Stamp duty under new scrutiny

Academics have claimed that the housing market is being adversely affected by stamp duty.

According to research from the London School of Economics and the VATT Institute for Economic Research, the duty is deterring households from moving, especially where the distance between properties is small.

The study focussed on properties subject to the 3% Stamp Duty charge, applying to transactions where the property is over £250,000.

It revealed that where a “major life event” was the main reason for the move, the prospect of having to pay Stamp Duty made little difference – these include factors such as employment or divorce.

However, this was not necessarily the case when “housing related issues” were the reason for the move.

It highlighted that the tax can make households tolerate greater differences between their actual and desired dwelling, leading to prospective buyers reconsidering their purchases.

“As a result, the match between dwellings and households is on average worse than in the absence of the tax.

“The increased mismatch in the housing market may lead to ‘waste’ in the form of misallocation costs due to, for example, expanding households living in too small houses and shrinking households living in too large houses.”

The report goes on to state that rather than a transfer tax on properties, levies on consumption of land would be more efficient; this would apply to households independently of the number of times that they choose to relocate.

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