UK government signals yet another cut in stamp duty

We have been here many times before. The government seems to think that cutting stamp duty will act as a stimulant to the housing market that will feed an expansion of new building and a much-needed pick up in housing supply. The reality is different.

Reducing stamp duty – a tax on the value of housing transactions – works mainly on the demand-side of the market. The dominant effect is to raise average prices (already surging towards £300,000) and thereby make property even less affordable for first-time buyers and those hoping to trade up as family circumstances change. Policy myopia rules again.

One of the fault-lines in government economic policy is the belief that rising house prices are a reliable indicator of a successful, growing economy. And that policies deliberately designed to increase demand and prices will have all kinds of wider effects including increased investment by house-building companies. Cutting stamp duty raises average prices and tends to benefit those looking to buy second-homes. It is ignores the wider, deeper, structural supply-side constraints that have and are holding back the building of new affordable housing in the UK.