The UK property market is becoming stagnant as people who wish to move homes are being hindered by Stamp Duty Land Tax (SDLT), according to a new report commissioned by Santander Mortgages.
The Centre for Economics and Business Research report found that an additional 146,000 property transactions would have taken place between June 2012 and June 2017 if movers had not been faced with stamp duty costs.
By exploring the effect of stamp duty on the UK’s residential property market, the report also highlights how housing needs to adapt to the demographic change.
The UK population grew by 12% in the 20 years to the end of 2015, while the number of households grew by 14%. One or two-person households – which make up 63% of UK households – grew at the fastest rate. However, those aged over 55 own 63% of UK residential property, suggesting that property wealth is heavily skewed.
Commenting on the report’s findings, Miguel Sard, managing director of mortgages, Santander UK, said it highlights the unintended consequences of stamp duty.
“First-time buyers struggle to get on the ladder, young families want to move up it and the elderly want to downsize, but all are stifled by stamp duty,” he said.
According to Santander, the tax exposes underlying issues in the market, as it discourages transactions that are mutually beneficial, preventing allocation of housing stock between households of different sizes – from first-time buyers to the elderly, according to Santander.
This negatively impacts the growth of the UK’s housing stock, which makes it less desirable for developers who want to build and sell the properties that are needed to combat the housing shortage, says the bank. In recent years, house building has slowed around 50%, from 327,000 per year in the 1970s to just 164 in the decade up to 2016.
“Those aged between 65 and 74 have the greatest average property wealth in this country, and youths have the least,” Sard added. “The housing market needs to allow for adjustments in demographics to be mirrored by the supply of accommodation.”
Furthermore, the report states that stamp duty in its current form does not reflect the way UK residents live. People need to be able to move home easily and at a reasonable cost in order to live near work or for family reasons, but labour market flexibility is reduced by the looming tax.
Christian Jaccarini, economist at the Centre for Economics and Business Research, commented: “While the under-supply of housing has rightly received much attention, our research shows that stamp duty significantly impedes housing transactions, meaning that we don’t maximise the benefit from the existing housing stock.”
According to the research, stamp duty could potentially prevent the UK economy from reacting to gradual or sudden changes in economic conditions in different geographies.
Jaccarini added: “The Chancellor should seize this opportunity to make stamp duty reform a priority at the upcoming Autumn Budget.”