The profession responds to Chancellor George Osborne’s budget, including a £3.5 billion boost to shared equity loans for new homes and a five fold increase in build-to-rent funding
Heinz Richardson, director Jestico + Whiles
This could be good news for the house building industry and construction in general with the additional £3bn of extra investment in infrastructure spending. However the downside might be £11bn of savings to be found in a cross departmental spending review. Direct Government investment in construction as the public sector client is critical.
Those of us involved in housing have always maintained that the problem is not one of supply or opportunity to supply but relates to the accessibility potential purchasers have to mortgages and more importantly the ability to repay the borrowing. Encouraging the institutions to stimulate the former is vital and tax breaks are necessary to ensure the latter.
Construction companies share prices have risen as a result so the market likes it- however Alistair Darling tried to similarly boost construction with little effect. We shall have to wait and see if these measures have the desired outcomes.
Ben Adam, Ben Adams Architects
The 20 per cent shared equity loan to be offered to home buyers will help the housing market at the bottom where help is most needed to improve the affordability of homes, and the ability of first time buyers to buy them. As it is a loan, it will only help those willing to take on enough debt to buy a house in the first place and will not lower house prices or improve supply.
The £3.5 billion for infrastructure sounds like a lot of money and will help the construction sector in general terms, but the infrastructure sector has been busy for years and I suspect this will only help maintain the current workload.
Chris Roche, architect and founder-director 11.04 Architects
So how does George Osborne deal with the current housing crisis? Not as one might hope – to help developers build much needed homes and thus help solve three problems of housing shortages, housing inflation, and an under-employed construction industry. [Instead] we have help for first time buyers to reduce further the available housing stock and thus restart unsustainable house price inflation. Great for the haves, but no so great for the have- not homes.
Chris Romer-Lee, Studio Octopi
The Chancellor hasn’t changed much, yet again failing to show the necessary courage or creativity to help the ailing British economy. I look forward to enjoying a few 1p cheaper pints whilst reading his tweets; assuming they’re not leaked by any newspapers first.
Tony Hutchinson, associate director regeneration and development management Capita Symonds
The answer set out in the Budget is to encourage market activity, freeing up mortgage lending through the First Buy Scheme, providing an equity loan as deposit to enable households earning less than £60,000 to buy a house worth up to £600,000, and the New Buy scheme, which offers government security to encourage lenders to offer 95 per cent loan to value mortgages. Under Help to buy the government will back loans for existing as well as new properties, as long as they are valued at less than £600,000. Both these programmes will being in 2014 and together will cost £3.5 billion. There are further incentives for existing occupiers of social rented homes to buy them with bigger discounts and shorter qualifying periods.
There will be more money to support Market Rented schemes, £800 million and £225 million for affordable rented schemes provided they are started by 2015. The impact of these measures though any investment in housing is to be welcomed may not increase the level of building to meet the annual requirement for 232,000 new homes. The increase in demand fuelled by these measures may increase the price of new homes as housebuilders continue to improve their margins. Allowing the New Buy schemes to cover existing homes may well be a positive as it will help provide liquidity in the housing market, help people to move form low to high cost areas or away from low/nil equity situations.
Though given the suppressed level of effective demand due to falling real incomes it is likely that this will have a marginal impact on new building. Home ownership is likely to lag an increase in overall economic activity given pressure on household incomes. The average increase in earnings is 1.2 per cent, inflation is 2.7 per cent.
If challenged to design a stimulus that focuses on delivering new homes, providing jobs and boosting UK plc the focus would need to be different. The targets need to be the social, affordable and market rented sectors, and on investment in improving the quality of existing stock. The latter has a higher labour content and, if targeted on retro-fitting to reduce energy consumption, encourage investment in green technologies. Reduction in VAT for refurbishment activity is one straightforward choice which could generate jobs and by reducing energy consumption mitigate the squeeze on household incomes. Over the medium term this policy is likely to be at the very least fiscally neutral with the loses in VAT being balanced by increased tax revenues from employment and VAT paid on other purchases made by newly employed households. The Green Deal is central to this, making it easy for a householder to access, select and afford the most appropriate measures suited their home and their resources. Aggregating loans and recovering them through the energy bills charged to the property rather than the consumer will enable longer term thinking and planning by the occupier. The current interest rates on Green Deal projects of around 7 per cent are a disincentive to households looking reduce carbon emissions and save money as well as the planet.
