Quite so, quite so

Philip Hammond must scrap stamp duty on property sales to solve the housing crisis and boost the economy, a think-tank warned last night.
The Adam Smith Institute said the ‘damaging’ tax – which raised £11.7billion last year – stopped Britons moving jobs and kept them in houses too large for their needs.
By penalising older people for downsizing, stamp duty makes the number of larger homes on the market for growing families even smaller.

Transactions taxes are a bad idea.

We could even say, in fact we should, that stamp duty raises the unemployment rate. It’s actually well known that an owner occupier rate which is “too high” increases unemployment. It costs to sell and move. So, if regional employment patterns change “too high” an owner occupier rate makes labour immobile. There’s also the point that without a vibrant private (social housing is even more immobile that owned, making the problem worse) rental market, which is the inverse of course, it’s not possible to move as swiftly as one might need to for those employment reasons.

Stamp duty increases that cost of moving, increasing the immobility of labour, thus raising the unemployment rate.

This is one of those things, as with so much in economics, which is undoubtedly true. But that’s not enough, there are many effects which are true and some will be working in the opposite direction as well. What we want to know is whether this is both true and important, is it a large enough effect to make a difference?

As best we know, yes. It’s a large enough effect that it can be measured, people have done it and proven it. That is, just the immobility of labour due to a high owner occupation rate is large enough that we can measure the effect.

Thus, presumably, stamp duty makes it worse.

Having now looked at it I recommend this paper. Really rather good.

37 thoughts on “Quite so, quite so”

  1. Hammond, that arrogant Remainiac excuse for a human being, needs to scrap himself as well as Stamp Duty.

    And take the Fish Faced Cow with him.

  2. “which raised £11.7billion last year” – so nothing will happen. This is the logic of the bean-counter. It raised money therefore it is good. Sadly an understanding of opportunity cost let alone the law of unintended consequences also bypasses the brilliant minds (sic) in the Treasury that propose all this crap.

  3. OK Tim, so we know the effect of too high an owner-occupier rate; big and important. These are slightly different questions though does SDLT impact on the owner-occupier rate? Is it a big impact? Would the cost of undoing that effect (for we still have a fiscal defecit and so the tax will need to be replaced by something else) be too high for the outsome we are likely to achieve?

    And no, I don’t have the time today to read that paper; sorry.

  4. Ah, no, not quite the effect.

    We’re not saying that SDLT affects owner occupier rate therefore unemployment.

    Rather, a high owner occupier rate (and the corollary, a low rental private market) reduces labour mobility, affecting unemployment.

    A high SDLT rate affects labour mobility and thus unemployment.

  5. It really is one of the most pernicious taxes around.

    Such a shame that the civil servants like it so much as it’s easy to deal with

  6. Can’t see it’s going to make the slightest difference. Property prices aren’t influenced by taxes, They’re driven by the availability of credit. Remove stamp duty, buyer’s available credit will stretch further, up will go house prices to absorb it.
    Not saying I’m against abolishing taxes. Abolish all of them as far as I’m concerned. But if government isn’t grabbing stamp duty, you can be certain it’ll confiscate the equivalent or greater sum from somewhere else. So a net zero.

  7. From the paper;

    “Ian Davidoff and Andrew Leigh…They also find that the incidence
    of the tax is entirely on the seller, or in many cases more than entirely: house prices
    fall more than $1 for every extra $1 in tax.”

    Which is unfortunate. I can’t imagine what some people would suggest upon reading that.

  8. @”But if government isn’t grabbing stamp duty, you can be certain it’ll confiscate the equivalent or greater sum from somewhere else. So a net zero.”
    That is assuming that all taxes have the same effect on our wealth – the paper argues otherwise.

  9. Transactions taxes are a bad idea.

    I don’t know. I can’t see much good has come from the British habit of flipping properties every five minutes during a never-ending, government-supported boom. I noticed when I bought my place in France that the taxes alone are going to dissaude anyone from flipping properties for a very long time, which is probably why most people buy one as a long-term home and hang onto it.

  10. By penalising older people for downsizing

    Balls. They are selling a large property and buying a smaller one, even if the smaller one incurs stamp duty the difference in house values will more than cover it.

    But has been said above, abolishing it won’t make any difference. They’ll be handing over the part of their “hard earned house windfall” which previously went on Stamp Duty to the owner of the downsized property instead.

