Sigh

The chief executive of one of the UK’s biggest builders has raised the spectre of shifting the burden of stamp duty from buyers to sellers in order to resuscitate the stalled housing market.

Incidence laddie, incidence.

27 thoughts on “Sigh”

  1. Very true, Tim, but from a marketing perspective it might have some effect. After all, people are not that economically literate, are they?

    OTOH, would lenders mark down the value for mortgage purposes? Probably.

  2. Couldn’t it have some effect, depending on how imperfect the mortgage market is?

    If the most you can borrow is 95% of the purchase price, that leaves the buyer needing cash for 5% plus 100% of the stamp duty. If the stamp duty is paid by the seller, and so incidence means the price increases commensurately, then the buyer can effectively also borrow 95% of the stamp duty, increasing their gearing and reducing the amount of capital the purchaser needs to put into the transaction.

    Yes, in a perfect market the mortgage multiples would change to compensate, but this is a heavily regulated market and governments don’t always adapt very well.

  3. The buyer has a strong incentive to pay the tax, in order to get registered ownership transferred. The seller wouldn’t have the same incentive, so the main impact would probably be reduced collection.

  4. The main problem with stamp duty is that it reduces transactions so making the market less liquid and more volatile.
    The best idea would be to get rid of it (I know that in theory this would cause prices to rise but the increased amount of transactions should help this). We could reduce housing benefit to put a downward pressure on prices.

  5. If the property is new then the seller is probably the house-builder, so of course they can bundle all sorts of costs (appliances, conveyancing, tax etc) into the price which can then be included in the mortgage. If it is not a new home, then the seller is an individual who will, if there is tax to be paid, have less cash to buy there next home. So this amounts to yet more special pleading on behalf of house builders: ‘stalled housing market’, what’s so bad about that?

  6. What Paul says: the seller can run off without paying. Scrapping it entirely is the only sensible option. Not sure what tax they should hike instead to fill the £10bn hole in their coffers. (Yes, ideally they’d just cut diversity coordinators etc., but in the real world they’ll just hike other taxes instead.)

  7. What if it’s a buyers market? Can sellers transfer the cost to buyers then? Unlikely to be a buyers market with supply strangled like it is though.

  8. Bloke in North Dorset

    “What Paul says: the seller can run off without paying. Scrapping it entirely is the only sensible option. Not sure what tax they should hike instead to fill the £10bn hole in their coffers.”

    Without wanting to be seen in the same LVT camp as Reedy, not least because I don’t think is a cure all, this might be one occasion where LVT can be justified.

  9. Stamp duty on the seller instead of the buyer, scrapping stamp duty altogether, perhaps replacing it with CGT on principle private residences; all could impact on relative demand. This though is shifting deckchairs. Absolute demand has risen due to changing demographics and lifestyles and mass immigration and won’t be changed by stamp duty tweaks. Build more houses!

  10. Or be more picky about whom we allow in (highly skilled and totty), and let the population level out (or even go down a bit, as automation gets rid of the noddy jobs).

    ‘Cos If we’ve got a few million either doing nowt or pretending to do summat (most of the public sector, arts degrees), we can afford to let the pop drop and still have all the work being done.

  11. Actually, what I’ve suggested will help with quality of life and maybe make houses more affordable, but I doubt it’ll help the folks that do new-builds.

  12. Cynic, TMB,

    We could let the population drop. The problem is, thanks to government benefits, those unproductive people are still consumers. I trust that you can easily see the feedback loop. We’ll need folk tearing down homes unless the population drops so much the land simply isn’t needed.

  13. Richard, I don’t think your example would work in practice. Lenders lend on expected sales value, less a margin. If, say, the stamp duty is 1%, then the expected sale value would be 99% (roughly) of the purchase price. So they will only lend 95% of 99% of the purchase price, to maintain their margin.

  14. @LY

    Heading off topic, but here’s what I’m thinking:

    Those unproductive folks are consumers at productive folks expense.

    So start letting that unproductive population drop off through lack of replacement, by targeting unskilled immigration and benefits. The productive will have their money to spend on themselves and their kin.

