Last week, I spoke at the Chartered Institute of Housing (CIH) conference in Brighton. This was particularly interesting for me as, when I meet property professionals, I am normally meeting property investors.
Not so here. CIH members tend to be working in some way or another in social housing. That makes their take on the market rather more important.
So what do they think? They think just two things could remove many of the difficulties in the housing market. First, changes in the way we treat tenants and, second, the removal
of stamp duty.
The first makes sense. There is no real shortage of homes in the UK (none that shows up in the statistics anyway). What we do have is a rental sector that favours landlords so heavily that no one likes renting over the long term. Renting is fine when you are young but, once you have children, do you really want to live somewhere where you can be evicted with only two months’ notice as allowed by the Housing Act 1996, where your rent payments can be upped at your landlord’s pleasure, and where you can’t make any changes to the interior without instantly losing your deposit? Of course not.
You also don’t want to live anywhere actively unpleasant. My family is not renting at the very bottom of the market but, nonetheless, when we took possession of one of the flats we lived in, it was so dirty that we could not enter – let alone use – two of the rooms. And that was not because we have particularly high standards. As anyone who has ever popped round for a coffee will know, we really don’t.
It is all these things that make people desperately want to own a house and that, in turn, pushes up prices and makes buying so expensive that they can’t afford to do so.
CIH members hope that, if the recent crisis in the housing market does anything, it will encourage whatever government we get next to focus on creating a more tenant-friendly and long-term rental market. I hope so too.
I’m also completely with them on stamp duty. If you buy an average house in the UK – for, say, £225,000 – you’ll pay £2,250 (1%) in stamp duty.
On top of all the other costs of moving (estate agency fees, removal costs, lawyers, the usual 50 trips to B&Q and so on), that’s an enormous amount of money for the average family to come up with. But stamp duty goes up exponentially as you move up the property ladder. Buy a reasonable house in the south for anything over £500,000 and your stamp duty alone will come to £20,000 (4%). That’s not much below the national average wage.
Stamp duty is a rotten tax – largely because it is paid out of money you will already have paid income or capital gains tax on.
I hate double taxation. House buyers also have the regular irritation of knowing that, while they are busy begging banks and parents to hand over the extra cash to pay the tax, house sellers are often banking a profit they’ve done nothing to earn (unless they bought their house at the wrong point over the past few years, of course).
But stamp duty is also one of the biggest barriers we have in the UK to labour mobility. If you want to own rather than rent (for the above reasons), you simply can’t afford to buy and sell a house more than once or twice in a lifetime – not if you want to have a pension as well as a home. That’s a big deal when unemployment is high and likely to head higher soon.
So, stamp duty should go. However, it clearly can’t go without being replaced with some other tax – not with the public finances as fragile as they are today. What should the new tax be? That’s an easy one. Capital gains tax on the sale of primary homes.
Not only will this raise a bit of money, but it isn’t easy to argue with: it is a tax on unearned income and one you don’t have to pay if you don’t make money.
With a bit of luck, it might also change the general perception that making heavily leveraged bets on house prices is a kind of tax-free saving. Then, perhaps, we might see a more balanced savings culture.
There is a problem with all this of course: it isn’t likely to be popular. I suggested it to a senior politician this week. He told me it would make any party unelectable.
But whoever gets into government next is going to be so unpopular as to be unelectable anyway (once they’ve got into the swing of spending cuts), so it might be nice to think that they would do a few things that would be good for us all in the long term rather than good for them in the short term.
I think that dumping stamp duty for capital gains tax might be one of those things. Now all we need is a government with the guts to give it a go.
• This article was first published in the Financial Times