Reeves’ Mansion Tax could stall the housing market at the worst possible moment

At first glance, targeting high-value properties may seem like a straightforward way to raise revenue from those who can afford it. However, taxing the top of the housing ladder is inherently risky, especially at a time when the market is already fragile.

Some say it will encourage downsizing as older homeowners look to reduce living costs, from those associated with maintaining large family homes to now, reducing the tax liability that now comes with higher-value properties.

On the other, it may stall the market in the very place where movement is vital. People living in large family homes, who have benefited from vast increases in property prices, particularly in London and the South East, could face a more challenging job when trying to sell up. It is a very real possibility that prospective buyers will be put off properties worth over £2 million because they simply don’t want to foot the tax bill.

This isn’t the only challenge the Chancellor faces. There was more on the government’s plan to build, build, build on Wednesday which would solve a problem, if it was simply more homes that we needed but it’s not quite that simple. We do need more homes in the UK. But we need a diverse mix of homes, not just those aimed at first time buyers.

If we are to encourage downsizing, there needs to be a step change in the delivery of the properties the housing market needs. It’s unrealistic to assume everyone will move into a traditional retirement village, so expanding the range of high-quality options available is key. This includes modern, well-designed flats, apartments, and age-specific cottages, alongside vibrant, amenity-rich retirement communities that encourage social connections and active living.

At present, the UK builds only around 7,000 later-living homes each year - a fraction of what is needed to meet the rising demand. To genuinely address the housing crisis and provide older people with attractive downsizing options, this figure must increase dramatically to between 30,000 and 50,000 new homes annually. This scale is essential not only to free up family-sized properties for younger buyers, but also to ensure older people can live in properties, and communities that meet their needs as they get older.

In my view, the mansion tax was not and is still not the answer. Policymakers need to review existing housing policy but crucially keep the needs of all generations in mind.

Focusing narrowly on high-value homes risks unintended consequences including slowing transactions, discouraging buyers, and putting extra pressure on an already under pressure housing market. Thoughtful, market-wide analysis is essential if we want tax policy to support, rather than hinder a healthy housing market.

Looking ahead, the Government needs to now focus on tax changes that genuinely support the housing market, making it easier for people to move, freeing up homes for families, and keeping the market fluid rather than frozen.

___________

Nick Sanderson is the founder and CEO of Audley Group.

LBC Opinion provides a platform for diverse opinions on current affairs and matters of public interest.

The views expressed are those of the authors and do not necessarily reflect the official LBC position.

To contact us email opinion@lbc.co.uk