Rich and poor deserve the same access to housing, so let’s level out the playing field
One of the main causes of inequality in the housing market is inherited wealth.
Without inherited wealth it is becoming increasingly hard to access the housing market, given that Piketty suggests that labour income is no longer enough.
It is my view that the young without family wealth should have the same opportunities and access to the housing market as those with family wealth. Inequalities are allowed, it is not that everyone should be treated exactly the same. However, when a lack of wealth has an impact on people’s opportunities it becomes problematic.
For example, if one 18-year-old inherits £1m, and a different 18-year-old inherits nothing, they do not have equal opportunities to reach property ownership. It is easy to predict which one will be able to access the property ladder first. This is unfair and it is hard to believe that if society could start from scratch and create a legal system it would desire this.
The current legislation on inheritance tax only taxes the deceased’s assets in the last seven years (subject to a few exceptions, for example, where estate passes to a partner). This part of the law I find little problem with.
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It is not detrimental to the housing market (or the rich); if individuals want to pass on the wealth, they must pass it on seven years prior to their death. It is, of course, hard to predict your own death, but the general incentive is there to downsize. This creates fluidity in the market, for example the seven year requirement encourages the retired to downsize to a smaller, more suitable home so that the wealth locked up in the family home can be passed on earlier. This helps the young and those on low-incomes because there are more family homes available.
If there are more houses available, then there is less of a ‘housing crisis’ and less demand. If we continue to increase supply, then the effect should be for prices to be lowered. This would effectively make the housing market more affordable (and therefore fairer).
Obviously this alone would be insufficient to solve the housing crisis. It might lead to a situation where the 18-year-old, in the previous example, is now competing with the retired couple for the smaller houses. However, the answer to that is simple: increase supply of smaller homes. This means family homes are still affordable for those who need them and smaller homes will not increase in price because there will be more available.
There are some fundamental problems with inheritance tax. For example, individuals are only taxed after the assets exceed £325,000. This means that already there is a large threshold to attain before government can tax it. This encourages the perception that you have to have to have ownership of your property (rather than rent) to be successful: someone with full ownership is going to be more likely to have assets exceeding £325,000. This means that children whose parents have full property ownership are more likely to have a decent sized inheritance. This does not seem fair! By reducing the threshold, we could achieve two things: first, raise more money for public spending (which is becoming increasingly necessary). Second, reduce inequality based on what family you were born into.
Once assets are taxable, it is taxed at a rate of 40%. In other words, children are allowed to have 60% of their parents’ wealth. The issue here is this: they did not work harder than their poorer competitor. Luck of birth is at play here. Further, family size is at also at play, if a person splits their estate between their eight children and then another splits their estate between two, the latter significantly benefit from that.
I am pre-empting two main criticisms. First, people would say parents are allowed to spend their money however they desire to do so. I accept that — but surely to a limited extent. If it is not to a limited extent, then you are saying there should be no tax system. I doubt many are in support of that. Therefore, that argument is flawed. The parent’s money already has lots of legal limitations in place, all I am suggesting here is that we take it further.
Second, some would say the parents have already paid tax ‘first time round’ on their labour income. To them I would say this: do you think stamp duty, car tax and other forms of tax that come out of your labour income should be scrapped? These too involve being taxed a ‘second’ time. Further, in our everyday lives we see someone’s interest being balanced against someone else’s interest. I am suggesting that the priority here should be ensuring the young from low-income families are not barred from the property ladder.
Wealth is allowed to pass down the generations. Full state interference is not what is desired, nor proposed, here. Instead, it is about leveling out the playing field.
Therefore, I propose that an inheritance tax that started after £100,000 and was taxed at a rate of 60% would be sufficient to achieve what I have set out. It would not prevent individuals from wanting to own their home. It would however, mean that children from rich families are not at as much of an advantage. It would enable labour income to play a role in likelihood of property ownership.
These proposals for how we should regulate property for fairness would not solve the housing crisis. There would still be issues to address, for example, the need for more affordable homes.
However, the current system is not fair. Tax is necessary to fulfil the lifestyle we, as British citizens, want. Inheritance tax is a good way to achieve this. Further in the current housing climate, leveling the playing field can only be a good thing. Hopefully the government realises that their legislation affects real homes occupied by real people. A home is more than just a financial value, it’s a place to feel safe and call your own (regardless of whether you have full ownership). It’s key that the younger generation (without rich parents) do not miss out on the stability that their parents had. It is fundamental that the luck of birth does not determine an individual’s likelihood of owning their own home.
Jade Montagna is a final year law student at the University of Bristol.
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