Who benefits most from house price rises?

substantial property

A recent study has concluded that the rich have benefited most from the house price boom, in particular Londoners. Research by the Resolution Foundation and Abrdn Financial Fairness Trust has concluded that household wealth in the UK has increased substantially due to house price growth and the high number of homes in private ownership.

No surprise there, but the value of the increase is a staggering £3 trillion on main residences, equating to around one fifth of all family wealth.

In total, the value of household wealth in the UK has risen to over seven times national income from just three times national income, over the last thirty years.

Profits made from the sale of main residences are not subject to Capital Gains Tax and the report suggests its time for a re-think.

The “unearned, unequal and untaxed windfall” has mostly benefited Londoners, older people and those with larger main residences. Indeed, house prices have risen 86% ahead of inflation since 2000, most significantly since the pandemic began.

The report is based on surveys by the Office for National Statistics, including the wealth and assets survey and the family resources survey. It concludes that people aged over 60 have benefited from an average £80,000 in housing wealth, compared to an average of under £20,000 for those below the age of 40.

The key findings conclude:

“The least-wealthy third of households have gained less than £1,000 per adult, on average, from rising house prices this century, and the wealthiest 10 per cent have seen an average gain of £174,000.

The average gain per adult was £76,000 in London, but just £21,000 in the North East of England.

A new tax on main residences would require carefully thought-out design choices, including: accounting for past-capital gains; not disincentivising house moves; ending forgiveness of capital gains at death; and allowing deductions of costs.

Plausible designs of a tax could raise between £4 billion and £11 billion a year.

Inheritance Tax could be an alternative avenue of reform, for example abolition of the Main Residence Nil-Rate Band might raise as much as £3 billion a year.”

The report says that the long term fall in interest rates has resulted in a fall in home ownership by younger people and had led to wealth gaps that “harm social mobility and raise the importance of parental wealth in defining life opportunities”, in that younger generations usually only benefit from parental wealth once that parent has died.

It suggests that changes to the capital gains tax system could include a tax rate of 28%, with a £75,000 tax-free allowance per person per property. If that were the case, the report estimates, half of estates would pay no tax at all, while the remainder could raise £4 billion in tax a year. Its authors argue that this would be fairer than alternative tax increases that could equate to £3,000 for every household by 2050.

If the wealthiest moved, that is.