Scrapping Stamp Duty could unlock 300,000 extra home moves a year
- Economic growth in key regions, such as around Cambridge and the ‘tech corridor’ being held back by stagnant housing market.
- Rathbones argues that a more mobile housing market could help unlock part of the UK’s £5.5 trillion housing wealth.
Reforming Britain’s property tax system could unlock more than 300,000 additional housing transactions each year and help release part of the UK’s estimated £5.5 trillion housing wealth, according to Rathbones, one of the UK’s leading wealth and asset management firms.
With speculation mounting ahead of the Autumn Budget that the Government could revisit property taxes, including Stamp Duty and Council Tax, Rathbones is calling on policymakers to judge reforms not only on the revenue they raise, but on whether they support economic growth, labour mobility and the productive use of housing wealth.
Stamp Duty may be discouraging mobility and growth
Stamp duty is levied at different rates above certain thresholds when a property is purchased, increasing the cost of moving home. Rathbones economists estimate that abolishing Stamp Duty could increase housing market activity by more than 25%, equivalent to over 300,000 additional housing transactions every year.
Lower transaction costs could make it easier for people to move when their circumstances change, whether relocating for employment opportunities, moving closer to family, upsizing for a growing household or downsizing in later life.
Jay Lawrence, Investment Director based in Rathbones’ Guildford Office, says: “Property taxes influence how people behave. We increasingly hear from clients who are staying in homes that no longer meet their needs because moving simply doesn’t stack up financially. Many older homeowners tell us the costs of downsizing can wipe out much of the financial benefit, while younger families face significant barriers when trying to move into homes that better suit their circumstances.
“When people are discouraged from moving, the impact extends far beyond the housing market. Labour mobility falls, homes are used less efficiently and opportunities for economic growth can be constrained.”
£5.5 trillion of wealth tied up in housing
The debate comes at a time when housing has become one of the UK’s largest stores of wealth. Around 40% of household wealth is held in residential property, equivalent to more than £5.5 trillion* (estimate).
While housing wealth can provide financial security, much of it remains illiquid and tied up in property. Rathbones argues that a more mobile housing market could help create the conditions for some of this capital to be deployed elsewhere in the economy through investment, business creation, spending and intergenerational wealth transfers.
Jay Lawrence adds: “Britain has accumulated an extraordinary amount of wealth in housing. The question is whether the tax system encourages that wealth to remain locked away or helps create the conditions for some of it to flow more productively through the wider economy.
“Strong economies depend on people, homes and capital flowing to where they can be used most effectively. Property tax reform will always create winners and losers, but the ultimate test should be whether it supports a more productive and prosperous economy.”
Cambridge highlights a wider economic challenge
The challenge is house prices have risen much faster than earnings. In the early 1990s, the average UK home typically cost around three to four times average earnings. Today, that figure is closer to eight times earnings nationally** and considerably higher other parts of the UK.
Mark Winchester, Head of Rathbones Cambridge, says: “Cambridge is a good case study. The city is not struggling to attract investment, innovation or entrepreneurial talent. The region accounts for around 15% of the UK’s innovation-driven businesses, second only to London. Yet housing has become one of the clearest signs that success is outpacing capacity.
“The average home in Cambridge now costs almost £470,000, with prices standing at around 12 times average earnings. For many highly skilled workers, the biggest challenge is no longer finding a job in Cambridge but finding somewhere affordable to live.
“Increasingly, the entrepreneurs and business owners we speak to are not worried about raising capital or finding customers. Their challenge is attracting and retaining talent. Employees need access to affordable housing, reliable transport and strong public services if they are to build long-term roots in the region.
“Housing affordability is no longer just a social issue. It is increasingly an economic one, affecting productivity, competitiveness and long-term growth.”
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