| 9 mins read
SUMMARY
- Labour’s 2025 budget focuses on planning reform, but the housing market needs reforming in other ways.
- Better allocation of the current housing stock can do more to combat the housing shortage than new housebuilding, and more quickly.
- The existing stock could be used more effectively by a) reducing stamp duty, b) reforming property taxation, c) taxing second homes, d) reforming private tenancies and e) addressing the underfunding of local authorities.
It takes careful searching to find anything about housing policy in Rachel Reeves’ 150-page budget. There are some reheated announcements about planning reform, and more planning reform, and more planning reform in more detail. Evidently, the government thinks that planning is at the heart of the country’s housing problems. Contributors to PQ’s forthcoming special issue on housing not only hold widely differing views about that diagnosis; they also point to other ways in which housebuilding and the housing market operate badly. What would Tony Crook have brought to the table if he hadn’t sadly died while the special issue was in progress?
Tony Crook’s starting point was that given that, in any one year, around ninety nine percent of the housing stock (some 25 million homes in England) is already in place while net additions are generally considerably less than 1% – so even small changes in how that stock is used can improve housing conditions significantly. He therefore thought it was more important to put more emphasis on getting the best out of what is already in place.
In this context he put forward a number of suggestions as to how we could improve the use of the existing stock.
1. Reducing stamp duty, particularly for older sellers looking to downsize
Much of the housing stock is in poor condition and owned by older people who have lived there for decades but have neither the will nor the capacity to improve it. The result is costly to social care as well as to the households themselves. Many older households see Stamp Duty Land Tax (SDLT) as a major constraint to moving because the tax that is paid by the seller means the household cannot afford to buy the more suitable homes they need.
Instead of increasing SDLT for all movers as the government did in its first budget the government would have done better to exempt older households (those over 65 or possibly over 60) from SDLT to incentivise older homeowners to move to more suitable accommodation. This would help enable older households to choose to live in safer, healthier homes and free up larger older dwellings. The outcome should be houses being brought up into better condition as well as greater access to more suitable housing for families to purchase.
2. Reforming property taxation
Rachel Reeves spelled out graphically how council tax is highly regressive with respect to property values as well as household incomes. But her strong statement of the problem was accompanied by the most tentative of moves towards a solution. She was keen to emphasise that fewer than 1% of properties will be affected by the new High Value Council Tax Surcharge, which will be applied to properties worth £2m or more from 2028. Yet again, an opportunity to discourage the hoarding of housing assets was missed, while the effect on the parlous finances of local authorities will be minimal.
3. Taxing second homes
Introducing a tax on second homes across the country, rather than, as now, leaving it as an option for local authorities who appear to find such choices politically challenging. Yet such a tax would undoubtedly increase the funds available to cash strapped authorities while providing an incentive to owners to sell second homes into the market and so help those trying to buy.
Equally, requiring planning permission to use properties as short lets would limit their use and, at least in principle, ensure that these lets are known to the local authority, enabling council tax to be charged (probably at a higher rate). It would therefore help mainstream tenants by reducing the incentive to take properties out of the general rental market.
4. Reforming private tenancies
The government has gone some of the way to improving conditions for both tenants and landlords. Measures in the Renters' Rights Act include abolishing section 21 'no-fault' evictions, introducing a new system of periodic tenancies, and reforming grounds for possession. The Act has also introduced a new Decent Homes Standard for private rentals, and established a Private Rented Sector Ombudsman. What is unclear is whether this will significantly help poorer households who are likely to rent from equally poor households.
Comparative studies across Europe where private rental works better have consistently found that where individual landlords are treated as businesses, allowing them to net off their costs against income at their marginal tax rate, this works well. In the UK, on the other hand, mortgage tax relief has been replaced by a much less generous tax credit of 20%. The government also introduced a 3% stamp duty surcharge from 2016. These changes were thought to have put off both existing landlords from expanding their portfolios and those thinking of entering the market. The Labour government increased the stamp duty surcharge from 3% to 5% at the end of October last year and reduced the tax-free element back to £125,000 with a 2% charge between £125,000 and £250,000. They have, therefore, introduced a significant additional disincentive to investing in rental housing.
Given the increased importance of private renting, a shift towards treating individual landlords as businesses could help increase investment, making more properties available to rent, incentivising improvements and helping to stabilise rent levels. This is particularly important given that the proposed legal changes protecting tenants, while desirable, will reduce landlords’ incentive to rent and therefore limit availability.
5. Addressing the underfunding of local authorities.
Local authorities play a range of important roles in housing provision, housing standards and supporting individual households. As well as being in charge of local planning, they own their own housing stock. They have built much of this themselves, particularly in the early post war years when local authorities built up to half of local housing output. They regulate housing standards, and they have statutory duties to house homeless families and address social care needs. The viability of local authorities is central to meeting critical housing needs. The most immediate problem relates to the increasing cost of provision for homeless households. The number of people who have been declared statutorily homeless has risen sharply over the last decade and local authorities are the residual funders. In addition, authorities are making increasing contributions to homelessness prevention in the hope of limiting homeless numbers. The budget contained some pots of money for investment by local authorities, but there was no fundamental reform of council tax and remarkably little about homelessness under the current government. It got just one mention, in the context of an efficiency review of homelessness services.
Tony Crook would have found little to applaud in the budget. It is true that housing needs planning, but the government’s single-minded focus on this issue has led it to ignore a host of ways in which the allocation of the existing housing stock could be improved.
