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Friday, November 24, 2017

Was the budget stamp duty cut an economic dead end?

The failure of the Tory Government to get to grips with the UK housing crisis is no better illustrated than the smoke and mirrors which surrounds the axing of stamp duty for properties selling for less than £300,000.

As the Independent reports, the Resolution Foundation believe that the measure will inflate house prices by more than the saving it will deliver for many buyers. They add that the change will only marginally reduce the time it takes an average first-time buyer to save up to buy a property – from 19 years to 18.5 years.

The Foundation's calculation is that the rise in house prices that the policy is likely to cause equates to a £3,200 increase in the cost of an average-price home, more than double the average £1,600 saving it will deliver:

The Office for Budget Responsibility (OBR) also said the measure was likely to inflate house prices by 0.3 per cent, meaning buyers will pay more.

The OBR said: “Post-[stamp duty] prices paid by first-time buyers would actually be higher with the relief than without it. Thus the main gainers from the policy are people who already own property, not the first-time buyers themselves.

“For some potential first-time buyers with smaller deposits, who are constrained by loan-to-value lending criteria, the relief will enable them to borrow a multiple of their stamp duty saving, allowing them to buy properties that they otherwise could not afford – but more expensively.”

Despite the potential benefits, some commentators criticised the relatively small number of people the policy will help. The OBR said the change will benefit just 3,500 buyers – meaning it will cost £160,000 for every person it helps next year and £190,000 per person by 2022-23.

Damningly, given the shortage of affordable homes, the £2.9bn the stamp duty cut will cost could have funded 40,000 new social homes or more than 100,000 homes built through the Government’s Housing Infrastructure Fund.

All of this suggests that the stamp duty cut is an economic dead end that fails in its purpose to help first time buyers, and that a direct subsidy would have had a much more beneficial impact for those seeking housing, especially if they are on a low income.
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