The government has a huge incentive not to reform London's crazy housing market
The government has been urged to step in and do something to stop rocketing price rises, with one suggestion a ban or curb on foreign investors buying property in the capital. The idea has been proposed both by right-wing think-tank Civitas and left-wing paper The Guardian.
But there's one big incentive for the government not to do that - stamp duty.
Upmarket property consultancy Knight Frank put out its latest quarterly London residential review on Thursday and the report underlines just how crazily dominant the capital is when it comes to stamp duty, the tax charged on property transactions.
Here's Knight Frank (emphasis ours):
Although London accounted for 13% of all transactions in the first quarter of this year, it contributed 46.9% of stamp duty revenue, up from 43.4% in the same period in 2014 under the old system. Meanwhile, properties worth in excess of £1 million in London accounted for 1% of deals in England and Wales but the revenue contribution has increased to 25.8% from 19.8% last year.
Given that the Office for Budget Responsibility estimates the government will make £11.5 billion from stamp duty this year, that means London is contributing around £5.3 billion in revenue this year.
And a crazy £2.9 billion of that is made up by deals that represent just 1% of all national sales - London properties worth over £1 million.
The top end of London's market is a great little earner for the government, just less than what it makes taxing spirits.
And London's £1 million+ market is hugely international - Knight Frank recently pinned changing rents in areas like Mayfair on fluctuations in the Chinese yuan. The government would be shooting itself in the foot to actively curb or ban foreign buyers.
Chancellor George Osborne reformed stamp duty in the autumn statement last year, making the system cheaper for those buying a property under £937,500, but more expensive for those buying above that level.
That's taken some of the air out of the top of the market. Knight Frank reports a 21% drop in the number of property deals for London homes above £1 million and the rate of price increases is slowing.
But that hasn't done much to dent tax receipts. The percentage of stamp duty contributed by £1 million+ deals in London has actually risen from 19.8% t0 25.8%. Overall stamp duty income across Britain fell 16% in the first 9 months of the year.
Clearly it wouldn't be in the Chancellor's interest to do much more to rein in this part of the market. And the strong pound and stamp duty changes already appear to be deterring many foreign investors anyway.
The bad news for ordinary Londoners is that the cooling at the top end of the market doesn't seem to be having any effect on prices lower down. In fact, Knight Frank found house prices below £1 million are the fastest rising price band in London right now.