John Muellbauer, an Oxford economist, described the United Kingdom’s housing system as “one of the most dysfunctional in the world” and argued that tax reform is essential to ease chronic affordability problems.
Tax proposals under review
More than 80% of global investment is tied to property, largely residential. In the United Kingdom, prices have cooled slightly but remain high enough to keep many younger households out of the market.
Academics, including Muellbauer, have suggested converting council tax into an annual levy on households and scrapping stamp duty on property transactions. The Treasury and the Ministry of Housing, Communities and Local Government have examined these ideas.
A “mansion tax” on homes valued above £2 million was introduced as a starting point, yet critics say a flat rate would be more effective than the existing council-tax banding. A proposed 0.5% annual charge would mean £750 on a £150,000 house and £15,000 on a £3 million property.
Under that scheme, owners of £1.5 million homes in London, the south-east and affluent suburbs would see their levy rise to roughly £7,500. The shift would require this group of owner-occupiers to accept the loss of stamp duty for sellers.
Budget measures and market challenges
Recent budget announcements included a revamped help-to-buy scheme for new-build homes, extra funding for council-built housing, and a higher levy on landlords. The landlord levy has sparked concerns that rents could rise for tenants.
The split between leasehold and freehold ownership creates disputes and hampers investment in energy-efficiency upgrades such as solar panels and insulation. Weak planning rules have also led to development on flood plains and tower blocks with poor ventilation.
International context and expert views
France and Germany, once known for tightly regulated housing mixes, are now encouraging wealth building through property. Japan suffered a severe price collapse in the 1990s, and China continues to grapple with a scheme that left many middle-income buyers in negative equity.
Housing in the United Kingdom serves functions beyond shelter, including financing social care for older generations and providing deposits for younger buyers. Treasury minister Torsten Bell called the situation an “housing omnishambles.”
Without fundamental changes to the framework, the affordability crisis is likely to endure.