In a big spending Budget, tax hikes stick out like a sore thumb
The Budget was never going to be easy for the Chancellor – four weeks into the new job and having to respond to a global health emergency.
While coronavirus rightly requires a robust response from the Treasury, I’m glad to see the Chancellor reach into his pockets and make the necessary commitments to re-balance regional disparities in infrastructure and digital investment and strengthen economies and communities up and down the country.
Yet, he might not have realised that his new Stamp Duty Land Tax (SDLT) surcharge for foreign buyers could indeed undermine these ambitions if he isn’t careful with the implementation of this policy.
The argument is that overseas buyers are snapping up homes in the UK, driving up house prices beyond the reach of domestic buyers, and this makes it harder for people to get a foot on the property ladder and worsens homelessness.
Ultimately, however, the best way to deal with both housing availability and affordability is to build more homes and overseas money is helping (to paraphrase the Chancellor) to “get this done” in two ways that don’t crowd out or compete with domestic buyers.
So, it is vital that the new SDLT surcharge doesn’t make it more expensive for responsible, long-term investors to invest in the UK housing market and provide much-needed new homes around the country.
Firstly, through off-plan sales. Property development is a risky undertaking, so lenders can require that around 70% of the residential units on a given site be sold before they release the funds that permit a developer to start building out that site.
While responsible developers will prioritise their marketing of these off-plan sales to UK buyers, the truth is that there is generally little demand from domestic buyers. Most UK buyers are looking for a completed or close-to-completed home to move into within the next few months.
As a result, developers must look overseas in order to pre-sell enough homes to release development funding. There is no competition with UK buyers here and at a critical time for the UK economy, we should be welcoming investment from overseas rather than adding unnecessary disincentives.
Secondly, through supporting our growing build-to-rent (BTR) sector, which comprises homes designed specifically for people to rent, and is therefore by definition not in competition with home buyers.
BTR in the UK has grown from almost nothing five years ago to more than 150,000 new homes either built, in construction or in planning. BTR accounted for a quarter of new homes built in London in 2018.
We estimate that 22,000 BTR homes (about 15% of the total) rely on overseas funding. Many of these are in the very areas that the government is looking to “level up” and yet the new surcharge will make it more expensive and riskier to get these built.
Whatever you think of it, the new surcharge is clearly here to stay, but solving our housing challenge will need all housing tenures firing on all cylinders. It is not too late for the Government to consider targeted reliefs and exemptions where overseas money is, in fact, helping us create a housing market that works better for everyone across the UK.
