May 20, 2007

UK stamp tax on home sales freezes up the market

Another reason why buying a home here in the UK is a fool's game - up to 4% "stamp tax" every time you buy.

Seriously.

So buy that £500,000 home (you know, a 1-bedroom closet), and you're already down £20,000, plus your estate agent fee and other closing costs, say another £20,000.

All this does is makes people less inclined to move (i.e. afraid to move), as they know buying a new place is gonna hurt on taxes and fees. Which helps freeze up the market, likely helping drive up prices to the crazy point they're at today.

Ah, you gotta love it when government policy distorts a market.


Stamp duty 'hits property market'

Increased stamp duty has made house prices more volatile and reduced property transactions by as much as 500,000, according to research.

The CEBR study concludes: “As property prices rise in relation to incomes, one would expect demand to slacken and the upward pressure on prices to subside.

“But estate agents believe that a key factor currently sustaining house price inflation is that there is a lack of supply of suitable houses.

“Clearly part of the problem is the lack of new build – as a country we have been building about 60,000 fewer properties a year than would be necessary to stabilise the house price average earnings ratio.

“And this has been largely caused – as the Barker review has pointed out – by planning regulations and social housing requirements. But another aspect of the problem is an unwillingness to put existing houses on the market because of stamp duties.

20 comments:

Mike F said...

I like this site, a lot.

But that's just insane. We have stamp duty here in Victoria, in Australia. I think it's about 5%. It doesn't stop you from selling, it's a tax on buyers. And, frankly, it doesn't make prices more volatile. If anything, it penalises short term investing (flipping) by making it less profitable. Flipping hasn't been and isn't an aspect of the Australian RE market.

Plus, here, there are stamp duty reductions available when you're buying as-yet-unbuilt properties, to encourage development/investment in new dwellings.

Think it through and you may see that the stamp duty concept, when coupled with low homeowners taxes/council rates encourages either long term investment in RE, or stability in home ownership.


Mike F

keith said...

You're arguing with CEBR, not just HP

A 20k tax on a 500k place makes me think twice about listing

supply. demand. and government interference in a market

shtove said...

They had a recent debate in Ireland about stamp duty:
http://tinyurl.com/2dcvdl
Decided to exempt first time buyers.

Anonymous said...

Yeah, but with 100% financing, who cares about a tax?

Anonymous said...

The idea that high transaction costs increases prices is just silly. If this was true why don't we see stockbrokers clamoring for more regulation? Or any business, for that matter.

And why should we take "CEBR" seriously. It's just a bunch of consultants, and we all know what they're like.

And how does this tax limit supply without limiting demand? If people can't sell the houses they are in, most won't be able to buy new houses.

And on the supply issue, the article says that most of the supply issue is caused by the planning process. And the article totally ignores the net immigration issue that is causing the demand problem.

In other words, I call bullshit.

Anonymous said...

We need a side bv side photo of Mr.suntan from countrywide monzilo next to this pastey faced limey!

Crikey!

Anonymous said...

Hey, Keith, who'c the English Casey Serin?????

Anonymous said...

Gordon Brown is even more STUPID than Bush is!

Gordon Brown SOLD HALF of all England's gold at $250 an ounce !!! Gold is NOW $650 an once!

How could the poeple of England allow this crook to do this is BEYOND me. Maybe the people in England are just as STUPID if not MORE STUPID than that sheep in the US.

Mike F said...

I may be arguing with the CEBR, but also with those who agree with their analysis.

I can't argue with your statement that a stamp duty would make you disinclined to sell, just question your reasoning.

There's no stamp duty in the US, although there is the hidden 6% hit from agents. Plus, many areas have homeowners taxes of hundreds of dollars a month. In the US, you get a tax concession on the interest you pay on your own home.

I paid $20K in stamp duty on my current house, which I bought for $390K. It's not a hidden fee in the cost of the house, and can be easily worked out. Also, RE commissions are more likely to be 2-3%. Also, council rates council rates are less than a thousand dollars a year. We don't, however, get a tax concession on interest on the home we live in. Tax concessions are for investments. (Australia)

Which of these situations is more market-distorting and less owner-friendly? Which is more likely to create speculative markets?

I'm asking you seriously.

Mike F

Anonymous said...

anon said-
"Gordon Brown is even more STUPID than Bush is!

Gordon Brown SOLD HALF of all England's gold at $250 an ounce !!! Gold is NOW $650 an once!"

