To Rent or To Own? The Effect of Additional Transaction Tax on Buy-to-Let Housing Market

20 Pages Posted: 25 Apr 2023

See all articles by Hang Lai

Hang Lai

University College London

Stanimira Milcheva

University College London

Date Written: April 13, 2023

Abstract

In recent years, UK housing policy has sought to restrict investment behaviour and increase the homeownership rate. This paper contributes to the literature by estimating the effect of a 3% additional transaction tax, known as stamp duty land tax (SDLT), on the Buy-to-Let (BTL) market in the UK. Using a variety of statistical and econometric techniques, we find evidence of average price decreases in response to the SDLT, but with an immediate trend of price increases after the policy announcement and a rapid decrease after the implementation date. In addition, the SDLT leads to a significant drop in BTL transaction volume and an increase in rental prices, indicating that landlords are compensating for their loss in investment by increasing the burden on tenants. This has important implications for housing policy, as it suggests that measures designed to restrict investment behaviour may indirectly affect the ability of tenants to own a home. We conclude by discussing the implications of our findings and highlighting potential avenues for future research.

Keywords: Rental housing, Build-to-Rent, Buy-to-Let, Transaction tax, Housing policy.

JEL Classification: R30; D10; G00

Suggested Citation

Lai, Hang and Milcheva, Stanimira, To Rent or To Own? The Effect of Additional Transaction Tax on Buy-to-Let Housing Market (April 13, 2023). Available at SSRN: https://ssrn.com/abstract=4418031 or http://dx.doi.org/10.2139/ssrn.4418031

Hang Lai (Contact Author)

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Stanimira Milcheva

University College London ( email )

1-19 Torrington Place
Bartlett School of Sustainable Construction
London, London WC1E 7HB
United Kingdom

HOME PAGE: http://www.stanimilcheva.com

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