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.