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Jul 17 2015

All change in the housing market

2015 Budget, housingThere were only a few real surprises in George Osborne’s 2015 budget and one of them, the reduction of tax breaks for buy-to-let landlords, has direct implications for investors and builders in the housing sector.  Overall it’s a mixed picture for house builders as we will explore below.

 

Reduced regulation, reduced spending

Alongside the uncertain impacts of a less attractive by-to-let market the budget and subsequent planning changes are a story of decreased regulation to encourage the private sector to replace decreased public spending on housing.  Whether the opening up of brownfield sites will be enough to reverse the decline in housebuilding and whether decreased regulation comes at the expense of sustainable homes remains to be seen, but what is certain is the increased focus on cost control and value creation in construction projects.

 

Buy-to-Let

The significant cut to mortgage interest relief, meaning that landlords will only be able to claim 20% against their mortgage payments rather than the old 45% will lead to a huge decrease in the profitability of these properties.  Diminishing returns will affect both private individuals who have invested in second by-to-let homes and professional landlords.

 

Potentially this could affect workload, particularly for small house builders as a major source of investment in property (15% of mortgages in 2014 were for buy-to-let properties) will reduce.  However, demand for housing continues to outstrip supply, which combined with the tax relief reduction making the market more competitive for first time buyers, is an incentive for more new build developments.

Whilst demand outstrips supply house prices will continue to remain out of reach for many keeping demand for rented properties high.  This could in turn stimulate a ‘build-to-let’ model similar to that seen in Germany with major developers building and owning property specifically for the rental market.

 

Social Housing

Social housing rents are to be cut 1% each year until the end of this parliament representing a significant reduction in the income of housing associations.  This is likely to have a knock on effect in the development programmes of these associations, reducing the numbers of houses built.  The Office for Budget Responsibility suggest this could mean as many as 14,000 fewer affordable homes over the next five years.

 

Planning and Sustainability

Planning restrictions have seen a major shakeup with the intention of increasing housebuilding levels across the UK.  The measures include automatic permission for developers wanting to build on brownfield sites, powers for Government to seize disused land and extra planning powers devolved to mayors in Manchester and London.  Additionally, a relaxation on planning rules for extensions in London could be a benefit to small building companies.

Relaxation of planning restrictions and the opening up of new land for development could trigger a rise in private investment in housing development, although there are still questions over funding and whether brownfield sites alone have the capacity to meet housing demand.

In attempting to reduce the complexity of planning regulations the Government has scrapped the ‘allowable solutions’ carbon offsetting scheme and scrapped planned tightening of onsite energy standards.  The UK Green Building Council has called this a ‘death knell for zero carbon homes.’  Certainty and long term goals are needed to justify the extra investment needed from developers for low carbon and high energy efficiency homes and this is now lacking.

 

Cost Control

 In an uncertain environment cost control and forecasting on projects becomes even more important.  The conjectFC Commercial Management solution, which can be fully integrated into the wider CONJECT collaboration platform.

Find out more here

About the author

Michelle Mason

Michelle Mason leads the UK and MEAP Marketing team, with far too many years in B2B marketing to mention. A CONJECT newbie, Michelle is eagerly climbing a steep learning curve.

View my LinkedIn profile:
http://uk.linkedin.com/in/michellemason04

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