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Taxing Empty Homes

Source: Public Sector Executive Feb/Mar 2015

Bill Davies, research fellow at IPPR North, explains why an extension of the empty homes premium would help bring more houses onto the market.

A decade ago, former Bank of England economist Kate Barker set out the scale of mismatch between supply and demand for new homes in England. Ten years on, our population has grown further but our supply of houses has failed to keep pace.

England’s supply problem fuels house price inflation (with London house prices a third higher than their pre-crisis peak), rising rents, extensive homelessness, and lengthy social housing waiting lists.

Given these major pressures on the housing market, it is perhaps surprising that there remain homes in England that have nobody living in them. In fact, there are many. Data from the Department for Communities & Local Government shows there are around 635,000 empty homes in England.

Empty houses are an inevitable part of churn in the housing market – people pass away and their estate needs to be disposed of, landlords may be moving between tenants, or people may be struggling to sell their homes outside of ‘chain’ transactions. However, a third of these homes (216,000) have been unoccupied for longer than six months. Even in the very high-pressure housing markets of London and the south east, there are some 47,000 houses gathering dust.

For the most part, these are not flats in dilapidated social housing estates – rules governing local authorities and housing associations keep a tight grip on the number of empty homes in any area. Rather, the vast majority of these homes are in private hands, with private owners accounting for 91% of all empty dwellings, and probably an even higher percentage of all long-term empty homes.

The costs of surplus empty private properties inevitably fall on the state, namely through funding homelessness services for people who cannot access market housing, and through rising housing benefit expenditure to keep up with rising rents. Consequently, policy-makers have an interest in ensuring that the incentives are in the right place to ensure as many homes as possible are on the market.

The challenge they face is to balance the risk of providing incentives for homeowners to fill or sell empty homes, against inadvertently punishing landlords who are genuinely trying but are unable to fill a vacant property, on account of the strength (or more accurately, weakness) of the local housing market.

This is why the incentives for moving empty homes back onto the market need to be designed locally – to tailor them to local housing market pressures, and ultimately to act proportionately to the scale of local need.

IPPR North’s report, ‘Back on the Market’, stressed that Westminster and Whitehall should unshackle local authorities from the central constraints imposed on local government, and allow them to set their own incentives.

This includes, first; the removal of the existing cap on the ‘empty homes council tax premium’, effectively allowing local authorities to determine their own banded premiums charged on long-term empty dwellings.

Second; local government should have the discretion to narrow the gap between the definition of a long-term empty home (six months) and its eligibility for the empty homes premium (two years). As in Scotland and Wales, local authorities should be allowed to charge a council tax premium on empty homes after only one year.

Third; local government should be entitled to demand a longer period of inhabitation before the empty home ‘clock’ resets itself. Currently, a property need only be inhabited for six weeks over the two-year period, before another two years can potentially elapse. This could and should be longer, at up to three months per cycle. Technical policy changes such as this may seem small beer, but they could have a major impact on the behaviour of landlords.

The housing crisis in England is not intractable, but getting out of it requires concerted action on building new homes, and using what we already have to best effect.

Improving the incentives for owners of empty homes is an important part of the equation, to ensure that those holding on to an empty property either bring it onto the market, or else contribute more to the economic costs of providing housing for those without a home. To this end, a more flexible approach to council tax powers is an essential part of the answer.

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