Rethink the tax system and don’t cut infrastructure spending

Rising mortgage costs are making the housing crisis more acute, and only a tax rethink can solve this.

The government could do two big things for construction in its forthcoming Autumn statement:

1. refrain from sweeping cuts in infrastructure spending
2. implement some tax reforms to address the housing crisis

Rising mortgage costs reduce demand in the short term but doesn’t mean we need fewer homes. To solve the housing crisis, the Government should consider introducing an annual tax on second homes. Second homes weaken the local economy and price out younger generations from owning their own home.

Similarly, the Government should reintroduce tax relief on mortgage interest for first-time buyers to stimulate the property market. This should last 5 years. This relief would run alongside the first-time buyers Stamp Duty Land Tax (SDLT) reduction, creating an attractive incentive to both the buyer and developer.

Introducing an SDLT exemption for downsizers who are reducing their property value by a third or more is also an alternative solution to freeing housing stock. Today’s high energy costs and increased mortgage payments may encourage older homeowners whose children have long-since flown the nest to downsize. UK construction depends on a healthy pipeline of government work. It would be disappointing to see too many cuts in projected infrastructure spending. This is something the sector will be watching carefully. Ultimately, the government must deliver a strong message to ensure that housing shortages are addressed and that activity within the construction sector continues to flourish.

For further guidance on any of the tax measures discussed in this article, please contact your usual MHA advisor or Contact Us.

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