The government should reform the taxation of housing to prevent people from becoming “over-housed”, according to a report by the Resolution Foundation.
The think tank has published a report into the British housing market and the difficulties of buying a home faced by millennials – those born between the mid-1980s and 2000.
It found people were living in the private rented sector ever-later in life, with 1.8m families with children now renting compared to 600,000 in the early 2000s.
The Resolution Foundation estimated that on current trends, up to a third of millennials face living in the private rented sector all their lives.
To address this, the Resolution Foundation made a series of recommendations, including tax reform to make it harder to become “over-housed” – either by significantly under-occupying their home or because they own multiple properties.
It recommended maintaining the 3 per cent stamp duty surcharge for those buying a second or subsequent home, while increasing this by another 3 per cent for those buyers who are resident overseas.
Beyond this, it recommended a cut to stamp duty across the board to allow over-occupiers to downsize more easily.
The report added: “Having made it less attractive to be ‘over-housed’ – but easier through stamp duty cuts to move to a new main residence – it also makes sense to review the tax treatment of those selling second and subsequent homes.
“Under current rules, capital gains on additional properties are taxed on sale but forgiven on death.
“Requiring capital gains tax be paid on additional properties when bequeathed to anyone other than a spouse or civil partner would be a sensible step that would discourage owners holding on to additional homes until death.”
Tripling the capital gains tax allowance for those selling to a first-time buyer for a time-limited period would also help bring forward property sales, the report said.
The think tank also said the Help to Buy equity loan scheme should be gradually phased out by 2021 because of the inflationary effect it has had.
It said: “There is increasing evidence to suggest that this demand-side intervention is increasingly being ‘baked’ into house prices.
“Since early 2016 the growth in new build prices has outpaced price growth for existing resold property, strongly suggesting that equity loans have enabled developers to set prices at higher levels than otherwise.
“This effect is by no means limited to London only, with house price data suggesting it has taken place across the country.”
The report also recommended increased but “light-touch” regulation of the private rented sector, including requiring longer tenancies and the registration of landlords, as well as linking in-tenancy rent increases to inflation.
It also suggested reversing cuts to housing benefit targeted at young people in the short term, and relinking housing benefit levels and private rents in the medium term.
Source: FT Adviser