The stamp duty holiday has helped bring housing transactions to the highest level since the financial crisis in 2007.
It has also warded off a collapse of the housebuilding sector, with more new builds completed in Q3 2020 than in the same period in 2019.
If the holiday ends in March as planned, we risk a slump in the housing market and housebuilding sector, which will jeopardise the recovery and deepen the housing crisis.
To prevent a slump in housebuilding and help millions of would-be homeowners, the Government needs to make the new threshold permanent for primary homes or abolish the tax outright.
Such reform would also boost new build construction by an estimated 20,000 homes per year, while abolition would deliver an additional 23,500 new builds annually.
The stamp duty holiday has restored housing transactions to the highest level since 2007.
A new report by the Centre for Policy Studies looks at the effects of the measure introduced by the Chancellor in response to the pandemic, and finds that after an initial sharp decline in sales between April-June 2020, the number of transactions increased from 132,090 in Q2 to 225,870 in Q3 and 316,300 by the end of Q4 – the highest level since before the global financial crisis in 2007/8.
The think tank’s research shows that stamp duty revenues actually rose by 27% in Q3 compared to Q2, from £1.1bn to £1.35bn, and suggests they will rise again in Q4 given the continued increase in transactions.
The stamp duty holiday has helped hundreds of thousands of homeowners – the CPS’s research shows that 87% of people buying a primary home escaped the deeply unpopular tax thanks to the holiday, a figure which rises to 93% outside of London and the South East.
The stamp duty holiday has also acted as a very effective form of stimulus for the construction industry, giving it the confidence to keep building rather than seeing housebuilding collapse as in previous recessions. Between Q2 and Q3, the number of new builds started rose by 134% from 17,580 to 39,880. The number of new builds completed rose by an even more impressive 164%, from 16,310 to 43,070.
However, the looming end of the stamp duty holiday risks having a chilling effect on the housing market – and repeating the housing bust of 1988 when the market slumped after tax relief was ended.
The CPS is calling on the Government to either permanently increase the threshold on primary residences to £500,000 or abolish the tax outright. The headline cost of keeping the threshold increase alongside the CPSs' proposed reform to the rates would be roughly £3 billion – but the think tank estimates that it would actually cost just £500 million once the wider economic benefits are accounted for, while boosting new build construction by at least 20,000 homes per year and helping homeowners, and the economy, adjust to the changes brought about by the pandemic.
Report Author and CPS Data Analyst, Jethro Elsden, said:
‘Stamp duty may well be the worst tax on the UK’s statute books. It places a significant burden onto prospective buyers and creates huge distortions in the UK housing market. It damages the economy, and leaves people stuck in the wrong homes and reduces the number of new builds brought to market each year, which makes the housing crisis harder to solve.
‘The introduction of the stamp duty holiday last July did not just rescue the housing market and construction sector, but proved conclusively that high stamp duty rates have become a damaging drag on the economy, the housing market and people’s aspirations.
‘With the holiday due to finish at the end of March, we urge the Government to either make the £500,000 threshold permanent for primary residences, or better yet, abolish it entirely. At the very least the Chancellor must look to extend the current stamp duty holiday, or he risks delivering a sledgehammer blow to the housing market, and the wider economy, just when we need to be pushing for the strongest recovery possible.’
Notes to Editors
The CPS briefing paper on stamp duty is available here