Labour is ‘missing a trick’ by not taxing housing wealth, expert says

The Labour government has been urged to reform taxes on housing wealth in a bid to reduce rising inequality between rich and poor in the housing market.

Writing in the Chartered Institute of Housing’s (CIH) annual UK Housing Review, University of Cambridge honorary professor Susan J Smith argued the government is “missing a trick” in attempting to tackle housing inequality without a focus on wealth.

The government is pouring billions of taxpayer funds into building 1.5 million homes in a bid to tackle a housing crisis that has seen homelessness soar to record highs with sky-high rents and house prices.

But Smith argued that taxes on residential property and transactions are currently regressive in the case of council tax, while stamp duty is “inefficient” and other taxes ignore land values and offer no cash to reinvest in UK housing stock.

Council tax raised just under £47bn for the Treasury in 2024-25, while stamp duty raised £15bn in the previous year and property sales amounted for 10% of the £15bn raised in capital gains tax. Housing is also a driver of revenue from inheritance tax, generating £7.5bn annually.

“Owner-occupation has retreated, housing wealth inequalities have intensified, rents are rising, housing benefits have stalled and low-income households are spending proportionately and progressively more on housing than those who are better off. There must be a better way,” said Smith.

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“Fixing Britain’s housing system may be about more than redistributing housing wealth, but there are compelling reasons for using tax to manage housing’s role in amplifying economic inequality. It could, for example, help stabilise the market, dampen speculation and create a flow of funds to maintain the stock, build new homes and prioritise affordability.”

Smith wrote that housing has become the “engine of wealth inequality” in recent decades.

While the wealth gap was at its widest generally in the early 20th century, housing inequality formed a relatively small part until the two World Wars and a depression focussed attention on poor conditions and a shortage of homes. 

That saw council housing fill the void with below-market rents, leading to what Smith called “three distinctively egalitarian decades” from the 1950s to the 1970s.

But since then, through Right to Buy and the financial deregulation and credit liberalisation of the 1980s, house prices have accelerated and so has the gap between rich and poor.

Between 1977 and 1997, average real house prices grew by 30%, but between 1997 and 2007, the uplift was 147%.

While earnings doubled between 1997 and 2023, house prices increased four and a half times and now stand at 7.7 times more than the average full-time salary in England, according to the Office for National Statistics. 

Meanwhile, housing costs are now high in the UK relative to other OECD countries by as much as 44%.

That has resulted in a housing wealth inequality gap. The wealthiest 10% of the population saw an average capital gain on residential property of £174,000 across the first two decades of the 21st century, while the least wealthy one-third of the population netted less than £1,000 each, said Smith.

In Britain today the richest 10% median wealth-holding is £1.2m, compared to £16,500 among the least well-off 10%.

The Cambridge academic said “widening and restructuring housing’s tax base” might raise enough to cover the growing housing benefit bill.

She also said a land value tax, citing economist John Muellbauer, could be an option to address inequality and tackle environmental needs. That would see a charge placed on the land and the house that it sits on it minus the efficiency of the building’s energy usage. 

“Moving to this model would reflect a wider conviction that land-value taxes are progressive, efficient, egalitarian and good for the economy,” said Smith.

Smith’s analysis is part of CIH’s UK Housing Review. 

Now in its 33rd year, the review brings together the most important housing statistics from across the UK as well as analysis of the role played by the Bank of England in housing policy and what is required to adapt homes to face the rigors of a changing climate

CIH chief executive Gavin Smart said: “This year’s UK Housing Review is published at a decisive time as the government prepares a new housing strategy to back its target to build 1.5 million homes.

“The review provides valuable, considered insight and analysis on the contemporary issues facing the housing sector, and leans into lessons learned from past policies. Valuable reading for everyone in the sector, I urge all political parties to engage with the wealth of information and analysis available in the UK Housing Review series.”

For more information on Chartered Insitute of Housing’s UK Housing Review, head to the CIH website.

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