How stamp duty changes are distorting London's property market

Changes to stamp duty are driving London property developers to give up on family homes in favour of filling the capital with tiny flats.

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Tax what you want less of; don't tax what you want more of. It's simple stuff. So here's a question: why do the authorities want fewer family size homes in London and more rabbit-hutch sized homes? That's the direct result of the recent rise in stamp duty.

The Times reports today that property developers across London are cutting the size of the apartments they are building. The group developing New Scotland Yard in central London are, for example, planning to increase the number of flats they end up with from 268 to 295 by cutting the number with three bedrooms and increasing the number with one bedroom.

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The group doing Battersea Power Station has already announced something similar: it is adding 409 homes to its total by cutting the size of the ones in the original plans. The same is true in Chelsea where one developer has just cut seven townhouses and a six-bedroom flat from its plans so it can bump up its mini-flat count.

It all makes perfect sense (paying stamp duty at 10% on any purchases of more than £925,000 is one hell of a deterrent to the average buyer). But it is worth wondering if, when George Osborne introduced his changes, he had actually thought through the effect of the new rates on the make-up of London's new-build housing stock, given that the average UK new build is already rather smaller than those anywhere else in Europe. I suspect not.

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