New homes to rent are the obvious way of creating activity; in this case the policy levers are more varied and should be selected with care to deliver the outcomes sought. Looking the different rented sectors suggests that different policy tools need to be adopted to get the homes built. For market rented homes there is already a significant stimulus package in place and this has been increased significantly, this again may not increase building but drive up margins and lead to higher rents as investors compete with owner occupiers for the available homes. However there may be other tools that could increase the supply of homes and the quality of the homes.
These tools will look to help guarantee income levels and facilitate long term maintenance through offsetting rent losses and maintenance provisions against tax payable on profits. The concomitant of this would be a set of regulatory tools similar to those applied to Registered Providers (RPs), where far from discouraging investment the regulatory regime is seen as one reason for the sector being attractive to investors. Amongst the reasons cited for the recent downgrading of the credit rating of some RPs is a perceived weakening of the regulatory regime, and clearly the travails of Cosmopolitan. Increasing the supply of rented homes and curbing the escalating cost of rents would have the consequence of reducing the rate of increase in the housing benefit bill, currently £8 Bn a year.
Registered Providers have a chilly future with the probability that there will be no grant for new homes after 2015. This means that to build new homes RPs will need to use their asset base to support new projects. One option may be to facilitate RPs to create investment bonds, such as REITS or similar tools to aggregate investment from institutions or individuals. This could be facilitated by the regulator having to express a view on the underlying strength of the RP and therefore reducing the financing costs. Larger RPs with strong balance sheets are already doing this. There is an interesting historical point as the Victorian housing associations (Peabody, Sutton, and Guinness) were known as 5 per cent philanthropists as there developments were funded by offering a return of 5 per cent on loans made to build model homes for artisans and working families. These would sit as an alternative to the subsidised rents offered through subsidy and the upward pressure on market rents current experienced, especially in London and other major cities. This is especially worrying in the absence of effective control over rents and the quality of the accommodation offered. European experience tends to suggest that an equitable balance between landlord and tenant with a long term perspective on rents and capital growth produces a stable market for rented homes of good quality. The majority of homes which fail the UK Decent Homes standard are now in the private rented sector.
Local authority developed new homes can provide an effective stimulus to their economies. This can be achieved through enabling authorities to use their rent income to support borrowing, their land to enable projects and then income created retained to drive further investment. To do this requires that the Housing Revenue Account borrowing caps are lifted on the basis that the extra debt payments can be met from the rent income generated. This would encourage councils to look at how they can increase their borrowing capacity through reducing their back office costs, and think carefully about the costs of maintaining their stock. Lifting the current borrowing cap on local authority housing investment of £2.8 billion to £7 billion could create 60,000 homes. Further sums could be raised by local authority bonds or pension funds.
Commenting on the Budget before the details in the Red Book is reviewed in detail is always risky and there may well be further surprises to be unwrapped in this year’s pasty.
Peter Morris, Peter Morris Architects
The help to buy scheme is a very welcome initiative of the 2013 budget. Additional help could be the removal of stamp duty for new designs that achieve a high standard, so our homes will last and will be fit for the future. Peter Morris Architects
Ben de Waal, head of residential AECOM
The introduction of “Help to Buy” will provide interest free deposits potentially helping to fund 25,000-30,000 homes per annum over the next 3 years. This is great news for the volume housebuilders, will give confidence to the Registered Providers to use market sales to cross subsidise social housing and will realise the potential to own your own home to thousands of people who may otherwise have been excluded.
The flip side is the implication that the private rental sector is unlikely to receive significant political support. Is the Government in danger of setting a dangerous precedent of subsidy to fund home ownership. This is not sustainable in the long run so we come back to the need for a more diversified housing supply that embraces renting as acceptable rather than simply for the “can’t affords’. This budget has in many ways reinforced the negative stigma associated with renting at a time when the market for institutional grade, high quality service orientated housing is just beginning to take off. Poor timing.
Disappointing that there was no mention of Local Authority debt caps being raised to help them fund new homes. Clearly the impact on the UK balance sheet is considered to be too great but it ignores that from a delivery point of view the Local Authorities are very well placed to fund a major programme of new housing on land already within their ownership.
Ian Fletcher, director of policy British Property Federation
It’s encouraging the Government’s confidence in build to rent has been reciprocated and we are delighted to see that the equity funding was heavily oversubscribed. Working in partnership with Government the sector should deliver an exciting and quality array of homes for renters.
