Budget: Planning probe spooks builders, mixed reaction for stamp duty cut

A range of new housing policies were proposed by Chancellor Philip Hammond in his Budget statement, including more funds for smaller housebuilder, a probe into potential holding of land by major housebuilders and a stamp duty cut for first-time buyers.

Although boosting the country's housing supply problems was seen as one of the chief aims of the Budget, Hammond's biggest rabbit-out-of-the-hat moment was to boost demand by dangling a big new carrot at younger voters as he abolished stamp duty for first-time buyers on houses costing up to £300,000. For those buying in high-price areas like London, stamp duty will not be paid on first £300,000 of properties costing up to £500,000.

This will mean a saving of up to £5,000 for those affected, and £1,660 for the average first time buyer.

However, the independent Office for Budget Responsibility (OBR) calculated that it would lead to a spike in house prices - and may only result in just 3,500 more people buying a home than otherwise.

In an effort to boost supply, Hammond said the government "will commit a total of at least £44bn of capital funding, loans and guarantees" to support the housing market, with the aim of creating the financial incentives necessary to deliver 300,000 net additional homes a year on average by the mid-2020s.

Furthermore an "urgent review", chaired by respected backbench MP Oliver Letwin, has been commissioned to look at the gap between planning permissions granted and the number of housing starts made, Hammond said the government wanted to avoid being dependent on the major national housebuilders.

Expectations in the housebuilding sector over the Budget had been high, but these were not the boosts that had been hoped-for and shares in the sector were sent into the red on Wednesday, led by Barratt Developmenets, Persimmon, Taylor Wimpey and Bellway.

Meanwhile estate agents were rubbing their hands at the prospect of the boost to demand from first-tome buyers, with Countrywide and Foxtons both up sharply.

NEW FUNDING COMMITMENT

Hammond said fixing the UK's housing market was "a complex challenge" with "no single magic bullet".

"If we don’t increase supply of land for new homes, more money will inflate prices, and make matters worse. If we don’t do more to support the growth of the SME housebuilding sector."

He went on: "We will remain dependent on the major national housebuilders that dominate the industry."

To no little scepticism from many housing market commentators, Hammond outlined £44bn of funds to support the housing market, with the aim of creating the financial incentives necessary to deliver 300,000 net additional homes a year on average by the mid-2020s.

He promised "new money" for the Home Builders Fund to support SME housebuilders, a £630m "small sites fund to unstick the delivery of 40,000 homes", a further £2.7bn to more than double the Housing Infrastructure Fund, £400m for estate regeneration and a £1.1bn fund to "unlock strategic sites", including new settlements and urban regeneration schemes, a lifting of HRA [housing revenue account] borrowing caps for social housing for councils in high demand areas, £8bn of "new financial guarantees to support private housebuilding and the purpose-built private rented sector" and £34m to boost the supply of construction skills.

Promising more details will be given by Communities Secretary Sajid Javid in coming days, he said the focus will be on urban land, continuing strong protection of green belt land, encouraging councils in high demand areas permit more homes for local first time buyers and affordable renters.

Analyst Neil Wilson at ETX Capital said: "Every government commits to building a large number of homes, but none achieve it and there is little here to suggest things will be different this time."

He said there was not enough in the Budget to really suggest there will be a major boost to supply and is "not going to encourage any additional housebuilding by the big firms".

“Time will tell if we’ve just seen the start of the end of our housing crisis or the continuation of announcements which fail to be translated into real action," added EY's head of real estate Russell Gardner, "but we are optimistic that this feels like a real commitment."

LAND AND PLANNING REVIEW

Oliver Letwin's review will be delivered via an interim report in time for the Chancellor's Spring Statement next year.

The significant gap between the number of planning permissions granted and the number of homes built was highlighted by pointing to London's 270,000 residential planning permissions that remain unbuilt.

"We need to understand why," Hammond said.

He said if the review finds that this much-needed land is being withheld from the market for commercial rather than technical reasons - that is, to support homebuilder's prices — "we will intervene to change the incentives to ensure such land is brought forward for development, using direct intervention compulsory purchase powers as necessary," Hammond said.

Further forward, Hammond also made a "commitment" to building a million new homes by 2050, including using new powers to kick-start five new garden towns by public private partnerships and create a "dynamic new growth corridor" between Cambridge, Milton Keynes and Oxford beginning with an agreement with Oxfordshire Country Council to create 100,000 homes by 2031.

MOSTLY SCEPTICAL REACTION

The stamp duty cut did not impress Lea Karasavvas, managing director of Prolific Mortgage Finance, as he felt this would merely saddle future generations with the cost of solving society’s current problems.

“Primary school children have taken a Stamp Duty bullet so millennials can get on the housing ladder...The whole point of the housing crisis is that demand is too high relative to supply. Fiddling with the economic stop cock by effectively handing out free money only exacerbates the problem and won’t help buyers, brokers, lenders or sellers in the long run."

With the average London first-time buyer house price approximately £410,000, and the Government estimating 95% of first-time buyers will benefit, Patricia Mock, tax director at Deloitte, said the change "will be very welcome but may push house prices up for everyone in the short term".

There was little to please Russell Quirk, CEO of eMoov, who said the budget "amounted to little more than the annual dose of rhetoric and empty announcements of bold plans, extolling a robust intent to build more housing".

He added: "The Treasury’s ‘pledge’ to build more homes is a story we’ve been told many times before, but these well-worn, heady platitudes have not been fulfilled since way, way back in 1969 when the Beatles were topping the charts. The likelihood of hitting the ambitious target of 1m homes by 2050 is slim, to say the least, and one that is unlikely to be hit."

Quirk felt the stamp duty for first-time buyers may help reignite the property market momentarily, but may act as "yet another diversion from the elephant in the room of a continued failure to build a meaningful number of affordable homes".

Falls in the shares of housebuilders reflects "some disappointment with the structure" of the £44bn housing package and the investigation into permitted land, said Russ Mould, investment director at AJ Bell.

"The real secret sauce of being a profitable house builder is to buy land cheaply and even if all builders deny that they budget for any land or price inflation in their business plans there can be no denying that they get a margin boost if the value of the asset then rises over time."