LuxuryTopping had the pleasure of attending this morning’s Movers & Shakers Annual London Residential Breakfast, where Berkeley Group’s Chairman, Tony Pidgley, and Redrow’s Chairman, Steve Morgan, both panellists at the event, were asked what the biggest barrier was to delivering more homes in London.
Pidgely’s response, was emphatic. He said politics is the biggest problem and called for Stamp Duty Land Tax (SDLT) to be cut immediately. Reminding the audience that stamp duty was only 1 per cent until 1997, he said the number of transactions had fallen by around a million when compared to the 1980s. Pidgely’s comments were greeted by rapturous applause and unequivocal agreement by Steve Morgan.
The drop in transaction levels should concern the government. Not only is it limiting the amount of stock on the market and increasing upward pressure on house prices, but it could also mean year on year SDLT receipts falling for the first time since 2009.
It was around 250 years ago when the father of free trade Adam Smith warned against the use of transaction taxes. He explained that economic progress is generated by trade, which he said leads to the division of labour, the division of knowledge and the creation of wealth. Transaction taxes such as SDLT reduce trade and economic exchanges, which slows economic improvements. The one improvement that London, and the rest of the UK for that matter, so desperately needs is an improvement in the size of its housing stock.
The government’s aim when introducing the new SDLT rate for additional properties, other than to generate tax revenues of course, was to increase home ownership and cool the Buy to Let market, which the Bank of England has repeatedly said possess a risk to the financial health of the market. However, the outcome of the three per cent additional properties surcharge as well as the new higher rates of SDLT (10 per cent above £1m and 12 per cent above £1.5m) has been to add to price pressures at the lower end of the market and all but obliterate transactions at the top of the market. Uncertainty in the build-up to the EU Referendum and the continued uncertainty in the wake of Brexit obviously has an effect, but the underlying reason for the fall in transaction levels is the high rates of SDLT that exist today compared to yesteryear.
Hopefully, Brexit will be the catalyst for new stimulus aimed at tackling the housing crisis and an opportunity for the government to reverse the damage that they have inflicted on the residential property market. A single rate for all residential property will discourage wealthier investors from targeting cheaper properties to reduce their tax liability (thereby competing with first-time buyers), whilst a higher but less punitive rate for investors will encourage purchases to continue but still give the owner occupier the advantage.
Homeowners should be able to move home as freely as renters and should not be punished for doing the very thing that this government wants them to do, which is to own their own home.
Crafted by Alexei Ghavami