Simon Rubinsohn, chief economist RICS
The range of measures announced under the ‘Help to Buy’ scheme to kick start the housing market are much needed. Helping those who can’t afford large deposits by using the Government’s balance sheet to guarantee mortgages and using capital savings to offer shared equity loans on new build for all buyers will help prevent prolonged market stagnation - although it presents a significant risk to Government. The devil will be in the detail about how the Government will treat buy-to-let and those in negative equity. RICS will monitor the impact on the market and prices. However, Government need to be careful this doesn’t create another housing bubble - pushing prices up at the expense of buyers.
Once again, the Chancellor has reeled off the two infrastructure projects that Government has actually started - Hinkley Point and Battersea Power Station - and vaguely referenced others that are in the pipeline and will one day receive private investment through previously announced guarantee schemes and the much trailed Pension Infrastructure Platform. The £3bn a year announced by the Chancellor is welcome but will not come on stream until 2015-16 - far too late for many businesses that are struggling now. Our members have told us repeatedly that the success of infrastructure projects are about delivery on the ground. RICS believe Government should spend more time and resource in supporting business to gain access to these public sector projects.
The Government has largely failed to realise that infrastructure projects don’t need to be big to be effective in creating growth. In fact small might very well be beautiful. Across the regions and the nations it’s the smaller repair, maintenance and upgrade projects which can be picked up by medium and small construction businesses. Rail maintenance and school refurbishment are just two areas where a small amount of capital investment would quickly deliver great benefits.
The Chancellor says he is actively considering extending funding for the Funding for Lending Scheme (FLS) - RICS would urge him to act now. We are confident that an extension of the FLS would assist more would-be homeowners and small businesses. While the FLS has been a key part of the beginning of improving conditions in the housing market, it’s hardly surprising that banks remain more willing to lend on residential mortgages rather than small businesses. Government needs to take a long hard look at the FLS as small businesses are the engine of the UK’s economic recovery.
In all, a rather lacklustre statement from the Chancellor, which will do little deliver much for the economy in the near term. It’s time Government listened to what voters and businesses desperately need in order to make a real impact at a grass roots level.
Mark Bourgeois, managing director of shopping centres Capital & Regional
Town centres across the UK are crying out for investment – the simple fact is that without it, they will not recover. Our immediate reaction is that the chancellor’s announcement to increase infrastructure spending is a step in the right direction and will hopefully encourage development in our town centres, however the devil is in the detail and it will be cautiously welcomed by a retail industry that is questioning just how the government will allocate this investment to the places it is needed most.
David Tonkin, UK chief executive officer Atkins
The news that capital spending will now increase rather than fall as was planned is obviously extremely welcome. The pledge of up to £3 billion a year being found from 2015/2016 can be used to deliver real economic and social benefit through the building of new projects to support areas such schools, road building, rail and energy infrastructure.
The Chancellor said that it was vital for the UK to invest in its economic arteries to get growth flowing. That means backing companies working in the infrastructure sector, especially those working internationally and bringing tax revenues back to this country. This is welcome news for companies such as ours that are working hard to spread our worldwide footprint and create jobs, especially at home in the UK.
We are extremely pleased that the lessons learnt on the Olympic Games will now be translated directly into Government, with former LOCOG leader Lord Deighton being invited in to work within Whitehall to improve the way the public sector delivers major infrastructure programmes and bring in the first class expertise of the private sector to assist.
Neil Blake, head of UK and EMEA research CBRE
Despite additional promised funding, not nearly enough measures have been taken in this budget to get institutional investment into infrastructure and ensure the delivery of more residential stock. Initiatives of this type have been announced before but have stalled. If they were introduced they would provide a win-win policy for the government as it could secure funding for its infrastructure programme and boost demand in the economy at the same time, whilst institutions could get liability matching assets. Further action is urgently required to close the gap between the two parties.
There is a similar opportunity in residential development. What the economy needs is a new way of getting funds into residential development, not just ownership. Multi-family housing is leading the recovery in the USA but it is practically non-existent here. Similarly, institutional investment in housing is prevalent in a number of other European countries, particularly Germany. Getting institutional money into residential development would not only boost demand but it would help to address the UK’s chronic housing supply problem - which saw house building barely match demographic trends at the peak of the boom, never mind in these depressed times.
