By Gary Barker
The spread of the coronavirus (COVID-19) throughout the country has resulted in an almost complete standstill of the housing market as buying and selling property has effectively been put on ice.
At the least we have the short-term implications of the current lockdown as the restrictions impose strict limitations on property transactions and on estate agents’ capabilities to perform critical functions at a time when there are contractual obligations to meet and chains face delay or upending.
But in the long-term as we gaze ahead to the rest of the year and beyond, the economic damage looks to be significant, which has led the Royal Institute of Chartered Surveyors (RICS) to suggest that a stamp duty holiday could be a powerful financial relief vehicle to stimulate the economy at the critical moment when the lockdown is lifted and business and life as we know it can resume.
Such a suggestion from the usually conservative RICS follows the latest release of their March 2020 UK Residential Market Survey, which aggregated from its respondents that a net balance of buyer demand had dropped from +17% previously to a staggering -74%. Sales expectations for the next three months are equally bleak, with a net balance of -92% of respondents representing the weakest figure on record since the first RICS survey back in 1998.
Simon Rubinsohn, RICS Chief Economist, said: ‘The feedback from the survey does imply that further government interventions both in the wider economy and more specifically in the housing market may be necessary to aid this process supporting businesses and people back into work.’
Hew Edgar, RICS Head of Government Relations, added: ‘These are exceptional circumstances and the government will need to consider all avenues that could feasibly rebuild confidence, bridging the gap between uncertainty and recovery. RICS is not an organisation that would call for a stamp duty holiday on a whim, and indeed our view prior to COVID-19 was that it required a full-scale review.’
This is not the first time that a call for a review of stamp duty has come to the fore. House buyers and property agents have rightly been clamouring for it for years, myself included for various reasons, but particularly due to the heavy impediment it places on many transactions.
But these are unprecedented times and it is readily apparent that supporting the housing market will be essential to restarting the economy when the lockdown is lifted. A stamp duty holiday would go some way to boosting consumer confidence, and failure to act now could well lead to further difficulties in the housing market later this year.
The latest Residential Market Outlook from Knight Frank estimated that total housing sales for 2020 would sit at approximately 734,000–a decline of 38% on 2019’s total figure–and that whilst sales will resurge in 2021, climbing 18% above 2019’s total, it would not be sufficient to offset the drop this year.
Following the release of the forecast, Knight Frank added to the voices calling on the government to think about how to restart the housing market, beginning with stamp duty.
Tom Bill, Knight Frank Head of London Residential Research, said: “The government understands that moving house has enormous knock-on benefits for the wider economy. Anything it can do to kick-start the process once lockdown measures are relaxed will have ramifications far beyond the housing market. A material cut in stamp duty or an extended SDLT holiday should be central to these efforts.”
Savills in late March estimated that if transaction activity were to decline in the range of 20% and 40% by June, and hold as such until September, the total number of transactions for 2020 would be somewhere between 38% and 53% of the total number of transactions the agency forecast for 2020 in November last year.
Furthermore, the agency projected that the Treasury stands to lose almost £5 billion in stamp duty revenue. On a positive front, the suppressed demand will likely lead to a demand build-up and support house price growth.
Lucian Cook, Savills Head of Residential Research, said: “Assuming long term damage to the economy is contained, we expect the five year outlook for prices to remain similar to our November 2019 forecasts but with a different distribution of growth year to year.”
Nevertheless, a silver lining to a stamp duty holiday, or even merely a cut to the levy, is that it will further encourage both upsizing and downsizing from parties formerly reluctant due to cost.
It would also be hugely beneficial to the construction industry–which in February had its worst month since 2009–as builders would be able to increase supply knowing they could add an additional 1-3% to the property price.
There is no doubt the fear among many that the government will attempt to raise the stamp duty levy to recoup taxes from their coronavirus spending. But this is unlikely, as Camilla Dell, Black Brick Managing Partner, comments: “If you look at past recessions and the speed of the property market recovery, we can predict that the Treasury will most likely not raise stamp duty to make up for this until a year or so down the line, once property prices and transactions have risen again.”
Yes, at a time when the government is spending billions to support the economy, a stamp duty holiday would hurt incoming tax revenue. And with all the pent-up demand I suspect the government may have difficulties implementing it given all the existing spending. But in the long run such receipts can be recovered, and I would argue that firm, stimulative actions now, such as a stamp duty holiday, would pay dividends for the recovery of the housing market and economic growth in the long term.