To Rent or To Own? The Effect of Additional Transaction Tax on Buy-to-Let Housing Market

In recent years, UK housing policy has sought to restrict investment behaviour and increase the homeownership rate. This paper contributes to the literature by estimating the effect of a 3% additional transaction tax, known as stamp duty land tax (SDLT), on the Buy-to-Let (BTL) market in the UK. Using a variety of statistical and econometric techniques, we find evidence of average price decreases in response to the SDLT, but with an immediate trend of price increases after the policy announcement and a rapid decrease after the implementation date. In addition, the SDLT leads to a significant drop in BTL transaction volume and an increase in rental prices, indicating that landlords are compensating for their loss in investment by increasing the burden on tenants. This has important implications for housing policy, as it suggests that measures designed to restrict investment behaviour may indirectly affect the ability of tenants to own a home. We conclude by discussing the implications of our findings and highlighting potential avenues for future research