Can UK property market continue to be a government cash cow?

As the UK housing market looks set for a period of subdued growth in the short to medium term, can the sector still deliver growing tax revenues to the UK government? This is a question which will be on the lips of many politicians who have continually milked the UK property market for increased tax revenue in times of economic stress. The opportunity to paint buy to let investors as investment opportunists was grabbed with both hands by the UK government – with all political parties happy to increase tax obligations for private landlords. However, will the government still be able to milk the sector in the short to medium term?

Fragile growth

Even though the London housing market is set to underperform the rest of the UK, it is easy to forget that it has far outperformed the UK market in general for many years. There have been signs of London homeowners selling up and taking advantage of the “London premium” to acquire larger properties in areas outside of the capital. This could to a certain extent soften the blow for regional markets over concerns regarding the UK economy and Brexit in the short to medium term. However, even the most opportunistic of forecasts in the short to medium term do not offer very attractive growth scenarios.

Tinkering with stamp duty

In recent times we have seen political parties right across the UK attempting to tinker with stamp duty as a means of “attacking the rich” and defending those at the lower end of the property market. The likelihood is that these moves were simply a way of currying favour with voters in the UK but there is only so much tinkering you can do before you milk yet another tax cow dry.

The situation with buy to let investors is even worse with a significant increase in tax liabilities in recent years. We know from a variety of surveys that some buy to let investors will be taking a sabbatical from the UK market to wait and see how things pan out. So, these two particular tax income streams are under pressure and likely to deliver reduced returns in the immediate future.

Who really pays for increased property taxes?

While every politician will suggest that a tax on property investors is a tax on economic growth in the UK, this is not necessarily the case. The simple fact is that if you have a product which will cost you more to “produce” in the future then you simply increase your price and the end user will subsidise the increased costs. In this particular instance it is the private rental market which will have to bear the brunt of recent tax rises. Indeed the recent attack on those acquiring second homes/holiday homes could also backfire with local house prices likely to consolidate together with a potentially detrimental impact on local economies.

Short termism does not pay

Rightly or wrongly, each government in the UK can only look to the short term to consolidate its position with the voting public. An increase in taxes to subsidise public services, tax on the rich to curry favour with voters and constantly milking the property/housing market cash cow may grab the short term headlines but they can do long-term damage. Investors quite rightly demand a level playing field where they can visualise costs in the short to medium term as well as prospects for the UK economy.

The more taxes heaped onto the property market the less incentivised investors will be to invest and with UK interest rates starting to rise, albeit slowly, there will come a point where the risk/reward ratio for investment in buy to let property becomes unattractive. In the short to medium term at least, it does look as though the UK government has milked the housing/property market to the extreme and may need to look elsewhere for new tax income streams.

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