How bright is the future for the UK housing market?
March is set to be another big month for Prime Minister, Boris Johnson. On the 11th his Government will present its first budget, while the 22nd will mark his 100th day in office – a key period of time used to measure the early success of a leader. In the real estate sector the signs already look promising.
The return of confidence
Confidence in the housing market is returning with many welcoming the stability of a majority Government with a clear remit to ‘Get Brexit done’. Halifax, Knight Frank, Zoopla and others have seen promising signs that demand among buyers is at heightened levels with many reporting a subsequent increase to house price growth, while the RICS reports that sentiment levels amongst agents are climbing, following a period of reduced transactions and dampened enthusiasm. Zoopla’s latest UK Cities Index, showed that buyer demand rose by 26% in the first weeks of 2020 compared to the same period of time in 2018 and 2019, while house price growth across the country hit a two year high of +3.9% in December 2019.
The Building Better, Building Beautiful Commission’s report was published in early February, signalling Housing Secretary Robert Jenrick’s clear prioritisation towards placemaking and quality, with key recommendations including the planting of more fruit trees and incentives for developers to deliver attractive homes through fast track planning arrangements. While many within the industry have welcomed the report’s findings (and although these don’t currently feature within the National Planning Policy Framework), it remains to be seen how easy it will be for housebuilders to implement the recommendations with many anticipating a negative impact to planning departments who are already under resourced and bound by too much red-tape.
In a show of support for younger first time buyers struggling to get on the ladder, the Government also published its consultation on the proposed First Homes scheme. Under this initiative, new-build homes will be sold at a discount of 30% on the market rate to local first-time buyers, armed forces veterans and key workers such as nurses, police officers, prison officers, teachers and firefighters. Funded from developer contributions, the discount will be locked into the property rather than the individual, so that when the home is resold it will go to another eligible buyer who will also benefit from the 30% discount. Eligible buyers are expected to save an average of £100,000 on their first home, however given the failure of the Starter Homes scheme, question marks regarding industry support for the scheme remain, alongside those of how the discounts will be effectively managed, controlled and reallocated centrally.
So what else can we expect in the budget and over the coming weeks?
Increased taxes on the wealthy
With demand amongst buyers returning, it was perhaps frustrating for agents in particular to hear that the Treasury may be looking to yet again implement a mansion tax on larger homes. While one option could involve a straight levy on wealthy homeowners, another more problematic, but perhaps practical solution would be to review and modify council tax rates for properties above a certain value. Of course any new tax along these lines will hit London and the South East the hardest, and against a backdrop of legislative change, which has included increased stamp duty taxes for second homes and homes above £950,000, the tapering down of mortgage interest rate relief and decreases to the Capital Gains Tax allowance, any further measures which seek to tax the wealthy could yet again impact these markets. Adding to the woes of the wealthy will be news that the Government is also considering cutting pension tax relief for those earning more than £50,000-a-year from 40 per cent to 20 per cent, in a move that could raise more than £10bn per year. As our client Jackson-Stops notes, wouldn’t tax incentives which power economic growth be preferable at this point in time for the country?
A green agenda
In more welcome news however and with climate change the hot topic on everyone’s lips, the Government is expected to unveil a major green programme as Ministers move to put in place measures that will deliver against its net zero emissions target. A number of options are apparently being considered to upgrade buildings in an effort to reduce their carbon emissions as well as proposals to increase and extend electric vehicle grant schemes. A domestic energy efficiency scheme is being considered with the aim of all homes meeting energy performance band C or above by 2035, which could involve the revival of the Government’s ‘Green Deal Improvement Fund’, which previously offered eligible households £5,000 grants to support the cost of green upgrades. In addition, the Treasury is said to be looking at extending the current £3,500 grant for people and businesses purchasing electric cars, which is currently due to end at the end of March.
Yet more reshuffling
We could also see the introduction of a new Housing Minister in this week’s upcoming cabinet reshuffle, with many expecting to see the departure of incumbent, Esther McVey. If that is the case, it will mean the introduction of the 10th Housing Minister in as many years – a disappointing statistic given the national importance of delivering a long-term housing strategy.
While many are hopeful that further positive changes to stamp duty may be announced, with nothing yet running in the media, this may be the rabbit Sajid Javid pulls out of his hat…. We’ll be eagerly watching this space.