The last time we had high rates of inflation, half a century ago, property prices took off. Buying your home became a no-brainer: mortgages gradually reduced as inflation boosted incomes. By the 1980s, there seemed to be a housing shortage, but when interest rates once more rocketed up in the 1990s, homes were left empty. It could happen again. Last time, assured short-term tenancies were introduced and the slack was taken up by buy-to-lets, but they went on to squeeze out first-time buyers. This imbalance persists. It could have been tackled in the recent Budget, but not for the first time, the opportunity was missed.
The core problem is that the existing housing stock is underused. Supporting the upgrade of the homes that we have, rather than a scattergun incentive to build for the sake of it, would increase energy efficiency and probably increase economic activity as well. VAT is currently topsy-turvy. Instead of charging it on materials for property maintenance and improvements, such as better insulation, it should be extended to complete new-builds.
Windfall taxes are popular, but not the most obvious one: to introduce a uniform capital gains tax on all homes, whether primary or secondary residences, and whether owned by individuals or companies. Your main home is currently exempt, yet the luck of the market decides by how much it will go up in value. That’s a windfall, and it can now be checked on Land Registry records in a way that was never possible years ago. How would levelling the playing field like this work in practice? The reform would require all companies that own residential property to register their major shareholders on the land register, and for all transfers of ownership to be registered (so that homes could no longer legally change hands simply by signing a deed). Owners might initially be reluctant to sell, but a phased-in change could bring homes more quickly to market as owners look for early sales to beat the promised tax rate rises.
The rate could be set high enough to abolish stamp duty land tax, for it makes more sense to tax the gains on sales rather than heap more costs on what is already a hefty purchase. This would also frustrate tax avoidance schemes – a designated company owning a single home can currently avoid stamp duty by selling the company rather than the property.
Council tax is supposed to contribute towards council services, such as waste collection, but there are too many exemptions. The highest rate band is only double the lowest band, so if several flats are made into a single home, the total council tax goes down. The answer? Scrap it. Replacing it with an annual tax linked to property values could bring more homes onto the market. The old rate system used to be based on rental values, but that ended in 1990 when property values were overdue for updating. Again, modern technology now makes automatic annual valuations feasible. Discrepancies could be trued up by tax deducted or refunded when the property is eventually sold. Who should pay? The registered owner, for landlords can always pass on the tax through rents. To discourage holiday homes from remaining empty for most of the year, rates could be set higher according to how many properties individuals have registered in their names. The asset-rich/cash-poor might say that they can’t afford the new annual tax, but they have the option of equity release, and perhaps councils could come up with schemes of their own.
More fundamentally, why has central government the right to restrict how local governments generate income? The chancellor recently promised to give more freedom on council tax, but he could have gone much further. Why not allow councils to license, regulate and tax holiday lets, for example, instead of enduring the current anarchy that allows any home to be let without safeguards, with no control over the loss to the housing stock? Planning could be a profit centre, but instead councils are blocked by Westminster from charging realistic fees. Yet strengthened planning departments would benefit everybody – even builders complain about the understaffing. It delays planning approvals. Adequate resources could ensure that new-builds are restricted to homes that genuinely meet local needs and don’t detract from the environment. That alone would do more for the housing shortage than blindly adding to the housing stock just to satisfy quotas.
As long as housing is regarded as a road to riches, demand will stay high. In the past, when prices started falling, speculative demand flew away, prices fell further and an apparent housing shortage turned into a housing surplus. If taxes were to nudge mindsets away from acquiring property into investing in our common economical future through share ownership, surely it would be in the national interest. But whether that would be politically acceptable is of course another matter.