  11. Property prices aren’t influenced by taxes, They’re driven by the availability of credit.

    Indeed. What’s the advice we always hear? “Borrow as much as you can”. House-buying isn’t driven by what people need but by what they can grab hold of, and surf that golden stream of price increases all the way to early retirement. Whether that last 2% of the price they are willing to pay goes to the seller or the Government makes no difference at all.

  12. I think some people are missing the point here.

    Stamp duty isn’t bad because of how it affects house prices, or restricts owner-occupancy, or takes money from private hands (although you can debate such things if you like). That’s not the main point the ASI or Tim are making.

    It’s bad because it imposes costs, sometimes disproportionately huge costs, on moving.

    That kills labour mobility which is a serious cost to the economy. Why move for that better job if it will take 5 years to break even on the stamp duty?

    It also kills optimisation of housing resources (sorry, don’t know a snappier term). Why downsize from your 5 bed to a 3 bed of a third of the savings go to stamp duty?

    Moving is a good thing, generally-speaking. It’s a serious step that normally solves a serious personal issue, when it is being considered. Taxing positive transactions is generally a bad idea.

  13. At present if I’m prepared to pay a maximum of £407k for a property, and the seller is willing to accept a minimum of £400k, then the trade will not happen because of SDLT ( £10k , or higher if wanting to put it to use on the rental market ).

    Some people turn their noses up at high volumes of property trading but I don’t see it as any different to trading anything else you want in high volumes.

  14. The Single Person Discount of council tax should go imv. The saving ( perhaps £3-500/year in a typical council area ) takes council tax further away from being like a LVT.
    It’s only a small disincentive to downsizing, but changes happen at the margins and all that
    And extra funds for councils. And less compliance costs.

  15. Raised £11.7 billion?
    So if scrapping it is a good idea then government should cut spending by say £11.7 billion? What should be cut?
    NHS? Defence? Benefits? Civil service? Council funding?

    Or has that money instead meant other taxes do not need to be raised?
    What should be raised instead? VAT? Income tax? Corporation tax? Energy taxes? Fuel taxes?

  16. “Moving is a good thing, generally-speaking”

    No it isn’t.

    “Relocation” as the Yanks call it has produced a society of rootless twats with increasingly little loyalty to their own. One place is not as good as another and the difference between places is being homogenised in a downward direction by rootless wandering.

  17. If we need to be fiscally-neutral, why not scrap Stamp Duty and replace it with CGT on primary residence? (I believe the Americans have this.)

    You’d need an exemption so that people can move house without losing 28% of their gains; otherwise you’d have the same impediment to labour mobility. You’d then also need to make that exemption claimable after several years, to cover situations where a person moves owned->rented->owned. What a palaver!

  18. If we need to be fiscally-neutral, why not scrap Stamp Duty and not replace it
    FIFY
    Based on other transaction taxes abolition should be slight revenue +ve

  19. “That is assuming that all taxes have the same effect on our wealth – the paper argues otherwise.”

    Then the paper doesn’t understand government. Government seeks to maximise tax collection, irrespective. If they switch the taxation to where it does less harm to the economy, they’ll raise the level of tax collected until the level of harm is equal.

  20. A few years ago I was offered a job at a bit of the MOD in the countryside, not far from home. When the offer was made, the offeror told me that instead of the place where the rather low paid job had been located during the interview process, the job had moved to the other side of the country. I pointed out that (apart from my wife having to change job as well), moving house would mean that the first twenty four months pay would be spent on stamp duty.

  21. Tim N – what are the costs of buying in France?

    Prices are generally lower than the UK. Agents’ fees are around 5% of sale price, combined notaire + taxes around 7% of sale price. So you’d need to see a price rise of around 12% before you’d make any money, even if you paid in cash.

    I suspect it’s this, combined with a general unwillingness of French to rack up much personal debt, that’s kept a lid on house prices (outside Paris and the trendy south coast places).

  22. @TimN

    My experience, the French aren’t particularly keen on using agents. Lot more than the English, they tend to market themselves through local papers, websites etc Similar in Spain. The stuff you do see in agents’ windows is more aimed at foreigners.
    If I was looking to rent of buy in France or Spain I’d be starting with ParuVendu or Milanuncios,,see the stuff the Brits never get a sight of.

