To tackle the inequality between young and old, Britain should tax its housing

Phwoar, look at the tax on that. Image: Getty.

House prices are now so high, particularly in the south of England, that fewer than a quarter of young people under 30 are able to buy homes – and most of these need help from their parents. Renting privately, which is often both expensive and insecure, hardly provides an attractive alternative.

Fixing the dysfunctional housing market is key to levelling the growing inter-generational inequality between the young and the old in Britain. I propose that one way to help do this would be to make substantial changes to the way housing is taxed – including the introduction of a capital gains tax on the sale of all homes – rather than just second ones – and reforms to make council tax fairer.

Home ownership among young adults is in rapid decline. Unless this changes, the millennial generation are likely to be the first generation since the children of the Edwardian era to do worse than their parents across a range of areas in their lives. At the same time, our already flatlining levels of social mobility will decline.

Age-related inequality

In my new book, The Crisis for Young People, I examined the trends in inter-generational inequality in areas including education, employment and welfare. I found that age-related inequalities are increasing in all areas affecting young people – but that the gaps between millennials and previous generations are starkest in housing.

My analysis of data from UK Household Longitudinal Study and its predecessor, the British Household Panel Survey, showed that the proportion of 18 to 34-year-olds owning homes has declined from 46 per cent in 1991 to just 25 per cent in 2013, while the proportion living with parents or renting privately has risen sharply. As the graph below shows, the decline in home ownership has affected all occupational groups among young employees.

The effect of family background on the chances of home ownership has also increased. My research shows that young people from professional families were 1.4 times as likely as those from semi-skilled and unskilled families to own a home in 1991. In 2013 they were 2.4 times as likely to do so.

Home ownership proved to be a major route to social mobility for the many of the baby boomer generation. According to the government’s own data, average house values in the south-east of England rose £5,000 more than average earnings during 2015, which means that many home owners were making more from their home (on paper at least) than from their job. For the millennials this route has virtually disappeared.

Government efforts to create a boom in private house building will not solve this problem. Britain does not have a deficit of housing: there are more rooms per person than ever before and more than a million more homes than households. The problem is that they are often in the wrong place, selling at the wrong prices and being bought by the wrong people – such as by investors and landlords rather than home seekers.

The shortage is in genuinely affordable homes – and this will not be corrected through the building of new homes for private sale since developers have an interest in keeping prices high. The only solution is to provide more social housing and mixed-tenure housing (in which homes are available for rent or purchase), while bringing down the price of privately owned housing through changes in taxation policy.

Capital gains tax on all house sales

People’s main homes are currently immune from capital gains tax. But I believe that the most effective way to bring down house prices would be to impose capital gains tax on the profits from the sale of all private homes, just as it is on the sale of other assets worth more than £6,000.

According to Nationwide Building Society data, average house prices rose by over £100,000 during the seven years prior to the 2008 crash. I estimate that people who owned homes during this period saw their collective property wealth rise by well over £1 trillion, even after discounting for inflation and home improvement costs. Since the under-35s owned less that 4 per cent of this housing stock, this represented a potential transfer of assets from future (young) home buyers to (older) owners of a sum greater than annual GDP at the time.

Had capital gains tax been imposed at 30 per cent on the profits of sales of all private properties between 2010 and 2015, I calculate that it would have raised about £24bn per year for the exchequer, close to what England spends on secondary schools.


Making council tax fairer

Imposing capital gains tax on all home sales might encourage older people not to sell their homes and so create a dearth of properties for sale. The solution to this is to reform council tax so that people pay more for the privilege of living in expensive houses. Those currently owning homes worth over £7m pay only three times what those in houses worth one hundredth of this amount pay.

Properties should be revalued and the council tax bands increased so that the tax is more proportionate to the value of properties. At the same time government should waive stamp duty – the tax currently levied on all house sales over £125,000 – for retired people, so that older people are encouraged to downsize to free up more family homes.

The UK’s private rental market, one of the most unregulated in Europe, is not fit for purpose and also needs major reforms. Rents are too high in many cities, quality often poor – and security for tenants almost non-existent. A new Housing Act could re-establish fair rent tribunals in big cities, provide longer notice periods for tenants, and make it mandatory for all landlords to be licensed and for councils to inspect their properties on a regular basis.

The ConversationRestoring the protections afforded to private tenants in the 1970s, when baby boomers were young, would be a step towards reducing inequality between today’s generations. Re-establishing “fair rents” would be another step, since lower rents would help young people today to save to buy homes, as the majority of their parents’ generation did.

