Scrapping stamp duty could help to ease the UK’s housing crisis by removing a barrier to development, according to a report commissioned by Santander.
The study, which was carried out by the Centre for Economics and Business Research (CEBR), claims the tax eats into developers’ profits, meaning there is less incentive for them to build.
According to the report, the tax stopped 146,000 transactions from going ahead between 2012 and 2017 at a time of an acute supply shortage.
Official figures show housebuilding has slowed from 327,000 per year in the 1970s to just 164,000 in the decade up to 2016.
Chancellor Philip Hammond is under growing pressure to cut or reform stamp duty in the run up to the Autumn Budget on 22 November.
Stamp duty is levied on the buyer at amounts that increase above certain thresholds, with nothing payable on the first £125,000 of a property's value.
It was reformed in 2014 to ensure those buying at lower prices pay less – but rising house prices have shunted more and more buyers into higher brackets, pushing receipts up to £2.6bn at the end of the third quarter of 2017.
However, stamp duty is just one of a range of factors affecting supply, with planning constraints such as protected Green Belt land also playing a major role.
Property prices have been inflated for many years due to an ongoing lack of supply, and several housebuilders have recently posted record profits.
Martin Stewart, director at broker firm London Money, said: "There is a vested interest at heart, and I would suggest that banks did well from the Funding For Lending scheme and builders have done very well from Help To Buy.
"So, be careful what you wish for.
"If anything, I’d be looking to bring more stamp duty in - possibly a token 1 per cent on disposal of land or property sale, be it residential or commercial. I know the obvious counter argument, but given the back story to this is that London house prices have tripled in value since 1990, it is one that I think can be rebuffed."
Mr Stewart warned that we live in a society in which people want the state to provide for them but do not want to pay for it, and called for innovative ways to cope with demographic change.
He said: "I would suggest some sort of stamp duty incentive for first-time buyers. They came back to the market with a vengeance in 2017, and we should do all that we can to ensure they stay with us in to 2018."
A separate report from the Family Building Society and London School of Economics claimed stamp duty can act as a barrier to downsizing, which in turn stops others from moving up the housing ladder.
The report pointed out that potential downsizers cannot buy something that costs the same as their original house without spending large amounts of money on tax, meaning there is an incentive to stay put.
Meanwhile, an Aldermore survey has revealed more than a fifth of recent buyers - those who purchased less than three years ago - would be encouraged to move again by a temporary cut in stamp duty.
In addition, three in 10 prospective first-time buyers would speed up their plans to buy a home if stamp duty was temporarily reduced.
Commenting on the CEBR report, Miguel Sard, managing director of mortgages at Santander UK, said: “The report highlights the unintended consequences of stamp duty. First-time buyers struggle to get on the ladder, young families want to move up it and the elderly want to downsize, but all are stifled by stamp duty.
"Those aged between 65 and 74 have the greatest average property wealth in this country, and youths have the least. The housing market needs to allow for adjustments in demographics to be mirrored by the supply of accommodation."
simon.allin@ft.com
