The Chancellor of the Exchequer, Phillip Hammond, paid special attention to fixing up a badly broken UK housing market in the budget announcement on Wednesday.
It was Theresa May’s pledge that she “dedicate [her] premiership to fixing this problem”. Did the Chancellor deliver a budget capable of fixing a problem or was the mix of policy, funding and tax changes he proposed nothing more than wall paper over gaping holes?
Consider that Hammond was in a precarious position; the fulcrum on which so much else sits. On one side of the balance beam is the future post Brexit and on the other end, stands all that fiscal responsibility entails. Trying to fuel growth but careful not to extinguish hope.
Balance a big theme
Balance was a big theme weaved in to Hammond’s foundation-laying budget speech and a special emphasis was placed squarely on housing and fixing its ills.
Indeed, it will be a delicate balancing act given the very dreary prospects for UK economic growth over the next five years as a result of reduced productivity. When the government speaks of its vision of up to 1 million homes by 2050 it must be viewed against the Office for Budget Responsibility’s slowdown in GDP growth for 2017 to 1.5% from 2% and a cut in its projected growth forecast of 1.6% for 2021.
The government says it wants to "build the homes that will make good on our promise to the next generation…where the dream of home ownership is a reality for all generations.”
Hanging in the balance
Hammond’s budget took on the a number of issues across the housing spectrum from the “need to increase the amount of housing available” for rough sleepers, low-income households through to imposing a 100% council tax levy as a way to address the issue of empty properties.
“It can’t be right to leave property empty when so many are desperate for a place to live,” Hammond said echoing a number of councils and charities have already highlighted the wastefulness of a resource given the UK’s housing crisis.
But key to May’s pledge and to helping young people on to the housing ladder is to focus on building. Hammond declared that he was sending a message to the next generation that owning a home was not a dream, “but a reality for [their] future.” That calls for some 300,000 homes to be built according to the government’s plan and to improve affordability.
Ambition to make dream home a reality
The chancellor’s solution calls for an ambitious plan to tackle the housing challenge over the next five years with £44bn of capital funding to support the housing market and for delivery of 300,000 new homes a year.
Through increased spending, planning reform, tax incentives and investment in training schemes, the government promises to take owning a home from a dream for so many to a reality.
He also announced an urgent Review to look at the gap between planning permissions and housing starts chaired by my West Dorset MP, Oliver Letwin. to review land banks in a report by next April and said that if “the report finds land is being withheld for commercial reasons we will use compulsory purchase powers if necessary to bring land forward for development.”
Stamp duty abolition
For the young, Hammond sought to mollify a generation of 25-34 year olds who have never owned a home and see only a distant prospect of ever doing so (the number of this age group owning their own home fell from 59% to 38% over the past 13 years) through abolishing stamp duty on properties worth up to £300,000.
An even bigger problem for first-time buyers is gathering the cash for a deposit and the Government aims to alleviate some of the burden by adding £10bn more into the Help to Buy equity loan.
Jeremy Corbyn responded that: “Government promised 200,000 starter homes three years ago but not a single one has yet been built. Back reduction in stamp duty for first-time buyers – it was in the Labour manifesto."
Realities less than clear-cut
Other critics argued it didn’t go far enough, mutual insurer, Royal London, said in a statement: "The Chancellor’s decision to abolish stamp duty for first time buyers…may sound like a good solution to helping young people onto the housing ladder but in reality it doesn’t go far enough as it doesn’t help those further up the ladder who can’t afford to move.
"First time buyers can’t buy homes if current home owners can’t afford to sell them," it warned. Other criticisms levelled was that it ignored other sections of the market.
Nick Sanderson, chief executive of Audley Group, while agreeing that cutting stamp duty was an important move to removing a barrier for first-time buyers saw it as a “blinkered focus” that ignores where the market’s greatest potential sits - with the over 65s.
Dreary economic outlook a hindrance
Hopefully there’ll be limited unintended consequences as satirised by the Daily Mash which described a real estate agent raising house prices the exact amount of the stamp duty cut.
The OBR also poured cold water on the effectiveness of the stamp duty cuts saying that a primary effect would be to raise prices and lead to the purchase of a piddling additional 3,500 homes.
In addition, the OBR cautioned that ‘investment in residential dwellings is also down significantly, consistent with the weaker outlook for productivity growth, house price inflation and property transactions…[and] represent a challenging baseline for the Government’s housebuilding target”.
