The stamp duty conundrum

There is a compelling argument to the effect that the new stamp duty regime should be axed and replaced with a flat rate to be paid by both buyer and seller.

The stamp duty conundrum

Tony Ward is chief executive of Clayton Euro Risk

New research from Savills has revealed a 25% drop in residential transactions against the 10-year average. According to the estate agent, there have been 5.26m fewer sales since the 2007 recession than would have been expected in a normally functioning market. Savills’ Lucian Cook said: “What we are seeing is a radical change in the way the housing market works.” He suggested that house price growth had been a ‘double-edged sword’ for those with a mortgage. “In some ways, it gives them more equity to trade up the housing ladder, but it also means the next step up the rung becomes that much more expensive.” People were more likely now to extend properties, Mr Cook claimed, which restricted the number of homes coming to market. The level of sales was unlikely to pick up to that seen before the crash, he predicted, with people moving less often and first-timers buying later.

At the same time, Countrywide’s chief executive Alison Platt, announced that it handled 8% fewer transactions last year and the housing slowdown will become the ‘new norm’. “For housing sales, it was a tough market,” she said. “We expected the market to slow in the walk to the election, but historically you get a bounce back after the election and we didn’t see that at all.” The company said it was going through a ‘significant period of change in the market’. According to Ms Platt, transactions are unlikely to recover to the levels seen before the recession. “If the reason you’re moving is two more bedrooms and a bit more space, you’re going to do a spreadsheet and think ‘we might tank out the cellar or extend over the garage’. At various points along the chain, there are things that are making people think twice,” she said.

It is true that the property market has undergone a fundamental and permanent change since the credit crisis – that’s for sure – but what’s behind the fall in transactions?

One factor certainly affecting levels is the new stamp duty regime, about which some analysts have been very damning, describing it as ‘complicated, punitive and totally counter-productive’. While I won’t go as far as that, I wonder if there is a better way for government to raise funds. As well as affecting transaction levels it could also be held responsible for skewing the type of construction being built. The rising tiers of stamp duty give builders an incentive to construct flats with one or two small bedrooms, rather than houses. The Royal Institution of British Architects claims that 50% of all new homes are too small for the average family.

I also believe that the stress, complexity and cost of moving home discourages people – not just at the top end of the market, where recent changes in stamp duty hit hardest. Older people sit in their homes concerned about the cost of downsizing while families and couples are stuck in small houses anxious about the cost of upsizing – so nobody moves at all.

The debate demands to be reignited. There is a compelling argument to the effect that the new stamp duty regime should be axed and replaced with a flat rate to be paid by both buyer and seller. It is reasonable to assume that short-term revenue loss could be offset by enhanced transaction volumes and increased construction.

Some type of reform may be needed.