Go for bold, Philip Ham­mond

Financial Mirror (Cyprus) - - FRONT PAGE -

It is three weeks un­til the Bud­get and we know al­ready that hous­ing will fea­ture in the Chan­cel­lor’s speech on Novem­ber 22, but the pres­sure is mount­ing for him to put prop­erty right at the heart of his spend­ing plans.

Calls for him to ad­dress stamp duty have been mount­ing and now a par­tic­u­larly hard hit­ting re­port from the think tank Adam Smith In­sti­tute calls it an in­ef­fi­cient tax that is not fit for pur­pose. In­deed it goes fur­ther, it points out in no un­cer­tain terms that stamp duty is hold­ing up growth in the hous­ing mar­ket.

But what is in­ter­est­ing about the anal­y­sis is that it sets out how it be­lieves stamp duty is harm­ing ordinary peo­ple. Peo­ple are liv­ing in homes that are too small for them, par­tic­u­larly grow­ing fam­i­lies, they are liv­ing fur­ther away from their place of work than they would like and older peo­ple are pre­vented from down­sis­ing and free­ing up more fam­ily sized homes.

The re­port sug­gests that coun­cil tax bills should be in­creased on the most ex­pen­sive prop­er­ties and this change would be a very ef­fec­tive tax cut that would boost growth and im­prove the fun­da­men­tals of the hous­ing mar­ket with a sin­gle stroke.

This is where I need to point out a few things. We have al­ready seen what ef­fect higher stamp duty has had on the up­per end of the hous­ing mar­ket with prices fall­ing since a higher rate was in­tro­duced in 2014. It has re­sulted in fewer do­mes­tic buy­ers in the prime mar­ket in Lon­don, for ex­am­ple.

It has also re­sulted in sales fall­ing, thus a fall in stamp duty rev­enue from the most pricey houses in the land. So, it could in­deed be ar­gued that scrap­ping stamp duty would boost the top end as well as the bot­tom end. Al­though many first time buy­ers donít pay the tax if they are buy­ing at less than GBP 125,000, first-time buy­ers in Lon­don have been hard hit as it is more or less im­pos­si­ble to buy a home un­der this price in the city.

It would seem that scrap­ping stamp duty would help get the mar­ket mov­ing. The latest figures from HMRC show that res­i­den­tial sales fell by 1.8% be­tween Au­gust and September.

But if the hous­ing mar­ket is to ben­e­fit and grow, then there need to be enough houses for peo­ple to buy and we al­ready know that lack of sup­ply is at the heart of the cur­rent hous­ing cri­sis, par­tic­u­larly in Lon­don. In­deed, the Mayor of Lon­don has just pub­lished new figures stat­ing that Lon­don needs 66,000 new homes a year.

Sadiq Khan points out that the new anal­y­sis by City Hall shows that over­all govern­ment fund­ing for af­ford­able homes in Lon­don is still less than half if was seven years ago and it needs to rise five­fold to GBP 2.7 bln a year to be ef­fec­tive.

This comes as a new poll shows that the vast ma­jor­ity of prop­erty and de­vel­op­ment spe­cial­ists and de­ci­sion mak­ers be­lieve that both the na­tional and Lon­don govern­ments are not do­ing enough to boost con­struc­tion in the city with 86% say­ing that de­vel­op­ment ac­tiv­ity in the cap­i­tal could be boosted if there was bet­ter fund­ing for lo­cal au­thor­i­ties and in­fra­struc­ture, and if pri­or­i­ties are placed on plan­ning and sup­ply of land.

The in­au­gu­ral Lon­don De­vel­op­ment Barom­e­ter by M3 Con­sult­ing also found that there are con­cerns around the fu­ture with 57% be­liev­ing that there will be less de­vel­op­ment ac­tiv­ity over the next five years and just 19% pre­dict­ing a boost in de­vel­op­ment ac­tiv­ity over the same pe­riod. It points to a clear di­vide be­tween govern­ment and in­dus­try pri­or­i­ties, with al­most half of re­spon­dents sig­nalling the im­prove­ment of the town plan­ning process as a first or sec­ond rank­ing pri­or­ity, whilst tra­di­tion­ally, govern­ment backed ini­tia­tives such as sup­port for home own­er­ship ranked as the low­est.

How­ever, ac­cord­ing to real es­tate ser­vices firm Sav­ills, even this am­bi­tious new tar­get set out by Khan for Lon­don may not be enough and says it is well be­low the 90,000 to 100,000 new homes it has es­ti­mated are needed to meet de­mand and be­gin to ad­dress af­ford­abil­ity is­sues.

It sug­gests that years of un­der­sup­ply in the cap­i­tal means that this new tar­get, while am­bi­tious in the con­text of de­liv­ery over re­cent years, will not be­gin to make a dent on af­ford­abil­ity and added that co-op­er­a­tion with sur­round­ing es­sen­tial to re­lieve hous­ing mar­kets.

It would seem that build­ing more new homes and tax change com­bined would sig­nal a bold ap­proach if the Chan­cel­lor should wish to take this step. Oth­ers have sug­gested switch­ing stamp duty to the seller rather than the buyer and also chang­ing the bands to in­crease the thresh­old for no duty to at least GBP 200,000. I am hop­ing the Chan­cel­lor goes for bold. lo­cal au­thor­i­ties is pres­sure in Lon­don’s

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