The housing boom in Britain during the past two decades has delivered an “unearned, unequal and untaxed windfall” that has benefited the older generation, richer people and Londoners the most, according to a new study.
House prices have risen 86 per cent above inflation since 2000, delivering a capital gain on homeowners’ main residences worth £3tn, according to research by the Resolution Foundation think-tank and Abrdn Financial Fairness Trust. The figure equates to a fifth of all wealth in Britain.
The study, which does not cover Northern Ireland, found the trend was “amplified” by the pandemic, which hit in March last year. Between the end of 2019 to mid-2021 house prices in Britain rose 19 per cent, the first time since the second world war that property values have increased during a recession.
“Inflation-busting house price growth over the past 20 years has delivered an unearned, unequal and untaxed Great British wealth windfall,” said Adam Corlett, principal economist at the Resolution Foundation and main author of the report.
The analysis, which is based on the Office for National Statistics’ wealth and assets survey and the family resources survey, identified geographical, intergenerational and economic inequalities in wealth accumulation.
Housing wealth for those aged 60 and over rose £80,000 on average, compared with an average of less than £20,000 for those under 40, reflecting the fact that older generations were more likely to own property and to have purchased it before the rapid house price growth of the late 1990s and early 2000s.
The wealthiest 10 per cent of the population have gained £174,000 on average since 2000. In contrast the poorest third of households, who are less likely to own, registered a gain of less than £1,000.
The regional distribution of gains was also stark. In London, the average was £76,000 since 2000, against £21,000 in north-east England.
The report said the house price surge, which was not exclusive to Britain and was driven by a fall in longer-term interest rates, had resulted in the decline of home ownership among younger people. It had also led to rising wealth gaps that “harm social mobility and raise the importance of parental wealth in defining life opportunities”.
The report argued that these unequal gains were largely untaxed, because main residences are excluded from capital gains tax. It called for a review of how property was treated in the inheritance tax regime, pointing out that the gains were “often passed on at death”.
Corlett said a change was needed. “Choosing not to tax this huge housing wealth windfall . . . has real consequences, including higher taxes for workers and businesses.”
The report suggests various possible changes to the capital gains tax system including a 28 per cent rate with a £75,000 tax-free allowance per person per property. This would mean that more than half of estates do not have to pay any tax, while still raising £4bn a year.
Mubin Haq, chief executive at Abrdn Financial Fairness Trust, said upcoming tax increases, which were equivalent to £3,000 for every household by the middle of the decade, were “going to place the greatest burden on working people” who were least able to pay and were “seeing their living standards squeezed”.