(Bloomberg) -- U.K. Prime Minister Boris Johnson’s Conservative Party plans to hit foreign buyers of homes in England with a new tax intended to cool prices and help locals get a foot on the housing ladder.
The 3% surcharge, which will be charged on top of the existing tax known as stamp duty, could apply to as many as 70,000 purchases and generate as much as 120 million pounds ($154 million) a year, according to an emailed party statement. The Tories had previously proposed a 1% surcharge.
“Evidence shows that by adding significant amounts of demand to limited housing supply, purchases by non-residents inflate house prices,” Chief Secretary to the Treasury Rishi Sunak said in the statement. “That is why we are introducing a higher rate of stamp duty for non-U.K. residents that will help to address this issue.”
This is the latest in a series of tax increases on high-end homes introduced by Conservative chancellors over the past five years that have weighed on the market, particularly in London where prices are highest. The most expensive homes already command a 12% tax rate, rising to 15% when the property isn’t the buyer’s only home. At the same time, the government has repeatedly slashed the tax burden on the lowest-value homes.
Home prices in London’s most expensive districts have declined by 20.4% since their peak in 2014, before the first stamp duty hike was announced, according to broker Savills Plc. Brexit has also weighed on pricing with values down 13.6% since the referendum vote, the broker’s data show.
Trevor Abrahmsohn, managing director of luxury real estate firm Glentree, said a further increase of stamp duty is the last thing the residential property market needs.
“The system is creaking under the weight of existing taxes, and foreign buyers have slowed from a torrent to a trickle, so it’s a mystery as to what the chancellor is so vexed about for him to need this additional tax,” Abrahmsohn said in an emailed response to questions.
Berkeley Group (LON:BKGH), which builds higher-end homes in London, fell by as much as 3% after the Conservatives’ proposal was announced.
International buyers bought 29% of homes in greater London in the first half of the year, down from 36% in the year-earlier period, according to data compiled by broker Hamptons International. A 2017 study by the London School of Economics found that investment from overseas buyers helped stimulate additional housing in the city.
Housing is one of the key issues for voters as parties vie for support ahead of the Dec. 12 general election. Politicians of all stripes are vowing to step up building to ease a housing shortage that has pushed up prices and made it harder for young people to buy their first homes. The Conservatives said proceeds from the new tax, which would apply to people and companies that aren’t U.K. residents for tax purposes, would be used to help the homeless.
The Liberal Democrats on Thursday evening pledged to build 300,000 new homes per year, including 100,000 for social housing, if they win the election. That compares with the most recent government data indicating some 240,000 new homes were added in 2018-2019. Also on Thursday, Labour published its manifesto, pledging to build at least an additional 150,000 council and social homes per year.