The government is being advised to abolish stamp duty on residential property purchases to help addresss to the growing housing crisis as £14 billion tax penalises retirees.

The Policy Exchange think tank warns said £14bn stamp duty tax stagnates the property market, and deters many older people from downsizing.

The levy has long disincentivised people from moving home, leaving elderly couples living in partially empty houses.

Last month the Institute of Fiscal Studies said that removing the tax would ‘free empty nesters to fly their coops’. The study also confirmed that many homeowners were staying put because they did not want to pay stamp duty.

Policy Exchange director Paul Johnson said: “Of all the taxes levied at present, stamp duty has a pretty good claim to be the most damaging and pernicious of the lot.”

Policy Exchange also said the UK economy would get a £17.7bn boost if an additional 100,00 new homes were constructed annually – equivalent to £600 per household.

The government has a target of 300,000 new homes per year, a figure that it is nowhere near meeting based on existing construction levels.

It called on the government to increase housebuilding to help address the supply-demand imbalance, curb over-inflated house prices, and boost families’ spending power.

Tory MP Brandon Lewis, a former housing minister, said: “To fulfil our country’s great potential, we must give young people cause to believe that, like their parents, securing a good job will enable them to buy a home of their own, and to settling down and have children.

“These ambitions depend on us delivering more homes. Addressing the UK’s housing shortage is a huge challenge, perhaps the greatest that we face as a country.

“At the same time, though, solving the crisis holds out the dual prospect of placing rocket boosters under our economy and selling a new generation on the “British dream” of homeownership.”

Ruth Kelly, a Labour former cabinet minister and senior fellow at Policy Exchange, commented: “The UK economy is paying the price for failing to build enough homes to support demand.

“Building more homes is the medicine that both the housing sector and the UK economy requires.”