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.

 
 
 
 

To see how a city embraces remote work, just look to Helsinki

A deeply rooted culture of trust is crucial to the success of remote work. (Sean Gallup/Getty Images)

When I speak to Anssi Salminen, an account manager who lives an hour outside Helsinki, he’s working from a wooden platform on the edge of a Finnish lake. With a blanket laid out and his laptop set up, the sun low in the sky, Anssi’s remote work arrangement seems blissful. 

“I spend around half of my time working somewhere else other than the office,” he says. “I can work from home, or on the go, and I also travel to the Netherlands once a month and work from there.

“The emphasis in my work has always been that it doesn’t matter when or where I work, as long as I get things done.”

For many people around the world, the shift to remote work was sudden, sparked by the coronavirus pandemic. Finland, however, is finding the transition much less significant. Before Covid-19, the Nordic nation already displayed impressive levels of remote working, with 14.1% of its workforce reporting usually working from home. Only the Netherlands has a comparable percentage of remote workers, while the UK lagged behind at 4.7%, and the US’s remote workforce lingered at around 3.6%

Anssi works for one of many Helsinki-based companies that offers its employees flexible policies around when and where they work. That arrangement is in part due to the Finnish capital’s thriving start-up scene. In spite of being a relatively small city by global standards it is home to over 500 technology start-ups. These companies are leading the way when it comes to keeping employees connected wherever they choose to work.

“Our company has a completely location-free working policy,” says Kasper Pöyry, the CEO of Helsinki-headquartered software company Gapps. “All meetings are made available for online participants and facilitated accordingly. Some employees have worked extensively from abroad on a working holiday, whilst others prefer the comfort and social aspects of the well-stocked office. Whatever works for our employees is what works for the company.”

Like Gapps, many Helsinki-based firms are deeply preoccupied with providing the necessary technology to attract talent in a vast and sparsely populated country. Finland has only 15 inhabitants per square kilometre, and companies understand that in order to compose teams of specialised expertise, they may have to seek talent outside of the city. Local governments take a similarly proactive stance toward technological access, and Helsinki offers free, unrestricted, high-speed Wi-Fi from city-wide hotspots, while the country as a whole boasts some of the best coverage in Europe. 

But encouraging remote work isn’t just about optimising the potential of Finland’s workforce – companies in Helsinki also recognise that flexibility has clear benefits for both staff and employees. 

“The idea of a good work-life balance is ingrained in Finnish culture,” says Johannes Anttila, a consultant at organisational think tank Demos Helsinki. “It goes back to our rich history of social dialogue between labour unions and employers, but also to an interest in delineating the rules of working life and pushing towards people being able to enjoy their private life. Helsinki has been named the best city in the world for work-life balance, and I think that this underlies a lot of the mentality around remote work.” 

For Peter Seenan, the extent to which Helsinki residents value their free time and prioritise a work-life balance prompted his move to the city ten years ago. He now works for Finnair, and points to Finland’s summer cottages as an example of how important taking time to switch off is for people in the country. These rural residences, where city residents regularly uproot to enjoy the Nordic countryside, are so embedded in Finnish life that the country boasts around 1.8 million of them for its 5.5 million residents

“Flexible and remote work are very important to me because it means that I don’t feel like I’m getting stuck in a routine that I can’t control easily,” he says. “When I’m working outside of the office I’ll go down to my local sauna and go ice swimming during the working day, typically at lunchtime or mid-morning, and I’ll feel rejuvenated afterwards… In winter time especially, flexibility is important because it makes it easier to go outside during daylight hours. It’s certainly beneficial for my physical and mental health, and as a result my productivity improves.”

The relaxed attitude to working location seems to pay off – Finland is regularly named the happiest country in the world, scoring highly on measures such as how often its residents exercise and how much leisure time they enjoy. With large swathes of unspoiled countryside and a national obsession with the outdoors, sustainability is at the forefront of its inhabitants’ minds, leading to high levels of support for measures to limit commuting. In January, Finland passed a new Working Hours Act, the goal of which was to help better coordinate employee’s work and leisure time. Central to this is cementing in law that employees can independently decide how, when, and where they work.

Yet enacting the new ruling is not as simple as just sending employees home with their laptops. For Kirsimarja Blomqvist, a professor of knowledge management at LUT University, perhaps the most fundamental feature that remote work relies upon is a deeply rooted culture of trust, which Helsinki’s residents speak of with pride. The anecdotal evidence is backed up by data which suggests that Finland boasts one of the highest levels of trust and social cohesion in Europe, and equality and transparency have always been key cornerstones of political thought in the country.

“Trust is part of a national culture in Finland – it’s important and people value it highly,” she explains. “There’s good job independence, and people are valued in terms of what they do, not how many hours they work for. Organisations tend to be non-hierarchical, and there is a rich history of cooperation between trade unions, employers, and employees to set up innovative working practices and make workers feel trusted and valued. 

“It’s now important that we ensure that this trust can continue to be built over technology, when workers might have been more used to building it face-to-face.”

As companies begin to look hopefully toward a post-Covid future, the complexities of remote work are apparent. Yet amid issues of privacy, presenteeism, and social isolation, the Helsinki model demonstrates the potential benefits of a distanced working world. The adjustment to remote work, if continued after the crisis, offers a chance to improve companies’ geographical diversity and for employers to demonstrate trust in their workforce. On these issues, Blomqvist believes other cities and employers can learn a lot from Helsinki.

“People are now beginning to return to their workplaces, but even as they do they are starting to consider the crisis as a jumping point to an even more remote future,” she says. “The coronavirus pandemic has been an eye-opener, and people are now interested in learning from Finland’s good practices… We are able to see the opportunity, and the rapid transition to remote work will allow other countries to do the same.”