According to a report by Resolution Foundation, abolishing stamp duty will mean that first time buyers will end up paying more for their homes.
Taken at face value, the SDLT cut is worth £1,600 to a first-time buyer purchasing a house for £205,000 – the average paid by those purchasing a first property in England in September 2017 – and will sound like good news to young people and those on low to middle incomes who have experienced the most rapid declines in home ownership in recent years.
Even on this optimistic reading of the policy’s static impact however, the good news is pretty small and does not materially change the up-front affordability for a first time buyer. The resolution foundation calculated the average number of years required to save for a deposit based on the assumption that first time buyers put aside 5% of their income each year and are looking to buy a typical first time buyer home.
Having taken around three years throughout the 1980s and early 1990s, the number of years climbed sharply in the 2000s and currently stands at an estimated 19.1 years. Removing stamp duty from the equation makes very little difference, lowering this figure to a still-substantial 18.5 years.
However, this simplistic reading of the policy misses the fact that the change comes with other significant consequences. Most notably, the OBR expects that it will on average increase house prices by 0.3 per cent.
Underpinning this is the OBR view that, because this is a permanent reduction in stamp duty for first time buyers, it will actually increase the price of properties by twice the size of the tax cut.
As such prospective first time buyers’ net costs will actually increase not decrease. In reality, a first-time buyer purchasing an average priced property would experience a £3,200 price increase to offset the £1,600 tax cut, according to the think tank.
With the OBR estimating that this policy change will increase the number of first-time buyers by just 3,500, the cost of the policy equates to £160,000 per additional first-time buyer in 2018-19, or £190,000 per additional first-time buyer in 2022-23.
To put this figure into context, it would be enough to directly buy and give a typical house to a first time buyer in 26% of English and Welsh local authorities. Alternatively, the £3.2 billion spent on the SDLT relief overall would be sufficient for the government to support the building of 40,000 social rented properties in high-demand areas, or to see around 140,000 properties built through the government’s own Housing Infrastructure Fund.
Rather than an intergenerational giveaway as the Chancellor presented the policy to be, Resolution Foundation concluded that the SDLT relief looks set mainly to benefit existing owners, who have an average age of 56.