Chancellor Rishi Sunak’s Autumn Budget was particularly surprising, with taxes raised to the highest level since the early 1950’s. It also proved more generous than most expected, with a £150 billion rise in departmental spending which will see businesses in the retail, hospitality and leisure sectors given a tax break worth £1.7 billion and a large percentage also going towards social care and welfare systems.
Read on to find out what was announced for the property sector.
NEW RESIDENTIAL DEVELOPMENT TAX – ‘CLADDING TAX’
The cladding crisis was the key topic for the housebuilding industry, with a £5 billion fund announced dedicated to the removal of cladding from unsafe residential buildings. This will be paid for in part by a ‘cladding tax’, which puts more responsibility on housebuilders to help fix the cladding crisis, and is due to take effect next April. This will see a 4% tax rate on developers with profits above £25 million over the next decade and is expected to raise £200 million per year in this time.
Although all funding towards remediation works is welcomed, some industry experts are concerned this a drop in the ocean for what is actually needed and may demotivate housebuilders from building the houses that we need. Simon Cox, Managing Director and Founder of independent land agency, Walter Cooper, comments: “I don’t think this tax will be the saving grace to fix the cladding crisis. Building safety costs mean one in 10 affordable homes will not be built, yet another blow to meeting our new homes targets. There’s a reason why politicians and famous people find tax loopholes. And developers will find their own ways of doing this, for example faced with a substantial levy, they may well build smaller schemes.”
Sunak announced a multi-year investment of almost £24 billion to build new homes, with £11.5 billion of this going towards affordable homes through the Affordable Homes Programme. This adds to the various initiatives that the Government has already introduced to improve access to home ownership, but there is some concern that these changes are not enough to tackle this issue.
Kush Rawal, Director of Residential Investment at SO Resi, commented: “Fundamentally our priority is to ensure we continue to deliver a high volume of quality, affordable homes to those who need them most. Key to this is providing an affordable route to homeownership through shared ownership for the many people who cannot afford to buy on the open market. The new Affordable Homes Programme will bring about various changes to the delivery of shared ownership. Whilst we welcome the commitment from the government in supporting affordable homeownership, the Chancellor needs to address the wider issues in the housing market surrounding affordability and accessibility to homes.
Lynda Clark, CEO of First Time Buyer Group, comments: “Previously, the stamp duty holiday injected new life into the housing market during a time of adversity which many buyers benefitted from. Initiatives such as the Levelling Up Fund are a step in the right direction; now more and more potential first time buyers risk being edged out of the market as prices continue to increase and living costs creep up. With demand for affordable homes far outweighing supply we need to be realistic about how first time buyers might afford a potentially more expensive home. Many renters or young professionals with the goal of owning their own home continue to be at a disadvantage and as much as we can, we need to try and make sure this is a level playing field.”
As expected, there was a focus on brownfield development with a £1.8 billion portion of the investment into new homes to be spent developing 1,500 hectares of brownfield land. Alongside this, a pledge to build 160,000 homes on derelict land and a £300 million of grant funding for mayors and councils to assist with this was announced.
Dean Markall, Sales & Marketing Director at Martin Grant Homes, commented: “The development on brownfield sites is in theory a positive boost, and will allow disused wasteland to be transformed into new communities. However, there are challenges that come with undertaking these vast redevelopment projects – not least the time and cost. For smaller housebuilders such as ourselves, this can be a deterrent for obvious reasons, and it may be that we see blue chip builders snapping up even further projects whilst smaller companies are left on the backfoot.”
Simon Cox adds: “I hope that some of these funds will also address the heavy remediation costs that these parcels of land often need. The environmental considerations and large-scale demolition, as well as need for subsequent infrastructure improvements, means the associated costs – all of which combined with general increasing build costs and material shortages – can work to make such a scheme unviable. There is also the increasing competition for such sites from the logistics sector, meaning that there is no guarantee that residential can actually be delivered. It will be interesting to see how this competitive market plays out over the next 12 months, and if Government policy and market forces are aligned.”
Despite an increased Capital Gains Tax being a rumoured target for the Budget, there was only one minor change for the issue mentioned. It was announced in the small print that the deadline to file a tax return for those selling UK residential property will be extended from 30 days to 60 days from midnight tonight.
A steadier future?
The property market has undeniably had a particularly tumultuous couple of years, but is there now a steadier future in sight?
Charlie Warner, Partner at National Buying Agents, Heaton & Partners, commented: “The Budget has never been so important for the property market, after a year of huge house price inflation and desperately low supply. As the stamp duty holiday and Help to Buy tail off, plus an end to lockdown life, next year we should be in for a much steadier ride. Interest rate rises are likely but after historic lows, this is to be expected to curb wider economic inflation. The immediate knock-on effect will be on the mainstream mortgage market and affordability factors. The mid to upper market may not feel the effects of this for many months but the government must redress the needs of first-time buyers to ensure every cog in the market keeps turning and transactions remain steady.”
Perhaps the topics NOT covered in the Budget say more about the future of the industry. Despite delivering the Budget only days before the COP26 climate conference, climate change nor greener housing measures were a priority. In addition, the issues of Stamp Duty and Inheritance Tax were not mentioned at all. Material shortages have had a huge impact on the construction industry nationwide with no end to this in sight, yet it was not addressed.
Simon Cox, Managing Director and Founder of independent land agency, Walter Cooper, comments: “There are other immediate housing issues which Rishi failed to address. Material and labour shortages, primarily steel, continue to put the brakes on housebuilding. Housebuilding volumes fell in the three months to September, with larger drops expected in the last quarter. Even in 2019, housebuilding was still 20% below government targets. This compounds the issue of demand and supply, affecting house prices and larger economy. House-hunters have nowhere to go, and sales are falling.”
Only time will tell!