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.

 
 
 
 

Budget 2017: Philip Hammond just showed that rejecting metro mayors was a terrible, terrible error

Sorry, Leeds, nothing here for you: Philip Hammond and his big red box. Image: Getty.

There were some in England’s cities, one sensed, who breathed a sigh of relief when George Osborne left the Treasury. Not only was he the architect of austerity, a policy which had seen council budgets slashed as never before: he’d also refused to countenance any serious devolution to city regions that refused to have a mayor, an innovation that several remained dead-set against.

So his political demise after the Brexit referendum was seen, in some quarters, as A Good Thing for devolution. The new regime, it was hoped, would be amenable to a variety of governance structures more sensitive to particular local needs.

Well, that theory just went out of the window. In his Budget statement today, in between producing some of the worst growth forecasts that anyone can remember and failing to solve the housing crisis, chancellor Philip Hammond outlined some of the things he was planning for Britain’s cities.

And, intentionally or otherwise, he made it very clear that it was those areas which had accepted Osborne’s terms which were going to win out. 

The big new announcement was a £1.7bn “Transforming Cities Fund”, which will

“target projects which drive productivity by improving connectivity, reducing congestion and utilising new mobility services and technology”.

To translate this into English, this is cash for better public transport.

And half of this money will go straight to the six city regions which last May elected their first metro mayor elections. The money is being allocated on a per capita basis which, in descending order of generosity, means:

  • £250m to West Midlands
  • £243 to Greater Manchester
  • £134 to Liverpool City Region
  • £80m to West of England
  • £74m to Cambridgeshire &d Peterborough
  • £59m to Tees Valley

That’s £840m accounted for. The rest will be available to other cities – but the difference is, they’ll have to bid for it.

So the Tees Valley, which accepted Osborne’s terms, will automatically get a chunk of cash to improve their transport system. Leeds, which didn’t, still has to go begging.

One city which doesn’t have to go begging is Newcastle. Hammond promised to replace the 40 year old trains on the Tyne & Wear metro at a cost of £337m. In what may or may not be a coincidence, he also confirmed a new devolution deal with the “North of Tyne” region (Newcastle, North Tyne, Northumberland). This is a faintly ridiculous geography for such a deal, since it excludes Sunderland and, worse, Gateshead, which is, to most intents and purposes, simply the southern bit of Newcastle. But it’s a start, and will bring £600m more investment to the region. A new mayor will be elected in 2018.

Hammond’s speech contained other goodies for cites too, of course. Here’s a quick rundown:

  • £123m for the regeneration of the Redcar Steelworks site: that looks like a sop to Ben Houchen, the Tory who unexpectedly won the Tees Valley mayoral election last May;
  • A second devolution deal for the West Midlands: tat includes more money for skills and housing (though the sums are dwarfed by the aforementioned transport money);
  • A new local industrial strategy for Greater Manchester, as well as exploring “options for the future beyond the Fund, including land value capture”;
  • £300m for rail improvements tied into HS2, which “will enable faster services between Liverpool and Manchester, Sheffeld, Leeds and York, as well as to Leicester and other places in the East Midlands and London”.

Hammond also made a few promises to cities beyond England: opening negotiations for a Belfast City Deal, and pointing to progress on city deals in Dundee and Stirling.


A city that doesn’t get any big promises out of this budget is – atypically – London. Hammond promised to “continue to work with TfL on the funding and financing of Crossrail 2”, but that’s a long way from promising to pay for it. He did mention plans to pilot 100 per cent business rate retention in the capital next year, however – which, given the value of property in London, is potentially quite a big deal.

So at least that’s something. And London, as has often been noted, has done very well for itself in most budgets down the year.

Many of the other big regional cities haven’t. Yet Leeds, Sheffield, Nottingham and Derby were all notable for their absence, both from Hammond’s speech and from the Treasury documents accompanying it.

And not one of them has a devolution deal or a metro mayor.

(If you came here looking for my thoughts on the housing element of the budget speech, then you can find them over at the New Statesman. Short version: oh, god.)

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and also has a Facebook page now for some reason.

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