Business rates penalise business and do not correlate directly to their original purpose or intended use. They are unfair and inefficient. The appeal system is time consuming, inaccurate and expensive to operate.
Stamp duty is simply an anti-investment, equity tax, which makes no sense, as it has to be cash funded by a purchaser of a new house.
The previous government’s foray to increase stamp duty on “expensive” houses was for political gain but sacrificing future investment and putting the dream of “housing-for-all” back a decade or more.
Combined with the planning system delaying development at scale and layering costs on the developer at the same time, any realistic chance of Sadiq Khan achieving the housing targets he has set himself in his first term as Mayor has disappeared.
This is an industry that is one of the most socially responsible business sectors and employs hundreds of thousands of people across all geographies and demographics in construction, management, design, finance, consultancy and manufacturing. It also takes substantial risk in delivering regeneration. The sector is facing real challenges from the stamp duty rise.
So why is increasing stamp duty such a big issue? After all, it is the wealthy purchaser that pays, not the developer. To stimulate investment, there has to be a low barrier to entry and healthy demand. The problem is that the tax reduces liquidity and weakens investment.
This tax manifests itself most noticeably in London, especially as the capital, with only 13.4% of UK housing transactions, accounts for 46.1% of all stamp duty receipts.
A large and unexpected increase in a purchaser’s cost of acquisition (that cannot be financed by borrowing) exponentially diminishes the desire of the purchaser to buy, it slows residential sales, slows realisation of profits and, in some cases, reduces the sales price achievable.
Implement this change in the middle of a new construction project where developers’ capital is already committed and the developer is writing down profits and is deterred from building again.
Where this becomes more political than financial is the social impact. With every new development local authorities secure additional benefits as part of the planning permission, including new affordable housing units. New residential schemes underwrite a very significant proportion of affordable housing units in London.
The industry data experts Molior reported a 25% fall in residential development starts across inner London in 2016 versus 2015, a decline that coincides with the recent hikes in stamp duty.
That also means a substantial reduction in the delivery of associated affordable housing units that are desperately needed.
There is little prospect of these being started soon because the developers are unclear as to what fiscal plans the government might have, whether Khan will impose more stringent rules on planning, whether the local authorities will be able to permit anything without a call in from the Mayor or a judicial review and how long it will take to get through a punishingly slow planning system.
Leave it too long and the undersupply of new housing will fuel more house price growth, exactly what the government wishes to avoid.
So this is what the politicians need to do:
Change business rates to a tax that is predictable and fairly reflects the costs of services provided by local government to local business;
Abolish stamp duty;
Let the markets find their feet;
Concentrate on strategic policy that empowers;
Make it a good Brexit;
Allow investors to invest with certainty of the fiscal outcome.
If the politicians reduce these hurdles, the houses will come and so will the tax revenue. It is a massively capital-intensive process with extended timescales (due largely to planning delays) that stretch investors’ ability to manage risk to the limits.
Taxing individuals’ equity on transactions is going to reduce pace and volume of delivery. Taxing developers through a commitment to build more affordable housing is the way forward.
Our property industry can help to solve the housing crisis, just as it is intent on solving youth homelessness through LandAid, the property industry charity. Just give it room to function, acknowledge its massive investment, its deep expertise and support its growth while securing a tangible commitment to deliver ambitious housing targets. Don’t tax investment.
Mike Hussey is chief executive of West End property developer AlmacantarOur property industry can help to solve the housing crisis, just as it is intent on solving youth homelessness through LandAid, the property industry charity. Just give it room to function, acknowledge its massive investment, its deep expertise and support its growth while securing a tangible commitment to deliver ambitious housing targets. Don’t tax investment.