Industry reaction to the Government’s recent housing White Paper has been something of a mixed bag. Whilst some welcome the recommendations as a step in the right direction others see it as just more talk and no real action.
Of course, everyone has their own agenda. Those whose business is derived from the rental sector want to see changes to make long term renting more attractive. Those providing mortgages would like to see more options open for those getting onto the property ladder all the way through to mature home owners thinking about their accommodation and financial needs in retirement.
When we speak to developers, in most cases their biggest headache remains the dysfunctional planning system. The crux of the UK’s housing problem is simply a shortage of suitable and affordable homes. You can’t build without permission and unfortunately the way our planning system currently works there are too many opportunities for bureaucrats and NIMBYs to stop perfectly reasonable schemes from going ahead or to impose totally unreasonable conditions and restrictions. There are recommendations in the White Paper to improve the planning process and the point that brownfield land should be presumed suitable for development unless there are specific reasons to the contrary sounds promising. However, as always with these things, the devil will be in the detail. Encouraging the support of small and medium sized sites and setting ,expectations within the National Planning Policy Framework will also be welcomed, by SME builders and developers, but it will be some time before it’s clear whether having more focus on the issue has actually delivered any tangible benefit.
[pull_quote]One Government led initiative has, I believe, been a success, although to date more successful outside of London. Since 2013 when the Help to Buy Equity Loan scheme was launched, the Government has provided £4.6 billion worth of loans to over 100,000 buyers.[/pull_quote]
The average loan size has been just over £46,000 and the average purchase price just under £230,000. 81% of those buyers taking advantage of the scheme were first time buyers. Between April 2013 and April 2016, the number of homes bought outside of London using a Help to Buy loan was the equivalent of 30% of the 255,000 new homes built outside of London in that period. Uptake in London has been lower with completions using equity loans the equivalent of 11% of the new homes built in that period and affordability and the £600,000 purchase price cap will have both been factors in that. However, since the equity loan available to purchase London homes has been increased to a maximum of 40% of the property’s value, there has apparently been a surge in uptake.
Several of the developers we work with have sold a significant number of their homes to purchasers using the equity loan scheme and they have seen it as one of the more useful demand side initiatives. The good news is that although the Bank of England has withdrawn the Help to Buy Mortgage Guarantee scheme, the Government is committed to the equity loan scheme, as part of a £50 billion housing loans and subsidies war chest available to 2021.
Useful though the various Help to Buy schemes are, or have been, they do not tackle the ongoing supply side issues. The road to a stable and sustainable housing market is to better balance supply and demand. With demand not appearing to be going anywhere but up, we have to increase supply to keep house price inflation under control. Recent research by housing charity Shelter has suggested that 8 out of 10 people cannot afford to buy a home in their local area even with Help to Buy assistance. In the West Midlands, where the average house price is £206,000, 93% of privately renting working families said they could not afford to buy a newly built home even with a Help to Buy loan. Savills are predicting that house price growth in some parts of the country will outstrip that in London over the next five years so clearly, a local population unable to afford to buy new homes coupled with house prices continuing to march upwards does not make for a healthy housing market. If left unchecked more of the new homes built may pass straight into rental portfolios and many people may resign themselves to being lifetime tenants rather than property owners. The long term solution must be to build lots of typical family homes in places where people want to buy them and at prices they can afford. This should not be an excuse to lower quality standards but should include being realistic about densities and encouraging lower cost and quicker construction techniques.
[color_quote]Although there are uncertainties ahead, there’s much for developers and those of us in the business of financing new homes to be positive about. Demand for new homes remains strong, the UK economy looks in reasonably good shape, despite Brexit fears, interest rates look to remain low, for the time being at least, and the Government has renewed its commitment to tackling the housing shortage. If Sajid David MP and Gavin Barwell MP deliver on the promises made in the White Paper and continue to explore other ways of supporting the UK’s SME builders and developers, the outlook for the next few years should be bright.[/color_quote]