Did the stamp duty holiday really cause the pandemic property boom?

Did the stamp duty holiday really cause the pandemic property boom?

So, how was it for you? Rishi Sunak’s stamp duty holiday (SDH) officially ends at the end of this month. Introduced in July 2020 to pep up the property sector in the face of the perturbing pandemic, the SDH has shaped events and dominated discourse like nothing else over the last fifteen months. 

Agents have seen record sales during this period. June this year saw the highest monthly figure since comparable figures were first collected in 2005, whilst prices have risen an astonishing 13% since Covid-19 reared its ugly head. According to the ONS, prices have gone up by £2,500 per month on average in 2021. That’s incredible.

But what, exactly, will the future hold when things get back to normal? Will we see a fallow period, where pickings are slimmer than a stickman’s waistline, or will the market remain as buoyant as a buoy in the Baltic Sea? It all depends on whether the stamp duty holiday was really the driving force behind the recent boom.

Tell-tale signs

When July saw an apparent levelling off of activity, experts argued this was a direct consequence of the SDH threshold falling from £500,000 to £250,000 at the end of June. It wasn’t quite panic stations at this point, as it was just one month’s data, but prophets of impending doom certainly experienced the heebie-jeebies. 

Fortunately, however, August witnessed a surprising resurgence. Prices rose 2.1% last month, which not only hinted at strong sales at the lower end of the market where those buying properties valued between £125,000 and £250,000 could still make savings; it also suggested that sales higher up the food chain remained strong. This suggests that the SDH wasn’t the be-all and end-all, after all. 

Was the SDH all that?

The press reacted to August’s figures by suggesting that a number of factors, not just the stamp duty holiday, had underpinned the market’s strong performance. Some suggested that the continued availability of cheap mortgages was key. Others pointed to shifts in housing preferences caused by Covid-19, such as the well-documented rush to procure pleasant properties with plenty of outside space.

A host of other factors were mentioned, too. Some experts argued that growth had been accelerated by the increase in remote working during the pandemic, which led people to reassess their housing needs. And then there was the big one: a simple lack of stock. This has been keeping asking prices artificially high for years. 

Food for thought

The Resolution Foundation, a leading think-tank, brought many of these theories together in their Q3 Housing Outlook Report last month. They argued that low interest rates, accumulated lockdown savings, and the desire to move out of cities had caused the housing boom. The stamp duty holiday was therefore nowhere near as influential as once thought.

Meanwhile, a report by LSE commissioned by Family Building Society argued that the housing market had started to pick up as soon as the pandemic restrictions were eased; therefore growth was already strong before the SDH was even announced. No wonder there were so many calls to backdate tax relief for those who completed purchases immediately beforehand. 

The strength of their case

But could it really be true that the stamp duty holiday only played a minor part in the pandemic boom? After all, the press was packed with stories of buyers rushing frantically to beat the SDH deadline. What’s more, we shouldn’t forget that Rishi Sunak extended the deadline partly because so many experts feared a cliff edge if tax incentives suddenly stopped. 

Well, the Resolution Foundation view is supported by a number of compelling arguments. Firstly, house prices have actually risen most in areas where homes cost less and therefore SDH savings would’ve been lower. Meanwhile, areas where buyers had the most to gain actually witnessed falls during the pandemic. For example, house prices fell by nearly 5% in Kensington and Chelsea – not great news for James Dyson, Richard Branson, JK Rowling and the borough’s other famous residents. 

What’s more, house prices have also soared in several other developed countries recently. The United States, Canada, Germany, France, and Australia have also experienced good growth without introducing similar tax breaks. Indeed, some believe that Rishi’s scheme simply brought transactions forward so there was zero net benefit to the economy. Nicky Stevenson, the managing director of Fine and Country, has argued that the end of the stamp duty holiday could have “no impact at all”. 

So was it worth it?

Stamp duty has always been a somewhat controversial tax. So it’s no surprise that experts have assaulted its impact and benefits from all sides. The LSE report highlighted that prices rose by more than £15,000 (the maximum any buyer could save) during the pandemic; therefore the view that the SDH helped buyers secure a bargain was an illusion. 

Meanwhile, other experts don’t dispute its impact but argue there was no need to put “a rocket under the housing market”. They argue that a small country, with a relatively large population, tough planning laws, pent-up demand, and low-cost mortgages, was always going to experience price rises anyway. They also lament that strong price rises have put home ownership out of reach for Generation Rent.

Missing the point

Some of the criticism directed at SDH, however, seems to be misplaced. For example, whilst critics argue that the SDH let £4.4 billion in tax receipts slip through Rishi’s fidgeting fingers, the LSE report argues that the substantial rise in house prices would have recouped these losses. What’s more, the stamp duty certainly brought confidence back to the property sector after a difficult start to the pandemic when physical viewings were banned. 

On balance, therefore, whilst the stamp duty holiday was bad news for those struggling to get on the housing ladder, it can only have helped the housing market and the broader economy. You could probably hear the ker-chings generated by post-sale home improvements and new furnishings from outer space. 

So will the good times last? Although the end of the SDH may eventually lead to a levelling off of sorts, any worrying decline seems unlikely at this point. Rising unemployment and higher mortgage rates are usually the housing market’s kryptonite. Therefore, unless anything unexpected happens in the near future, the market should remain pretty super for the foreseeable future.  

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