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Tax larger houses more to stabilise housing market says leading charity

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11/09/2012
Councils should tax larger houses to steady the housing market, says the Joseph Rowntree foundation.

In a new report, the charity calls on politicians to revalue Council Tax bands to reflect real house prices and act as a brake on house price inflation and make the system fairer.

Under the current system, people in cheaper houses pay a higher proportion of Council Tax than people living in expensive ones.

A family living in a £320,000 house has to pay only twice as much Council Tax as a family living in a house that costs £68,000 – despite their home being more than four times as valuable.

Kathleen Kelly, programme manager for Place at JRF, said: “As MPs gather for their party conferences and the new housing minister settles in, now is the time to fix the underlying problems in the housing market.

“It will take huge political courage to achieve this – but we cannot afford to leave people or our economy helplessly exposed to our volatile housing system.”

It is estimated that 3.7m households are worse off as a result of the failure to revalue Council Tax because households would have moved down bands.

Kelly added: “Attempts to build thousands more homes are welcome and badly needed to overcome the high prices that lock so many out of ownership. But they won’t come quick enough for those who are struggling today.

“We need radical tax reform that would reduce volatility and offer a better deal to millions of households, while developing alternatives to ownership so people have access to stable tenancies in both the social and private rented sector.”

 

The new report, revised from the last proposal in 2011, suggests ways in which the Government can tackle the housing market cycles of boom and bust:

 An insurance partnership scheme where borrowers, lenders and the Government each make a contribution to a pooled fund that can cover struggling homeowners’ mortgage costs. This would prevent repossessions and provide an effective safety net.

 Focus on developing serious alternatives to home ownership schemes by increasing the availability of social rented homes and intermediate tenures such as shared ownership, as well as reforming the private rented sector to give renters more security. The insecurity of private renting is particularly damaging for families trying to make a long term home in the sector.

 More investment in meeting housing supply needs. Even if every Government policy and scheme succeeds, by the end of 2015 there will still be 310,000 fewer homes than needed – 750,000 homes are required by 2015. The failure to produce sufficient new housing is a root cause of volatility.

Mark Stephens, co-author of the report, said: “Overall, the steps taken by the Government fall far short of the fundamental overhaul we desperately need to create a stable housing market.

“Tackling issues such as property taxation require political bravery and there is an important longer-term prize at stake: a more stable system that has a greater social benefit than the four boom and bust cycles we have experienced since the 1970s.

“But in some ways this progress report shows we are moving further away from a stable housing market.”

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