Jonathan De Mello, head of retail consultancy CBRE
The government could have done more to incentivise developers to kick-start stalled schemes, which would have provided much needed jobs and retail-led vitality in town centres that have not seen investment for some time. The retail development pipeline has dried up and apart from Leeds Trinity no other major shopping centres will be constructed this year.
However, the biggest threat to the high street is business rates, given that we have seen a level of retailer administrations and store closures this year - and consequent job losses - unmatched since 2008. Retailers are still paying business rates that were set before 2008, which are not relevant in today’s market where rents have fallen across the UK bar central London and the best major regional shopping centres.
The deferral of revaluation to 2017 will only serve to perpetuate the inequities that currently exist in the retail sector, and will lead to more administrations and ever-increasing retail vacancy levels.
As the government isn’t going to change its decision soon, one measure that would definitely help in the short to medium term would be not to increase business rates in line with inflation until the 2017 revaluation. This would not fully stem the rise of administrations we have seen, but would certainly slow it down.
Mark Collins, chair CBRE Residential
We are pleased to hear that the Government has allocated £3.5billion to its Help to Buy regime. It is vital for the whole of the property market that families and first time buyers can get on the property ladder, and the primary issue they face is lack of mortgage availability. This move will also provide a much needed boost for the house building industry.
Every house built generates 1.5 jobs directly and a further four jobs in other stages of the supply chain, so any measures that stimulate house building will act as a catalyst for the wider economy. This move is particularly good news for first time buyers in the London market.
Jon Poore, public sector director Turner & Townsend
Four Budgets and two National Infrastructure Plans later, the Chancellor is still committed to using infrastructure to help the country build its way back to growth.
The script is well worn – improving Britain’s infrastructure will make us more competitive and give the economy a welcome stimulus.
Osborne’s promise of an extra £3 billion of public sector infrastructure investment per year from 2015/16 is eye-catching, but also an acknowledgement that his plan for the private sector to step into the breach is struggling.
In the past year total infrastructure spending shrank by 12 per cent as the private sector steadfastly refused to take on the role of white knight. Progress on the Chancellor’s wishlist of infrastructure projects has been underwhelming.
So the buck has been passed back to the public sector. The Chancellor says the Treasury is willing to spend, and that the money will come from savings made by other government departments.
But that money cannot be spent efficiently without clear targets – and these were notably missing from today’s speech.
Public sector infrastructure spending should not be an indiscriminate spraying of investment around the country. Without focus and carefully costed plans, the Chancellor might as well send a fleet of RAF helicopters to drop bundles of banknotes.
There was more clarity on the government’s support for shale gas, with the Chancellor giving his most full-throated endorsement yet of the controversial energy source.
By offering tax breaks and incentives to the industry, the government is determined that shale should play a key part in Britain’s future energy mix. The prospect of a huge new source of gas and the lure of energy independence are clearly too strong for the government to ignore.
The housing sector could yet be a star performer, with the Help to Buy and the Build to Rent schemes respectively delivering greater demand and supply. There is pent up demand from would-be homeowners, and if these measures can persuade builders to crack on with the slew of shovel-ready projects still in the pipeline, the sector will be able to play an important role in delivering growth to the economy.
Peter Chapman, head of rating and compensation Cluttons
This Budget provided the Chancellor with a golden opportunity to demonstrate that the government was listening to the retail industry’s pleas and it is disappointing business rates were not addressed.
Instead, the government has refused to listen to the concerns of the retail industry which called for no increase to business rates next year. It has also stood by the annual uplift in the Uniform Business Rate (UBR) multiplier at the Retail Price Index (RPI) figure of 2.6 per cent for 2013/14. It is unfortunate the government did not increase future years’ rates bills by no more than the Bank of England’s lower Consumer Price Index (CPI).
Secondly, we are disappointed the government did not take the opportunity to expand the empty rates relief. Last year, it announced it intended to provide relief from empty property rates for new commercial developments. This was widely welcomed, but it was not enough. The Chancellor should have expanded this policy to include the refurbishment and redevelopment of existing empty space. This would have encouraged investment and development of existing redundant buildings which, given the severely constrained development pipeline, would have been a boost to the construction industry and demonstrated the government’s commitment to growth and employment.
Mike Quinton chief executive NHBC
The Chancellor has today given a welcome shot in the arm for the UK’s housebuilding industry.
