evidence BRIEFING HIGHLIGHTING RESEARCH FINDINGS AND PUBLISHED FEBRUARY 2018 THEIR RELEVANCE IN KEY POLICY AREAS Stamp duty impact on the housing market Stamp duty discourages house moving locally, jamming the housing market. Replacing it with an annual local tax on the value of land or property could increase housing mobility and provide incentives to local authorities to build more housing.

About the research Policy implications Stamp duty on transactions of land and property is today more significant than ever. n Abolishing stamp duty could UK revenue from the stamp duty land tax increase the mobility of (SDLT), as a consequence of rising house homeowners substantially and put prices, has almost tripled over the last eight existing housing stock into more years: from £2.9 billion in 2008/09 to £8.6 efficient use – for instance by billion in 2016/17. increasing a match between elderly households willing to downsize The stamp duty has long been criticised and young families seeking larger by economists as being inefficient. The dwellings. central case against its use is that it hampers household mobility, preventing people from n A similar amount of revenue moving house due to its cost. To date there could be collected with little or no has been little evidence about how much societal welfare losses through an the stamp duty impacts on housing and annual tax on the value of property, labour markets. or on the value of land. In contrast to stamp duty, these taxes do not Researchers at the ESRC Centre for discourage mutually beneficial Economic Performance have explored the transactions. impact of stamp duty on different types of mobility, by comparing mobility rates of n If designed as annual local taxes, a otherwise similar homeowners with self- property or land value tax would assessed house values below and above the provide fiscal incentives to local threshold of £250,000, which triggers a tax authorities to release more land for jump from 1% to 3% of house value. The residential development. researchers focused on a sharp jump in the n An annual local tax on property tax liability because significant variation in or land value would also provide this liability for very similar dwellings allowed greater incentives to owners to use them to identify ways that stamp duty property or land more efficiently. affects housing mobility. Data from the British Household Panel Survey (BHPS) were used to analyse how A similar amount of tax revenue the increase from 1% to 3% affected the could be collected with little or no mobility of homeowners. The data were societal welfare losses through an collected before the 2014 reform that annual tax on the value of property, introduced a more gradual ‘slice’ progression or the value of land. in tax. evidencebriefing

 Key findings n Transfer taxes on property can have a and area-related moves, but has little negative impact on the economy in at effect on moves related to employment least two ways: or major life events. o Increased moving costs may deter the unemployed from taking up jobs BRIEF DESCRIPTION far from their residence or workers from switching to more productive Christian Hilber and Teemu Lyytikäinen jobs; from the ESRC Centre for Economic Performance estimated the effect of the o The transfer tax can make UK Stamp Duty Land Tax on different households tolerate less than types of household mobility using micro optimal dwellings for longer before data. They compared homeowners with moving. As a result, the match self-assessed house values on either between dwellings and households is sides of a cut-off value where the tax on average worse than in the absence rate jumps from 1% to 3%. of the tax. n The findings strongly suggest that stamp Stamp duty, mobility and the UK housing duty slows down the housing market by crisis (CEP CentrePiece) preventing households from moving to Web: cep.lse.ac.uk/pubs/download/ more suitable homes. There is a visible cp516.pdf reduction in the rate of mobility when house values exceed £250,000 and trigger the increase in tax rate from FURTHER INFORMATION 1% to 3%. Estimates suggest that the increase of two percentage points in Contact: Professor Christian Hilber, stamp duty reduces household mobility Centre for Economic Performance by almost 40%. Email: [email protected] n  Households discouraged from moving The ESRC Centre for Economic to more suitable housing due to the Performance (CEP), based at the stamp duty imposes a significant welfare London School of Economics and loss on society as a whole. The welfare Political Science, explores factors that loss associated with the tax rate hike influence economic performance from 1% to 3% is massive – possibly – focusing on the links between above 80% of the revenue increase. globalisation, technology and institutions, n House moves split by distance (shorter and their impact on productivity, than 10 kilometres versus longer than inequality, employment, stability and 10 kilometres) show that the tax has wellbeing. a clear effect on short moves, but no Web: cep.lse.ac.uk effect on long-distance relocation. The benefits of moving to a more suitable The Economic and Social Research house locally are often only marginally Council is the UK’s leading agency bigger than the costs, and even a small for research funding and training in increase in the tax wedge can prevent a economic and social sciences. large fraction of moves. Web: www.esrc.ac.uk Email: [email protected] n Dividing house movers into three groups based on main reasons for The views expressed in this evidence moving (housing and area-related; briefing are those of the authors and employment; and major life events) not necessarily those of the ESRC. shows that stamp duty affects housing