Keith Edwards, director of CIH Cymru, takes a look at the proposal to devolve stamp duty land tax to the Welsh Government
The media obsession with home ownership conveniently forgets that sub- prime lending and unsustainable housing markets were key factors in bringing on the current recession. your own view will depend on where your ‘camera’ is. If you’re looking to sell your home you want house prices to rise. If you’re trying to get on the housing ladder any increase is likely to put off further the day when you can realise the ambition to own your own home. If you’re renting with no prospect of buying you probably find the whole boom and bust thing random and bizarre.
Governments’ views on this are also diverging not just between but within administrations. No sooner had George Osborne announced the Help to Buy scheme to ‘boost home ownership’ than the business secretary Vince Cable was warning of the real danger it ‘could inflate the market’. Jonathan Portes of the National Institute of Economic and Social Research said that this policy had ‘achieved the impossible’ by uniting economists from all traditions in concluding stoking up demand without increasing supply would inevitably push up house prices.
Wales has taken a different approach, with Welsh Government coining the concept and developing the role of ‘System Steward’, recognising that markets are ‘better servants than masters’ and that simply promoting home ownership does not a housing strategy make. In fact there’s no point stimulating the market if we’re not increasing supply. And if we want to make markets work better we have to use a comprehensive battery of interventions to improve connectivity across the housing system.
Take just one example of market intervention through the use of stamp duty land tax (SDLT). This is a tax payable on the purchase or transfer of property or land where the amount paid for that purchase or transfer is above a certain threshold. The Silk Commission recommended that SDLT ‘should be devolved to the Welsh Government with Welsh ministers given control over all aspects of the tax in Wales’. Recently HM Treasury consulted on the potential impact of devolving SDLT, estimated to be worth between £100 million and £200 million per year in Wales. The tax has already been devolved in Scotland. So what could this power mean for Welsh Government’s system stewardship of the Welsh housing industry? Here are two suggestions:
Firstly, there is often criticism about the current stamp duty’s steep inclination at specific thresholds. Currently there is an increase from 1 per cent to 3 per cent levied on homes worth in excess of £250,000 whereby the 3 per cent is applied for the whole sum; it is suggested that this sharp jump impacts unfairly on buyers and sellers with properties priced close to the threshold. Devolving stamp duty could mean that Welsh Government might choose to address this by including a more progressive banding system, which avoids large and sudden increases in SDLT that hit properties priced at threshold levels disproportionately.
Secondly, Welsh Government might choose to use the new power alongside others measures (varying council tax, using the planning system) to try to address the negative impact on local communities of concentrated semi-residency caused by ‘second home’ ownership, often in our most attractive rural areas where Welsh is the majority language. The market price of a property usually falls if tax rates are increased, which means using the tax system as a disincentive to ‘second home’ ownership could be an effective leveller to stabilise prices and increase affordability for local people.