Muted market impact
Ambitious as the government’s plan claims to be, it was a reserved reaction by market participants on the day. Abi Oladimeji, chief investment officer at Thomas Miller Investment, called the budget “a mixed bag” and added, “overall market impact should be muted”.
Investors seemed less than impressed by the Chancellor's housebuilding plans as warnings about properties being withheld for commercial reasons to be compulsory purchased hit house builders on the FTSE.
House builders such as Berkeley Group on the whole should be a happier lot. However, it's been a negative impact on share price as they continue to decline on Friday 4 November at 10:34am GMT. Berkeley Group fell -0.29% at £37.19; Barratt Developments -1.09% at 614p; Persimmon -0.87% at £26.28 and Taylor Wimpey -1.02% at 194.9p.
Material suppliers to benefit
However, Oladimeji pointed to notable winners from an equity sector perspective. “For instance, the changes to stamp duty rules for first-time buyers may boost property transactions, benefiting firms such as Foxtons and the broader UK property sector.”
Other companies expecting to reap benefits for the promised home building bonanza are material suppliers such as brick makers Forterra and Ibstock, which is the biggest brick maker in the country, and underfloor heating manufacturer Polypipe.
Other government action to help young people saving to own a home is through an additional £10bn poured into the Help to Buy programme. Geoff Wilkinson, Wilkinson Construction Consultants at an FIS conference in November, nicknamed it the ”help to sell” scheme. Critics see that scheme as doing little for potential homeowners and more for house builders suggesting that taxpayers have effectively paid their profits and their bosses’ bonuses.
From ‘help to buy’ to ‘help to sell’
Noble Francis, economic director, Construction Products Association (CPA), showed that the percentage of homes built supported by Help to Buy government subsidies was led by Gleeson which topped the chart with 66%. The amount Help to Buy contributed per home, Francis said, was 14%.
In September this year, Gleeson announced that pre-tax profits rose by 17% to £33m and its full year dividend to shareholders was 24p a share, up 66%. Second on the list with the most homes subsidised was Persimmon.
It announced in February that pre-tax profits for 2016 rose 23% to £774.8m. In June, the board shared a bonus pot of £600m, with CEO, Jeff Fairburn, getting £112m. It was even criticised by City investors, with Mike Fox from Royal London Asset Management, calling on the board to show restraint in the light of the housing crisis and government support for the housebuilding industry.
The prevalence of SME homebuilders
The Chancellor did note that SME house builders are integral to the government’s housing plan and said, “If we don’t do more to support the growth of the SME housebuilding sector…we will remain dependent on the major national house builders that dominate the industry.”
Francis who is critical of the government’s promise to build 300,000 homes said in a tweet that it wasn’t a coherent plan as 85% of homes are built via the private sector which the government has no control over.
He noted that since help to buy was launched, housebuilder’s share prices have risen by 146% yet, on average, they directly employ just 2.8 people for every house built.
Small-scale self-employment in the construction industry is much more prevalent according to CPA with micro-firms – from one-man bands to nine people – making up the largest group. More people work in such tiny operations than all the bigger firms put together. Small firms, employing 10-49 people were the second biggest group.
But good news for training
The impact of Brexit is bad news for the construction sector and in a leaked report that showed prioritised sectors post exiting the EU; construction was in the low priority category. Francis, said construction had some of the worst skills shortages and highest use of EU immigrant labour, especially in London.
There already is a skills issue in construction. 44% of contractors had difficulty recruiting in 2017 Q3; 75% had difficulty recruiting Carpenters & Joiners, 50% had difficulty recruiting Plasterers & Dry Wall Contractors & 40% had difficulty recruiting Bricklayers.#ukhousing pic.twitter.com/9eEpaiMRYg— Noble Francis (@NobleFrancis) November 21, 2017
Construction skills are one of the major issues for the sector grapples with and particularly in London builders rely on foreign labour of around 60-70% according to anecdotal evidence. The Chancellor also made pledged further £34m in funding to train the construction workers of tomorrow.
Not just the UK property market pipe dream
Addressing the housing problem became the headline generator in Hammond’s Budget. The government has launched a revival plan of a home-owning dream in Britain and claims not to underestimate the scale of the challenge.
However, we wait to see if the words of the raft of proposals will be matched by government action. Critics want government to show it’s serious about building 300,000 homes per year as Francis suggests with “long-term planning, clear strategy and a coherent, realistic plan combined with relatively stable demand.”
Without this then the revival of home-ownership by the Government becomes nothing more than a pipe dream.