Housebuilder shares spike on reports of stamp duty cut

Shares in listed housebuilders climbed as much as 6% this morning on media reports that the government is set to unveil a major cut to Stamp Duty chancellor Kwasi Kwarteng’s mini-budget on Friday.

The Times reported today that the new prime minister Liz Truss and her chancellor have been working on the plans, designed to stimulate growth in the economy by getting more people moving house, for over a month.

Stamp Duty currently raises around £12bn a year, and a temporary raising of Stamp Duty thresholds by former chancellor Rishi Sunak in the wake of the covid pandemic was seen as helping drive a major surge in home-buying activity, as well as a big spike in prices.

Shares in the UK’s largest housebuilder Barratt rose as much as 4.95% in early trading on the news, with Persimmon and Berkeley Group spiking above 6% and Taylor Wimpey rising more than 4%.

While any reduction in duty will provide a short-term boost to developers’ bottom lines, there is concern that measures to cut duty will simply stoke demand without allowing for more supply to actually tackle the need for housing, thereby raising prices and making the housing crisis worse.

According to official government data, UK house prices have increased by 19.2% - almost a fifth – in the two years since the onset of the pandemic in the second quarter of 2020, and the second quarter of 2022.

Yesterday Truss told TalkTV: “I’ve been very clear that as well as keeping taxes low, we need to put in place measures that are going to drive growth in the economy. And that’s my priority, we’ve had relatively low growth for several decades.”

Foreign office minister Gilian Keegan told Time Radio that stamp duty cuts could “get the economy moving”, if they were included. She said: “It [the mini budget] will be very much a focus on pro-growth, pro-business, and to get the economy moving again including people moving houses, including people who want to downsize, if that’s part of the policy. Those kind of policies that have been used in the past are really there to get the economy moving.”

Dave Sheridan, executive chairman at ilke Homes, said: “The last two years have taught us that demand-side solutions do little to help cool house price inflation, with prices reaching record highs since the onset of Covid-19 and the introduction of Rishi Sunak’s own stamp duty cut in July 2020.

“To improve affordability policymakers must focus on supply-side solutions. Rampant growth in house prices is a direct consequence of lacklustre productivity across house building, with the UK failing to deliver more than 300,000 homes since the sixties.

“Only by addressing mismatches between supply and demand can we make housing more accessible across the board.”

Pete Ladhams, managing director of residential architect Assael, said: “Truss’ government must be laser-focused on increasing housing stock over short-term stimulus to prop up growth.

“As tempting as it may be to take the path well-worn and resort to stamp duty cuts and tax incentives, these unsustainable solutions will not motivate those in under-occupied homes to downsize, or secure housing affordability for first-time buyers hardest hit by spiralling house prices.”

Lawrence Bowles, director of research at Savills, said the reports a stamp duty cut suggest the government will be “hoping that it supports demand at a time when lead indicators suggest that it is softening”.

“Realistically, it seems unlikely that the Government will be able to implement stamp duty changes that completely outweigh […] concerns for buyers. Certainly, they would have to do much more than simply increase stamp duty thresholds in line with levels of house price growth seen since we emerged from the first lockdown.”