We warmly welcome the expansion of measures for people who want to buy their own homes. This will help boost the housing market and provide vital support for the construction industry.
Builders up and down the country have been working hard to build high quality homes while operating in tough economic times. Housebuilding fell 9 per cent in 2012 compared to the previous year. It is therefore great news that housing has been the centre piece of this Budget.
This is a positive step for homebuilders and homeowners alike.
Mark Farmer, head of residential EC Harris
Probably the most single important announcement in The Budget must be the introduction of the ‘Help to Buy’ scheme. Specifically aimed at freeing up what is still currently a dysfunctional housing market outside of Prime London, it will enable anyone (not just first time buyers) to access low deposit mortgages through equity loans and mortgage guarantees. It appears that the government has realised the importance of both the housing and construction sectors to the wellbeing of the UK economy and its fundamental multiplier effect. It seems housing has won the battle against infrastructure funding, possibly due to the immediacy of its impact. The scale of the ‘Help to Buy’ initiative is impressive, with £3.5 billion being allocated for equity loans alone and £12 billion of mortgage guarantees being provided. £1.3 billion of investment will be designated for 2013-2014 so this is significant and it is quick to market – probably looking to maximise political and economic impact prior to the next election.
Other items of note from a housing market perspective:-
- The initial £200m Build to Rent fund announced late last year following the Montague Review has been increased to £1 billion, taking into account some negative feedback no doubt that the initial proposals were not bold enough to have real impact
- The Government has confirmed an announcement by May 2013 regarding how ‘allowable solutions’ will work as part of their longer term zero carbon policy – a major area of uncertainty for house builders and developers
- The Government’s recent ‘office to resi’ planning exemption policy sounds as though it will be extended to the residential conversion of redundant agricultural and retail uses
- No further bad news for the London prime market, where previously announced SDLT changes have not been varied or added to
Conor Ellis, head of health EC Harris
The help to buy scheme is a great opportunity to take advantage of the pockets of out of commission estate across the NHS. By making use of the 1.59 million m2 of wasted space, the Government has the ability to kick start housing whilst reducing NHS costs.
We also welcome the move to seek ‘independent advice’ on projects. Too often projects take too long to reach gestation and then are not managed effectively so staff are working on capital plans for the 1st time. The growth of mobile major project teams is a step forward and would work well accompanied with the use of independent advisors
The NHS is faced with an unprecedented challenge in delivering the £20 billion Nicholson challenge which was expected to be completed by 2015 and appears just over 50 per cent completed on official figures to date. One of the key drivers is efficiency and driving clinical federation and mergers, which have not proceeded at the pace required to ensure delivery. Our research shows that that the NHS could save in the region of £2.3 billion alone by better FM, procurement and estates management.
Steve Roche of Persimmon Homes
Since Christmas, we have already seen the market begin to improve with initiatives including FirstBuy and NewBuy. From the information released to date, we are very pleased that the Government recognises the importance that the new homes industry plays in the much needed growth of the UK economy.
We understand that Help to Buy is made up of two schemes – “equity loan” where the Government will loan home buyers up to 20 per cent of the value of their new build home and “mortgage guarantee” where lenders will be incentivised to make more mortgages available for people with small deposits.
We believe that these two initiatives complement the schemes currently available and will help create much needed movement within all levels of the housing market. We now actively await further information.
David Orr, chief executive, National Housing Federation
We welcome the chancellor’s realisation that people around the country are struggling to buy their own homes, and the measures introduced today may help a number of them. But the danger is that if we don’t tackle the fact we’re still not building enough homes, we’ll just create another housing bubble that will continue to push house prices up and out of reach of the majority.
Our housing market has long been weakened by the lack of new houses being built, which are forcing up rental and house prices – leaving millions of people struggling to get on the property ladder or pay their rent. The government should be focusing on unlocking investment to build more new homes as a way of managing down the housing benefit bill and boosting the economy. We welcome the measures to support new supply but they are very small scale.
And we still need the government to help unlock land banks, free the small publicly owned derelict sites so we can build houses on them and give housing providers long-term certainty over how much income they can expect so they can start planning and building beyond 2015. With the impact of welfare reform still to be fully felt, we need reassurance and long-term commitment so we can play our part in raising the finance needed to build more homes.
Budget 2013: the industry reacts