Replace stamp duty and council tax to solve London’s housing crisis
The Autumn Budget is fast approaching. The Conservatives already set out their plans to abolish stamp duty during Party Conference season. New analysis from Centre for London demonstrates how replacing Stamp Duty and Council Tax with a proportional property tax could alleviate pressures on the London housing market.
Centre for London’s new analysis found that:
- London has the highest rate of overcrowding in the country.
- At the same time, half of homes that aren’t rented in the capital are classed as ‘under-occupied’, meaning there are more bedrooms than the residents’ need.
- Today, a first-time buyer would pay £18,000 in stamp duty on an average priced London home (£562,000)
- Buckingham Palace pays less in council tax than a two-bed, rented band C flat in Croydon.
London’s housing system is broken. There are 336,000 Londoners on the social housing waiting list. This has left one child in every classroom homeless and living in temporary accommodation. While lack of affordable housing supply is a major part of the issue, our existing housing market is also deeply dysfunctional – and our tax system is making this worse.
Stamp duty is universally regarded as a ‘bad tax’. It distorts the property market, and no-where feels these effects more than London.
Firstly, stamp duty widens the gap between Londoners who can get on the property ladder and those who can’t. Today, a first-time buyer buying an average-priced home at £562,000 faces an upfront £18,000 stamp duty bill. On top of deposit requirements, often in excess of £100,000, this puts homeownership even further from reach for many Londoners. Meanwhile, a first-time buyer elsewhere in England, paying the national average of £270,000, would pay nothing.
Secondly, stamp duty acts a tax on moving. This makes it harder for everyone to access a home that suits their changing needs. Take an older Londoner wanting to downsize or move to a more accessible property as an example – they’d likely face a stamp duty bill upwards of £20,000. Stamp duty encourages Londoners to stay where they are, even if their home isn’t right for them anymore, while also preventing a much-needed large home becoming available for one of the many London families in need.
The result of this across the capital is that London has both the highest rate of overcrowding in the country, while, at the same time, almost half of the capital’s non-rented homes are classified as ‘under-occupied’ – meaning there are more bedrooms than the residents need.
Our other main property tax, council tax, deepens inequalities within our housing system. People living in London’s biggest and most valuable properties pay far less for the space they have than people living in cheaper, smaller homes. An extreme example is that Buckingham Palace pays less in Council Tax than some residents in 2-bed flats in the Outer London borough of Kingston.
Another example is that a homeowner living in a large, 4-bed house worth over £3m in Westminster pays just £9.78 more a year in council tax than a renter living in a 2-bed flat in Waltham Forest.
This results in a property tax system which perpetuates and exacerbates London’s housing inequalities. Londoners in bigger, more expensive homes pay comparatively little in council tax and are disincentivised from selling to downsize. Meanwhile, renters and owners living in overcrowded homes pay more month-to-month and face a big bill when trying to buy a suitable home.
The budget provides an opportunity to abolish a dysfunctional system, replacing it with a new tax system. Replacing stamp duty and council tax with a progressive and proportional property tax would be a fairer tax system while tackling fundamental issues within our housing market. A proportional property tax is an annual levy on a small proportion (less than 1%) of the total value of a property.
This system would mean those living in larger, more valuable homes pay more, while those living in smaller, less valuable homes pay less. This is likely to help encourage ‘right sizing’, freeing up more family-sized homes in London’s constrained housing market, while generating revenue that could be used to directly invest in building the social and affordable homes London needs.
Centre for London is currently producing new research – Delivering the Homes London needs. They’re exploring how a proportional property tax, alongside measures to build the right homes at the right prices, can help tackle London’s long-standing housing crisis.
Rob Anderson, research director at Centre for London, comments below: “London’s housing crisis is a national emergency, creating hardship for millions while holding back the national economy. We’ve seen new measures to get more homes built in the short-term, but a comprehensive approach that addresses the root causes of our dysfunctional housing market is needed.
Rachel Reeves must be bold. Our property tax system is making the housing crisis worse. Londoners across the capital are bearing the financial burden of unattainable housing costs and sky rocketing rents. This has left far too many without a safe place to call home.
The Autumn Budget is an historic opportunity to tackle London’s housing crisis at its root, while making the property tax system nationwide fairer.”