Andy Green is professor of comparative social science at UCL.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

Where actually is South London?

TFW Stephen Bush tells you that Chelsea is a South London team. Image: Getty.

To the casual observer, this may not seem like a particularly contentious question: isn’t it just everything ‘under’ the Thames when you look at the map? But despite this, some people will insist that places like Fulham, clearly north of the river, are in South London. Why?

Here are nine ways of defining South London.

The Thames

Image: Google Maps/CityMetric.

It’s a curvy river, the Thames. Hampton Court Palace, which is on the north bank of the river, is miles south of the London Eye, on the south bank. If the river forms a hard border between North and South Londons, then logically sometimes North London is going to be south of South London, which is, to be fair, confusing. But how else could we do it?

Latitude

You could just draw a horizontal line across a central point (say, Charing Cross, where the road distances are measured from). While this solves the London Eye/Hampton Court problem, this puts Thamesmead in North London, and Shepherd’s Bush in South London, which doesn’t seem right either.

Image: Google Maps/CityMetric.

And if you tried to use longitude to define West and East London on top of this, nothing would ever make sense ever again.

The Post Office

Image: Wikimedia Commons.

Some people give the Post Office the deciding vote, arguing that North and South London are defined by their postcodes. This does have some advantages, such as removing many contentious areas from the debate because they’re either in the West, East or Central postcode divisions, or ignoring Croydon.

But six of the SW postcodes are north of the river Thames, so we’re back to saying places like Fulham and Chelsea are in south London. Which is apparently fine with some people, but are we also going to concede that Big Ben and Buckingham Palace are South London landmarks?

Taken to the extreme this argument denies that South London exists at all. The South postcode region was abolished in 1868, to be merged into the SE and SW regions. The S postcode area is now Sheffield. So is Sheffield in South London, postcode truthers? Is that what you want?

Transport for London

Image: TfL.

At first glance TfL might not appear to have anything to add to the debate. The transport zones are about distance from the centre rather than compass point. And the Northern Line runs all the way through both North and South London, so maybe they’re just confused about the entire concept of directions.

 

Image: TfL.

But their website does provide bus maps that divide the city into 5 regions: North East, South East, South West, North West and the Centre. Although this unusual approach is roughly speaking achieved by drawing lines across and down the middle, then a box around the central London, there are some inconsistencies. Parts of Fulham are called for the South West region, yet the whole of the Isle of Dogs is now in North East London? Sick. It’s sick.

The Boundary Commission

One group of people who ought to know a thing or two about boundaries is the Boundary Commission for England. When coming up with proposals for reforming parliamentary constituencies in 2011, it first had to define ‘sub-regions’ for London.

Initially it suggested three – South, North East, and a combined North, West and Central region, which included Richmond (controversial!) – before merging the latter two into ‘North’ and shifting Richmond back to the South.

In the most recent proposal the regions have reverted to North Thames and South Thames (splitting Richmond), landing us right back where we started. Thanks a bunch, boundary commission.

The London Plan

Image: Greater London Authority.

What does the Mayor of London have to say? His office issues a London Plan, which divides London into five parts. Currently ‘South’ includes only Bromley, Croydon, Kingston upon Thames, Merton, Sutton, and Wandsworth, while the ‘North’ consists of just Barnet, Enfield, and Haringey. Everywhere else is divvied into East, South or Central.

While this minimalist approach does have the appeal of satisfying no-one, given the scheme has been completely revised twice since 2004 it does carry the risk of seismic upheaval. What if Sadiq gets drunk on power and declares that Islington is in East London? What then?

Wikipedia

 

Image: Wikimedia Commons/CityMetric.

The coordinates listed on the South London article lead to Brockwell Park near Herne Hill, while the coordinates on the North London article lead to a garden centre near Redbridge. I don’t know what this means, so I tried to ring the garden centre to see if they had any advice on the matter. It was closed.

Pevsner Guides

Image: Wikimedia Commons/CityMetric.

Art historian Sir Nikolaus Pevsner might seem an unlikely source of help at this juncture, but we’ve tried everything else. And the series of architectural guides that he edited, The Buildings of England, originally included 2 volumes for London: “The Cities of London and Westminster”, and “everything else”. Which is useless.

But as his successors have revised his work, London has expanded to fill 6 volumes: North, North West, East, The City, Westminster, and South. South, quite sensibly, includes every borough south of the Thames, and any borough that is partly south of the Thames (i.e. Richmond). And as a bonus: West London no longer exists.

McDonald’s

I rang a McDonald’s in Fulham and asked if they were in South London. They said no.

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