Scrap stamp duty and council tax to fix London housing crisis, thinktank says | Housing market
Stamp duty should be abolished and replaced with a new property tax to solve London’s housing crisis, a leading think tank has suggested.
A report on the capital’s property market suggests an annual levy and council tax to replace the tax paid on buying property would encourage downsizing and raise funding for social housing. This will also help tenants save money on their house deposit.
Research by the London Center has revealed space disparities between the poorest and richest homeowners. It found that average floor space per capita increased by almost 30 percent between 2004 and 2023, but that additional space went disproportionately to high-income homeowners.
Households in the top 20% of incomes saw a 27% increase in land holdings, while the bottom 40% saw a 6% increase. This means that although there are more homes per person in London than there were 20 years ago, housing inequality is increasing.
This is just one of the serious problems of the London housing market outlined in the report: the daily cost of homelessness is £5.5 million and a record number of Londoners are living in temporary accommodation.
The report found that house prices are 12 times earnings (up from seven times in the early 2000s) and a third of children live in poverty after housing costs. Businesses also say low house prices are stifling growth, investment and talent.
“By every metric that matters, the housing crisis is at its worst,” said Rob Anderson, research director at the London Center and co-author of the report.
The document outlines radical reforms, including the abolition of stamp duty and council tax and replacing them with a partially devolved annual proportionate property tax (PPT) that could pay for 106,000 social and affordable homes over the next decade.
Under the proposed system, homeowners with the largest properties in the most expensive areas would pay the most taxes. PPT will be calculated as a percentage of the home’s value. An average base rate of 0.39% will apply for those valued up to £800,000. This rate increases on higher value homes, with homes worth up to £999,999 paying a 0.01% surcharge. Above £1 million, an additional increase of 0.02% applies for every £200,000 up to £5 million.
Under the proposals, a £500,000 house in Greenwich in band D would have an annual PPT rate of 0.39% or £1,950, saving £15,302 over the first 10 years compared to council tax and stamp duty land tax (SDLT).
A £5 million house in Westminster in group H will pay PPT of 0.82% or £41,000 per annum. Over the first 10 years property owners would save £86,792 compared to council tax and SDLT.
Private and social tenants will no longer pay council tax, saving the typical tenant more than £1,890 a year. Without stamp duty, first-time buyers will save £8,593 over five years of ownership.
Those who are asset-rich but cash-poor, such as those whose home value has gone up and down significantly, will be able to delay switching to PPT for up to ten years and continue to pay council tax. The remainder will be paid on the sale of the property.
“It is widely accepted by economists and politicians from across parties that stamp duty has a devastating effect on the housing market and that both stamp duty and council tax encourage property retention,” Anderson said.
“Removal of stamp duty from ordinary carriers [owner-occupiers moving into their primary home] “We will deliver an extra 79,000 homes a year while raising funds for social and affordable housing investment.”
Abolishing council tax (fixed at 1991 values) would also remove the heavy financial burden from tenants, allowing them to more easily save for a deposit on their first home.
Central London is joining calls from the housebuilding industry to help first-time homebuyers save on the deposit required to buy a home in London. average almost £150,000 For those purchasing in 2024 without family assistance. House prices in London have increased by more than 200% since 2002.
While “building more homes is inevitable,” according to Central London, the picture is much more complex. “The problem cannot be understood as just a simple shortage of homes,” Anderson added.
“London can and needs to build more homes. But if housing policy focuses solely on increasing key supply figures and exceeding delivery targets, we risk missing the real problem: a housing system that is not providing enough homes overall.”
