Stamp duty reform is nothing to celebrate

The news at the moment is dominated by the government's reform of stamp duty on house purchases.  At least one national newspaper is reporting this as a good thing for people who want to buy a house, which just shows how idiotic its editorial staff are.

Quite simply, the reform does not make life better for people looking to buy a house, although it probably makes life better for people looking to sell a house.

Economics is the study of supply and demand, and we live in a country where the demand for housing greatly outstrips supply.  One consequence of this is that there are thousands of people living rough on the streets, with maybe as many as a million people living in garden sheds and outhouses.  Another consequence is that many people who want to buy a house struggle to find enough money for the asking price.

Broadly speaking, there are only two ways in which to address this housing crisis.  Either we reduce demand or increase supply.  Reducing demand could for example take the form of removing foreign nationals from the country, but this is unlikely to happen until the British people stop voting for Labour and Conservative politicians and start voting instead for political parties which support large scale repatriation - in other words, never.

Another method for reducing demand would be to discourage people from owning (or renting) more than one home, but we need to be realistic.  How many members of parliament are content with just one home?  Our political masters cannot be trusted to encourage restraint if they themselves cannot first bring themselves to practise it.

Our zero option for resolving the housing crisis is therefore to increase supply, and yet even that is something of a forlorn hope.  Quite simply we cannot build new houses in this country fast enough to keep pace with demand, and that is why many people struggle to find the money to buy their first home.

And so to stamp duty.  Suppose you buy a house costing £200,000, and you pay stamp duty of £4000.  The bill for the £200,000 property is therefore £204,000 - and that is before we add in the cost of legal fees.

Suppose the government abolishes stamp duty altogether, which has not actually happened.  You are now able to spend £204,000 instead of just £200,000 on buying a property.  You might think that this gives you more spending power, but in reality it gives everyone in the housing market more spending power.

Reducing stamp duty provides you with an advantage in the housing market only if you alone have your stamp duty reduced.  When everyone else in the housing market enjoys the same reduction, then it merely allows everyone to spend more money on the same property.  People who sell houses are the winners; buyers are not.

Stamp duty is a very efficient form of taxation.  Non-collection is pretty well non-existent.  Therefore it should perhaps be the last form of taxation that any sensible government looks to reduce.