Osborne’s reforms provide no incentive for the restoration and redevelopment of empty properties and will increase house prices, writes Justin Vogler.
In my last blog I described how my bidding pattern in an auction was influenced by calculations about the £250k stamp duty threshold. Last week George Osborne announced that he was scrapping the threshold system in favour of a graduated rate.
If they work, Osborne’s reforms will remove a major distortion in the housing market.
Under the old system buyers and sellers took account of stamp duty thresholds when fixing prices. Few people bought houses for 251-259k knowing that if the price came down to 250k they would pay stamp duty at 1% instead of 3%. The result was that the many, many houses that were really worth just over 250k usually sold for below their true value.
Indeed, a house that sold at 250k paid 2,500k SDLT whereas a house that sold at 252k paid a whacking £7560.00. Under Osborne’s reforms the same house sold at 252k will pay £2,600.00.
So one consequence of the reform should be to increase average prices for properties worth around the 250k mark. On top of this the whole scale is calibrated so that most properties under one million pay less stamp duty than under the old system. This should mean that the number of transactions on these properties will increase and prices will increase accordingly.
This is in itself a mixed blessing for small redevelopers like Vintage Property Restoration. On the one hand high resale prices are always welcome. (To us but not to first time home buyers). On the other, in a buoyant property market run down and derelict properties tend to increase disproportionately in value making outlay for restoration projects even more expensive and real opportunities even scarcer.
But what is really sad about Osborne’s reform package is that he has missed the opportunity to provide meaningful stamp duty relief for redevelopers who buy empty and/or derelict properties. This is a worthy occupation with important social benefits. It creates housing without destroying greenbelt and it improves and revitalises neighbourhoods.
Osborn’s omission is particularly disappointing as the 2013 changes in Council Tax relieve actually penalised those buying empty properties. Prior to 2013 empties were exempt from Council tax for a period while renovation work was done. Under the new rules not only is there no exception, properties empty for over two years can now be charged Council Tax at 50% above the normal rate.
This provides a clear disincentive to take on empty properties. What makes this particularly perverse is that central government actually pays Councils for the number of empty properties brought back into occupancy in their districts.
What is needed is a weighty incentive for small redevelopers and home buyers to purchase run down and empty properties, restore them and get them back into occupancy. Stamp Duty relief at the point of purchase would have been an effective and easy way to provide this incentive and Osborne has missed an opportunity.
Everyone agrees that one answer to the UK’s housing crisis is to bring empty and derelict properties back into use. It is about time that the government started helping those of use trying to do this instead of hindering us.