincentive for older people in bigger homes to downsize. Partly as a consequence of this distortive policy, more than 50% of UK households are under-occupied.
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“The stamp duty holiday for homes under £500,000 ended on June 30, however, the popularity of the policy coupled with harmful impact the tax has on our society means the permanent scrapping of stamp duty land tax should be considered.”
Describing the challenges created by high prices, Mr Hammond said that in the last year house prices have shot up by nearly 11 percent, meaning first-time buyers have to find on average an extra £24,000 to get on the housing ladder.
The permanent scrapping of stamp duty land tax should be considered
He said: “Today, the average house price in the UK is equal to almost eight times average incomes. To put this figure in perspective, 40 years ago, average house prices were just 1.5 times average incomes.”
In a move likely to spark controversy, the analyst challenges the idea that the “UK is overcrowded with little land available for more houses”.
He said: “In reality, by building on just one percent of UK land, we could more than double our existing housing stock.”
Taking aim at the Government, he said: “The unaffordability of houses today represents a colossal failure of government policy that is having a damaging impact on our society. A record 42 percent of adults under 34 live with their parents, a further 60 percent of those under 44 noted the high cost of housing has delayed them achieving big life goals such as marriage, and there’s even evidence that high house prices are adversely impacting the UK’s fertility rates.”
A spokeswoman defended the Government’s record, saying that special measures were in place to ensure most first-time buyers were shielded from stamp duty.
She said: “We want to support the dream of homeownership for the next generation, which is why we have a targeted relief ensuring first-time-buyers only pay stamp duty on properties worth more than £300,000, higher than the usual threshold. That is also why at the Budget in March we introduced a mortgage guarantee scheme which is increasing the availability of mortgages for those with small deposits.
The ‘unaffordability’ of homes is an issue for Britons… And a challenge for Rishi Sunak (Image: Getty)
“Building more affordable homes is also a priority for this government, which is why we’re investing £12billion in affordable housing over the next five years, the largest investment in affordable housing in a decade.”
The Government claims that since 2010 it has “delivered” 542,400 new affordable homes, including over 382,300 affordable homes for rent. Lenders can take advantage of the mortgage guarantee scheme if they offer mortgages to people with a deposit of five percent on homes with a value of up to £600,000.