  23. Mr Ecks – moving has meant experience of different areas. In my parents case when growing up moving meant to a bigger house, more facilities for us kids (massive park 50 metres from my house) and different jobs.
    If they had stayed in their first house I’d have been sharing a bedroom with 3 siblings in an area with for many years high unemployment.
    So I think moving (and they moved 5 times in 50 years) was beneficial. Particularly as one of the houses they moved from was turned into a council car park afterwards (compulsory purchase of house 3 years after parents purchased it).

    For myself I’ve moved once with my wife, from a house that was OK but had limitations into a better house more suited to our future.

    And I’m currently sat 9 miles from the first house I ever lived in. I know my roots, have shown the wife that house. Still pop into that village every year or two.

  24. As usual with this organisation, you wonder why they don’t promote Adam Smith’s tax on the land value uplift attributable to the government of the country “which by the protecting the industry, either of the whole people or the inhabitants of some particular place, enables them to pay so much more than its real value for the ground which they build their houses upon” (Wealth of Nations Book 5 Chap2).
    I suppose ASI’s present formulation, recommending “reforming council tax with a more proportional, or, even progressive tax on rental and imputed rental values” is the closest they dare approach the simplicity of the original.
    NB Signs of Tory panic in the Sunday papers: they now realise letting house prices inflate so far has lost them the next election and possibly a whole generation.

  25. Far worse than a transaction tax, indeed the very worst of all taxes, is a tax on ongoing ownership. And that is what council tax is unless it is strictly linked to the cost of actual services (which it ain’t). And LVT is the very worst of the worst, where fascism & feudalism intersect, truly a pox-ridden whore amongst taxes.

  26. My experience, the French aren’t particularly keen on using agents.

    With what they charge that doesn’t surprise me, but the agent has certain obligations (e.g. compiling a sales dossier with certain compulsory documents in such as energy efficiency data) which gets passed onto the notaire. Perhaps a couple of Frenchmen might be able to knock that up among themselves, but I sure as hell couldn’t, and nor would I trust a private seller to do it properly and not rip me off!

  27. @Martin, October 30, 2017 at 1:50 pm

    Raised £11.7 billion?
    So if scrapping it is a good idea then government should cut spending by say £11.7 billion? What should be cut?
    NHS? Defence? Benefits? Civil service? Council funding?

    Abolish DFID & Foreign Aid – problem solved.

  28. Tim Newman

    “With what they charge that doesn’t surprise me, but the agent has certain obligations (e.g. compiling a sales dossier with certain compulsory documents in such as energy efficiency data) which gets passed onto the notaire. Perhaps a couple of Frenchmen might be able to knock that up among themselves, but I sure as hell couldn’t, and nor would I trust a private seller to do it properly and not rip me off!”

    Yeah. In principle, it’s a good idea. In principle, you get a beautiful, disinterested rundown on the state of the property’s systems, the danger form nuclear explosion, pollution from various sources, and so forth. But I can tell you it’s ummm… incomplete at best. And doesn’t form part of the contract (you buy the place as is). And most immobiliere’s say that it’s a document prepared for the seller, not the buyer. Quelle surprise.

    In the USA, before you buy a place, you pay an ‘Inspector’ to do much of the same work for you- at least, the state of the property and its systems. The USA expects you to use the available public sources for public information, and there is also (in Texas) an obligatory “Seller’s Disclosure” which requires the seller, on oath (ish) to answer useful questions like “Have there been any incidents of water leaks or flooding” completely and honestly. In principle, the US system is worst, because every would-be serious buyer does an Inspection and they’re usually contractually private. But this way you get to actually talk to a competent fellow and see what he’s talking about…

    Luckily, the issues with the chaumiere we bought were pretty obvious (hmmm, that thatch should last another couple of weeks..)(“Good for another seven years, easy” according to the immobiliere) and straightforwardly fixable. As they say, any problem which can be truly fixed with the addition of money is an inconvenience, not a trueproblem….

  29. Abolish DFID & Foreign Aid – problem solved.

    Also add state subsidy of the Arts and state subsidy of green energy.

    Amazing how much ‘essential’ government spending turns out to be not that essential after all.

  30. @Martin, October 30, 2017 at 9:50 pm

    Pcar – and for those who would be helped by such [DFID] money?

    Many give voluntarily to charities to perform that.

    .
    @Chris & Rob,

    Yep. HS2, Arts, Subsidies. Add public sector defined benefit pensions and overly generous employer [cough] contributions.

    Cutting Gov’t spending be £50Bn per year is easy if public sector & leeches are targeted.

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