PRSim response to the November 2017 Budget

The Chancellors move to abolish SDLT for first time buyers to a threshold of £300k will be seen as a positive move by many who have argued for its abolition for some time. It will also be welcomed by those people currently buying and looking to buy their first home. This is money that in part will find its way back in a small way into our consumer lead economy. It has also seen estate agency stock rise to the news.

The big question however, is what action did the Chancellor take to affect the delivery of the 300,000 homes per annum the government has targeted. The long-term thinking required to fix this ‘broken housing market’ is not compatible with the term in office and it is doubtful that we will ever see anything other than tinkering, posturing and pandering to vested interests.

The backdrop to this budget is quite unlike that of any other we have experienced in recent times and the Chancellor has very little wriggle room.   The Office for Budget Responsibility (OBR) has sharply cut the UK’s growth forecasts with growth predicted to drop to 1.3% by 2020 and to 1.5% by 2021. Whichever way you look at it, Brexit or no Brexit, this is the biggest downgrade in the OBR’s history.  Apparently, we’re looking at the decade of lowest productivity since Napoleon invaded Russia! Clearly, that’s going to impact pay, which, in turn, will widen the affordability gap, both for first-time-buyers and renters.

Beyond the changes to SDLT, there were a few other interesting items:

Introduction of a Strategic Infrastructure Tariff (SIT) in addition to CIL similar to the Mayoral CIL in London which contributes to Crossrail. SIT will be an option available to Combined Authorities and planning joint committees to fund strategic and local infrastructure. SIT viability will be examined in public, but will have developers groaning.

An additional £1.5bn for the Home Building Fund to provide loans specifically for SME developers. This is combined with incentives to Local Authorities to bring forward smaller schemes and £630m through the National Productivity Investment Fund (NPIF). So one could say it’s a coordinated approach.

The announcement that had the biggest impact, at least as far as the FTSE is concerned, is the setting up of a review panel, chaired by Sir Oliver Letwin to investigate the delivery gap between planning permissions and housing completions. The target is to provide an interim report for the Spring statement 2018 and a full report for the following budget. With the prospect of compulsory purchase of undeveloped land, The city took this seriously enough to mark shares in house builders down: Barrett’s fell 3%, Berkeley Homes 2.7% and Persimmon 1.7%. Re-emphasis of Help-to-Buy and the aforementioned SDLT did little to raise the house-builder spirits. The LSE recently debunked received, rather negative wisdom about land-banking, So it’ll be interesting to see if Sir Olive Letwin comes up with anything different. Nevertheless, maybe this is an area that has teeth.  The City thinks so.

Of course a further £10bn of Help-to-Buy was confirmed. That was never, ever in doubt.

Council Housing Revenue Caps are to be lifted for areas of ‘high affordability pressure’; (undefined) and councils will be ‘invited to bid’ for increases. This is to help fund build more council houses. But is this sea change? No.

As one would expect, we got a further examination of the planning system, which is often blamed for both the paucity and sluggishness of supply. Commitments to reform the planning system have been oft mooted but tend to get bogged down when it gets to implementation at local level. Perhaps government are serious this time. However, there’s an awful lot of ‘consultation’ to get through before proposals like an expectation to permission land outside the local plan where the scheme offers a predominance of discounted homes to first-time-buyers become binding. (Green belt excluded. Naturally)

The Green Belt got the usual unequivocal support from Government, but nobody’s convinced:  the CPRE insist encroachment is rampant and that we’re about to lose irreplaceable bucolic loveliness to soulless concrete and steel; whereas developers say it’s the next best thing to kryptonite when it comes to disabling growth.

One very positive step was a £2m competition to support FinTech firms in developing innovative solutions to enable renters to use their history of renting to support and underwrite their credit scores.  This is something the Build-to-Rent industry has been championing for a while and it’s good to see the government recognise the need for such a change.

Innovation in the construction industry is desperately needed with many industry experts citing the necessity to completely change working practices and methods. The government proposes to assist by providing £34m in supporting scaling up of “innovative training models” across the country. Rather too little given the speed at which change is desperately required.

Housing Associations are going to be non-too pleased at the government pressing ahead with a stock depleting £200m large-scale regional pilot of ‘Right-to-Buy’ for tenants in the Midlands.

What didn’t we get?

We didn’t get unequivocal acknowledgement that housing targets can only be met by blending public and private resources, and there is still an unhealthy reliance placed upon house-builders to deliver government policy. Naturally, their shareholders think differently.

There was no specific mention of capital funding for social or affordable housing in his speech. Just a reference to October’s announcement of £2bn funding towards affordable home, which it said, is “including funding for social rented homes”.

The Build-to-Rent industry got next to nothing. Consultation arising out of the Housing White Paper grinds its gears whilst there still remains that most glaring of SDLT anomalies where BTR investors are liable for the 3% SDLT surcharge which was meant to curtail BTL investors. The government tacitly acknowledged as much in the 2015-16 consultation where it was expected by the residential investment industry, and initially signalled by government, that they would be exempted from the surcharge. It’s an obvious issue that needs to be addressed with some urgency.

Overall, there was little to get excited about. Pre-budget hype was always going to be just that. Hype. Should the government have done more to recognise the contribution that BTR and the Housing Associations could make towards housing targets if conditions allowed? Yes. Has the Chancellor addressed the ‘Broken housing market?’ No. Not in any great measure. And did we really expect him to? No. The political backdrop is too fractured. We have a government in power but not in control and Brexit is adding an unwelcome layer of uncertainty. Not because we are heading for the exit, but because we don’t know where that exit is, where it leads or when.