Stamp duty on foreign investors won't fix the UK's broken housing market
At the recent Conservative Party Conference, the Prime Minister, Theresa May announced the government would 'fix' the housing market by increasing stamp duty paid by foreign buyers when they buy property in the UK.
The Prime Minister says "fixing our broken housing market" is one of her personal priorities, however, this new tax would generate as little as £40 million, which would go to projects to help homeless people get off the streets.
Mrs May said: "We are very concerned about the impact that foreign buyers have on the housing market and the impact they have on people who are living here and trying to get into the housing market.
On The Andrew Marr Show, she said: "The evidence is that foreign buyers coming in pushes house prices up and lowers home ownership here in the UK,"
"I want to make sure that people here in the UK are able to own their own homes."
Whilst well thought out intervention into the housing market has to be welcome, this won’t come near to fixing the ‘broken housing market’, and worse still appears to be something of a headline-grabbing afterthought. We need to be talking about hundreds of billions of pounds investment to fix our broken housing market and no one is talking about those kinds of figures.
Unfortunately, this policy doesn’t go anywhere near to the party’s stated goals of returning Britain to a ‘home-owning democracy’ and uses the leaver of increased taxation which has already proven unsuccessful in the second home and buy-to-let markets. Worse still it moves the focus of national debate away from the problems of supply in the housing market - and inter-related issues such as wage stagnation and the cost of finance - towards external threats.
Housing supply has been squeezed for decades, so it makes sense that any property investment by overseas investors would lead to higher prices, however, any aspect of demand, including home buying by ordinary private individuals is going to increase house prices in such circumstances.
But foreign buyers are almost certainly not one of the main drivers in the continued failure of the UK’s housing market, they are simply a very small contributing factor. Home ownership has dropped at a time when housebuilding hasn’t kept up with rising demand.
Unfortunately, the new stamp duty increases fail to deal with the central issues of the UK’s failed housing market. The number of empty property’s in London (where we’re always hearing about the issue of foreign investors leaving properties empty) is around 20,000. That’s 20,000 dwellings that are empty, out of the best part of 4 million dwellings. What’s more, according to official figures, that number had halved between 2006 and 2017.
Of course, it’s easy and often politically expedient to make scapegoats out of a certain aspect of property buyers, as we’ve seen the government do with landlords in recent years, however, it’s just kicking the can down the road. How many more groups can the government find to scapegoat before it has to admit it has no idea how to fix the housing market or accept it needs to make huge investments in house developments?
This policy announcement was perhaps a way to answer some of the arguments presented by the former Foreign Secretary, Boris Johnson, in which he called on Mrs May to “kick start” the housing market in London, in order to stimulate the housing market in the rest of the country.
However, his policy suggestions had been based on reducing stamp duty and encouraging developers to develop more housing. Commenting on the need to reduce hurdles for first-time buyers, he said: “Tax is freezing whole chains of purchases as people are deterred from trading up, with the result that older people are staying in houses that are too big for their needs and younger families don’t get a look in.” Whilst discussing property developers he said: “They have the land, they plainly have the cash, and it is time they used both to build the homes the country needs.”
Whilst the Labour Party’s conference suggested policies which whilst not taking a holistic approach to the housing market looked to deal with more issues including questionable policies such as abolishing Section 21, a levy on holiday homes and enshrining three-year tenancies in law, as well as creating renters’ unions, building an extra 1 million homes and redefining the meaning of ‘affordable local housing’ to be tied to one-third of local incomes.
It’s clear what we call the ‘Housing Crisis’ should more accurately be called ‘Housing Market Failure’. We need investment at a governmental level backed by market-wide, joined up policy initiatives, not just the tinkering around the edges and big rhetoric we’ve seen over recent years.