Stamp duty cuts for first time buyers: the evidence

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As I have already noted this morning, rumours are circulating that Philip Hammond is considering a stamp duty cut for first time buyers of houses to ease the pressure on this not yet on the property ladder and increase the appeal of the Conservative Party to younger voters. In my opinion such cuts do not work.

As evidence, take the cut introduced by Alistair Darling in the last Labour budget in March 2010. This reduced the stamp duty threshold for first-time buyers to stimulate demand. For first-time buyers only, the stamp duty rate was 0% for properties up to a value of £250,000 with all other bands and rates staying the same. The impact on prices can be plotted suing the government’s own house price index:

Can you spot the impact? I suspect not, because there is almost none. Except, that is, when the deadline for withdrawal of the relief in March 2012 came along, when the ONS note this:

In March 2012 there was a flurry of activity to beat the new rate, followed by a lull in April 2013 and then what looks like a return to normal. In March 2016 the introduction of a rate hike – this time for buy-to-let purchasers – also induced a volume peak followed by a lull. But then things went largely back to normal.

To be clear, the house price index in March 2010 was according to the government 88.05. And in March 2012 it was 87.04, and the month after was 88.04. In other words, the stamp duty rebate, provided at a cost of £550 million, (page 120) achieved nothing in making houses more affordable. What it may have done is kept house prices up when the market would otherwise have let them fall. And the evidence is clear. Sales volumes were hardly impacted. Price changes wobbled around a norm as they always do. And overall prices were unchanged. As interventions go it was spectacular in its wastefulness.

Could that sum be better spent when it comes to housing? Most definitely.