In this contribution to IF’s Worldwide Blog Week, Andrew Dixon, Founder of Fairer Share, a UK-based property taxation campaign group, argues that now, more than ever, we need a new property tax deal that benefits younger generations
Housing is an essential tool for achieving intergenerational fairness. However, it is clear that young people hoping to get on the property ladder now face far greater challenges than those faced by their parents and grandparents, causing a steep decline in upward mobility, with the pandemic exacerbating inequalities.
Young home buyers
Today’s first-time buyers must find significantly more cash upfront for a deposit and they must service a much larger mortgage than previous generations. On top of this, we have a deeply unfair property tax system under which people who live in modest homes get a worse deal than those living in the wealthier areas, while struggling renters saving up for a deposit are hit harder than older households who have made it onto the property ladder.
As the pandemic forces us to reimagine the future of housing, we need a fair property tax system that does not serve as a further barrier as young people making their way in life.
Less likely to own homes
It is no secret that the UK has seen a steady increase in house prices over the last twenty years. In 2019, the Local Government Association found that just 11% of those born in 1996 are on the property ladder and young people are now half as likely to own a home as previous generations. Similarly, the proportion of people in England aged 35–44 living in private rentals jumped from 9% to 28% between 1997 and 2017, whereas around 75% of people aged 65+ own their house. This is also likely to impact generations to come as 1.5 million young families now live in the private rented sector (up from 600,000 in the early 2000s).
The recent pandemic has not only exposed the flaws in our current housing system but exacerbated the problem. Though the pandemic has undoubtedly introduced significant health risks for older generations and vulnerable individuals, young people have paid the price financially. Recent research found that over half of those aged 16–24 who were employed have stopped working, whilst also experiencing lockdown living in housing with half as much space as those over 65. Young people are not only stuck with the risk of cramped spaces, damp, no outside access – but eviction as well. As a result, the growth of the private rental sector has led to missed rent and council tax payments because younger generations are left most likely to be furloughed or made redundant.
The tax system makes it worse
Our property tax system only serves to intensify intergenerational unfairness. At present, many people are paying high rates of council tax for modestly-valued properties. For example, people living in Hartlepool must pay out 1.31% of their property’s value every year in council tax while this figure drops to just 0.06% in Westminster. In this way the current system is biased against young people who are more likely to live in more modest homes, but is good news for affluent older people living in mansions or expensive flats in the heart of London.
In addition, richer areas have more properties in higher bands so can set lower rates and still fund the services they need. A four-bed house in Mayfair worth £4.2 million is in the highest band but households pay Westminster council just £1,400 each year – this is just £150 more than the lowest band in Bristol (where notably 25–49-year-olds make up 40% of the area). It’s clear there is a postcode lottery.
Young people paying more
The overall effect is that many young people are paying expensive taxes often in properties that they do not own while this generation is also most likely to be unemployed or unable to get onto the property ladder. Meanwhile as the asset rich older generation get a good deal on council tax, these individuals also have the opportunity to take advantage of property equity and low interest rates to buy second homes on the coast or in the countryside, further pushing up property prices for locals and younger generations.
Progressive property tax
If young people are to get a fair deal on housing, we urgently need to replace the current broken property tax system with a Progressive Property Tax (PPT) under which households pay a standard 0.48% rate of their property’s value. This would bring payments in line with up-to-date property values and would ensure that property tax bills are placed solely with the owner, removing the responsibility from tenants. The result would be savings for 76% of households across England – and for 90.2% of households aged 25–34.
The new system would also see the end of the bedroom tax and would further help many first-time buyers and others by abolishing stamp duty. Under the current arrangements, even with the first-time buyer’s discount, young families pay more and more stamp duty as they move up the property ladder. Under PPT this would no longer be the case with property tax paid over the lifetime ownership of a property and not as a lump sum at the beginning, when first-time buyers and young families in particular are already low on cash reserves.
The current trend of rising housing prices with the recent end of the stamp duty holiday suggests that housing will only become more inaccessible to young people in the years ahead. Young people looking to get on the property ladder today face a triple whammy of extortionate housing prices, expensive stamp duty and an unfair council tax system.
The government’s ambitious goal of stimulating housing supply is welcome and part of the solution, but if ministers are serious about levelling up and achieving intergenerational fairness, they must also fix our outdated property tax system.
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