The Chancellor must change stamp duty policy for the good of Oxford’s property market

As regular readers will know, I have previously identified that Oxford needs close to 7,000 new private rental properties over the coming 3 to 5 years to meet forecast demand for quality private rented properties.  Readers will also know, that the nature of demand is changing in Oxford.  For example, as property prices continue to rise, there is an increasing demand from young professionals for good quality rooms in houses of multiple occupation (HMO’s).  These tenants require en-suite facilities, large bedrooms with double or king-size beds, and good quality kitchen and living accommodation.  In other words, large properties that have been professionally converted for young professional singles and couples to live privately and comfortably.

Current Government policy in relation to Stamp Duty Land Tax (SDLT) is distorting the market, and threatening to exacerbate the imbalance of excess demand vs. insufficient supply.  The Chancellor should grasp this nettle before it’s too late.

Over recent years the volume of transactions for higher-value homes (over £2m value) has fallen by 70%.  Where a home valued at over £2m is bought as a second property, the SDLT due is £213,750…Ouch.  Should the same investor instead choose to buy two second properties each worth £1m, the SDLT falls to £147,500.  Still a lot of money, but a saving of £66,250.

Why does this matter in Oxford?  Put simply, it is distorting the local property market.  Over the last 12 months transaction volumes are down 11%.  This largely reflects lower levels of investment by buy to let landlords since the 3% SDLT surcharge was introduced for second properties.  However, so far prices are holding firm, with transactions over the last 12 months having an average value 11% up on the previous 12 month period.  This means the market has less choice (fewer properties being sold) and is no more affordable for private owner occupiers. 

Whilst landlord investment is down in terms of volume, that which has been sustained is concentrated in the sub £1m property band as landlords try to limit their exposure to SDLT.  This concentration means average property values continue to rise in this critical property band, driving more private buyers out of the City because they can’t pull-together the size of deposit demanded by their lender.

Worse-still, because landlords have a taxation disincentive to invest in larger more expensive properties, the Oxford market is failing to respond to changing demand, meaning the high-value young professionals who are attracted to Oxford for its knowledge-rich economy, can’t find the high quality HMO options they require to make Oxford an attractive and affordable place to live.

Until Oxford increases new house building by a factor of 10, the local economy will depend on a strong, diverse and high quality private rental market.  Current stamp duty policy places that at risk, distorting property values by artificially increasing competition for property in the £400,000 to £1m price bracket.