    Human wants and needs being limitless, the demand will still be there. They’ll just spend it on themselves rather than having it confiscated and spent for them.

  15. Cynic,

    Reducing immigration just shifts the problem to others. Since they are in other countries this may not seem like a large problem but we could very well end up with more North Koreas.

    The big problem is those on benefits. Cutting them off doesn’t make them disappear. Those that can’t find productive work, and there will be less thanks to lower demand, will turn to criminal activities, communism, or something even worse.

    You also seem to assuming that demand is indeed limitless. While in theory this is true in practice how much land does a man truly need?

  16. come, come. That would be ‘racist’ and what about all the unemployed bureaucrats you create.
    The UK must be stuffed with people till it bursts because !!!

  17. @LY

    England is already one of the most densely populated countries, so we’ve done our bit in that regard.

    I’m not thinking cutting them off altogether, that’s a straw man. Reduce, sure, and get rid of some for would-be new claimants (like, for example, getting rid of child benefit for new claimants after giving at least 9 months notice of the policy change). Again, I don’t think demand will drop; it will change, but not go down. All the money will still get spent or invested, as now. The difference would be on what and by whom.

    I think it is safe to assume human wants and needs are practically limitless. I’m not suggesting we’d only want bigger houses though; that’s another straw man. We might buy fancier cars, better TVs, more services, eat out more often. Always more.

    https://en.wikipedia.org/wiki/Economic_problem

    And yes, as I’m not a socialist, gulags and extermination camps are out of the question! 🙂

  18. It likely would have some positive effect in making the market more liquid (though not as good as abolishing it all together). As Richard says rather than the purchaser having to save up the money to pay the stamp duty up front the bill would land on the door mat of the person who had just received a large wadge of cash- and on whom the incidence of the tax already falls (in the form of lower prices). Solicitors would likely be required to deduct it from the sale proceeds as they already do with their own fees and Agents costs prior to sending out the funds after completion.

  19. As much as I dislike all tax, isn’t stamp duty one of the less bad ones? I assume it’s a consumption tax, so sits at the next-to-least bad slot in the hierarchy of state theft. As in, wouldn’t abolishing it mean the state would just make up the difference with an even worse deadweight tax, like corporation or labour?

    But yes, what Richard and Rosscoe say there makes sense, if you can include stamp duty (via incidence) in the mortgage, it might make a difference at the margins (wouldn’t have changed anything for me, for instance).

  20. As much as I dislike all tax, isn’t stamp duty one of the less bad ones? I assume it’s a consumption tax, so sits at the next-to-least bad slot in the hierarchy of state theft.

    Yes and no. In acting as a barrier to labour force mobility it is bad on either side of the equation (since ideally you are selling a house in a location where jobs are limited and buying a house in a location where jobs are more plentiful – all things being equal).

    It also reduces liquidity in the house market…

  21. JG,

    Ah, thanks. I hadn’t thought about the labour force mobility bit. And given where there’s more jobs, there’s more demand, there’s higher prices… there’s more stamp duty per transaction.

  22. Cynic,

    We have a different view of what taxes are the worst. My guess is that we agree corporate taxes are terrible at least. For consumption taxes I only find them acceptable if there are complex systems to ensure the incidence doesn’t fall on the poor like British Columbia’s carbon tax. IMHO this complexity makes consumption taxes far worse than flat rate income taxes. I hope I’ve made it clear in this forum that I view earned and unearned income as relatively equivalent for tax purposes. Don’t get me started on how much I hate the idea of LVT.

  23. Yes, I agree corporation taxes are a terrible idea. Dishonest too: incidence says all taxes ultimately fall on flesh-n-blood humans, so the public sector ought to man up and not try to disguise that.

    The UK workaround (I assume others do the same) is to not tax, or tax less, consumption of essentials like basic foodstuffs. But yes, it is imperfectly done as you’d expect from the state: e.g. paper books don’t have VAT, but e-books do.

    (we had some fun with VAT categorisation court cases over Pringles and Jaffa Cakes)

    Because you can exclude essentials from consumption taxes, and their lower deadweight (which I learned from Timmy), I prefer them to income taxes. As in I hate them slightly less!

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