You are sure right about that! Next, they add another "Stamp" tax to the people. Can't they remember the "stamp tax" that eventually led to the Brits. losing the U.S. colonies.

Does anyone remember when the U.S. sold our holdings of silver for .92 cents an oz.! Now we have no reserves of silver. So Gordon were's the Crown's gold!

Anonymous said...

mike f knows nothing about economics

"it's a tax on buyers"

Econ 101 says it doesn't matter who the tax is charged to - the results are the same.

Employee take home wages are exactly the same whether the FICA tax is charged to the employer or to the employee, or half and half. Makes absolutely no difference.

mike f is correct that a stamp duty encourages "stability" in home ownership - if they have a choice, people don't sell in order to defer taxes.

Mike F said...

The "effect" I expect you're alluding to is that, if I can afford a 200,000 mortgage, assuming that a five percent stamp duty is part of it, it's only approximately $190K worth of house. So, whereas you, who want to sell your home to me for $200k, have lost me as a buyer now.

This explains why, with a sales tax of 8.75% (used to be, anyway) in NYC, nobody buys anything.

Or why nobody is buying and selling real estate here in Melbourne.

More seriously, the FICA situation you allude to (employer has allocated a certain amount of money to pay employee costs; employee's net receipt of that money is the same regardless of on whom the tax is levied) is understood. Effects like this can be ameliorated, though never eliminated by graduating the introduction of new taxes (as with superannuation surcharges in Australia).

Nobody likes taxes. Hell, I don't like them myself. But they're going to levy them. So structuring the taxes requires some thought. A NEW tax is never a good thing, particularly if they haven't eliminated another tax.

The question is whether a stamp duty is more or less market-distorting than other forms of taxation. I know that many people who frequent this site have a libertarian bent. Your libertarian nirvana does not exist, any more than the communist paradise exists, anywhere other than in the minds of believers.

Governments will inevitably produce taxes and regulations which alter the marketplace. The choice of which regulations and taxes will make the difference on which effects take place.

Keith's statement that the introduction of a stamp duty would discourage him from putting his home on the market puts him in the same category of people who "won't sell their houses for less than they [know] they're worth". When markets change, "artificially" or "naturally", those in the market will make their decisions on that basis. Keith's decision not to sell his house may prevent him from realising his loss, but not from experiencing it on paper. Similar situations have been discussed on this very site.


Please, think carefully before assuming you have a clear picture of somebody else's level of knowledge. It can make you look like an ass.

Mike F said...

Following up,

The inelastic pricing framework suggested by your Econ 101 reference (that a transaction cost automatically reduces the price by that amount) suggests a world where purchasers never extend themselves beyond their original benchmarks to chase an asset purchase.

So we can now all be assured that the housing bubble never happened. Thank God.

Mike F

Anonymous said...

Estate agents believe that the stamp tax is inlfating values? How about their commissions?

Anonymous said...

another govt ripoff fostered by the "i had to pay it, you have to pay it" screw job legitimizers

Anonymous said...

People in England ARE stupid. I think it's due to group think. No one seems to question idiotic issues, let alone try to make changes for the better. Thet have a real bad problem of "not invented here".

Worst part of it is that they know many things are better elsewhere, especially in the US. They know they are screwed by taxes, bad government, etc. Got to keep that stiff upper lip going while they are getting poked from behind from EVERYONE.

US Expat in Surrey

Anonymous said...

"Got to keep that stiff upper lip going while they are getting poked from behind from EVERYONE."

I hear that after a while, they start to like getting poked from behind...

Anonymous said...

Why its a whole new take on the stand up and deliver concept. take it comming ang going in this 19th nervous breakdown, does the puppet, whos club id joined due to the article saying that joining a club, increases ones life span expectancy, "(talking to a sock puppet) have a crack problem, yet i find this humorous, I must be doing alright!!!
)

Anonymous said...

Governments will tax your ass one way or another. In the US you hear a lot about Florida and how wonderful it is that there's no income tax. OK great how is your property tax? Sales tax? How about highway tolls in Orlando and Miami? How about car registration? gas tax? Water tax? Beer and cigarette tax? All quite high in FL.

At the end of the day all states tax about the same, they just differ on how they tax and what the names of the taxes are.

Same with real estate transactions. In the US there is no stamp tax, but there's a 6% real estate agent fee. It all ends up costing the same, only the names of the fees/taxes change.

raynla said...

Kieth,

They should have bought the FOREVER STAMP!

RayNLA