2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 61,050 38,541 Number of new homes 75,958 71,243 66,273 105,222 November 2017 Policy Response Budget 2017 Savills Research UK Residential Steps in the right direction, but not a game changer Housing continues to be a high priority for this government. With the Prime Minister making it her personal mission to address/solve the housing crisis, it formed the centre piece of a budget which built on foundations laid out in the Housing W hite Paper, published earlier this year. A package of measures, consultations and funds was announced aiming to increase supply of new homes from its current level of 217,000 homes per year to 300,000 by the mid-2020s. Extra funds to increase activity among small and medium sized housebuilders, unlock development opportunities through the provision of infrastructure, and for Help to Buy will all be welcomed by the industry, especially given a relatively muted outlook for the wider housing market. Committing to a national housing target of 300,000 homes per year is a step change in aspiration. Our analysis suggests this level of housing is required to begin to impact on the stretched housing affordability at the centre of the housing crisis. Significant progress has been made over the past three years, with the certainty of government money going into Help to Buy and affordable housing giving the industry the confidence needed to expand construction capacity. New housing delivery reached 217,000 in the year to March 2017, the highest rate of delivery since 2008. Figure 1: New housing delivery has increased to 217,000 homes per year, largely thanks to the unsupported market 250,000 200,000 150,000 Unsupported market sales and build to rent 100,000 Supported sales (Help to Buy, First Buy, etc) 50,000 Affordable 0 Year to March 2017 Source: Savills using DCLG data But the ambition to only achieve the target of 300,000 homes per year by the mid-2020s is storing up problems. The annual housing need figure is based on current demographic projections and levels of affordability. Failure to reach this level of delivery for another eight years will result in continued growth in the backlog of housing supply and a continued worsening of affordability. On this basis, we can expect housing need to be higher than 300,000 per year by the mid-2020s.
Furthermore, with limited supply side interventions proposed and limited focus on delivering the 100,000 submarket homes that are needed each year, it is not clear from the measures that the Chancellor announced how the new target will be achieved. There is more that can be done to align the interventions with the ambition. Increasing Housing Delivery One of the most potentially powerful measures in the Budget was the recognition that strategic planning is needed in key areas to bring forward greatly increased volumes of new homes. If it is embraced wholeheartedly, then together with adotpting the standardised approach for calculating housing need, strategic planning in the South East could ensure that investment in housing development is well targeted and in areas that will best support economic growth. Oxfordshire will be the first area to benefit from this, as part of the government s longer term goal to develop the Oxford-Milton Keynes-Cambridge corridor. The Chancellor's backing of the ambitious plans for the corridor are to be welcomed, as investment in infrastructure is key to unlocking the full potential of this sub-region. In Oxfordshire, it is an important step for the Government to endorse the 100,000 homes target, which the Oxfordshire Growth Board agreed in 2014, as it is only this level of delivery that will start to address the chronic shortage of homes in the county and support continued economic growth. The 100,000 homes in Oxfordshire is far in excess of the standardised housing need approach figures. This is because it is aligned with economic development plans, something the Government could do more to encourage alongside the proposed standardised approach for calculating housing need. Replicating this template elsewhere is critical to meeting the Government s stated ambitions. Figure 2: Delivery is not matching housing need, which is highest in London and the South East Annual Housing Need Net Additional Dwellings Year to March 2017 Source: Savills Research using DCLG, ONS 2
New garden towns There was a further commitment to developing new settlements, with the announcement of another five garden towns in addition to the seven garden towns and 14 garden villages already announced. These settlements will be delivered through vehicles such as public private partnerships. Homes England, the rebranded HCA, which is in control of the powers to create development corporations, will therefore be an important part of delivering these schemes. It is again encouraging to see further commitment to large scale development, particularly in the South East where housing need is highest, but these sites will take a long time to deliver, although this can be mitigated if a wide range of tenures can be delivered. Local authorities must still bring forward a range of sites that can deliver housing in the short and medium term. Having a range of sites available for development will support the government s aim to diversify the housebuilding industry, and continue to assist the recovery of small and medium housebuilders. Intensifying development in brownfield urban areas The government reaffirmed its belief that the Green Belt should not be built on and will consult on new minimum densities for housing development in city centres and around transport hubs, with policy changes to make it easier to convert retail and employment land into housing. Since the budget, the Mayor of London, Sadiq Khan, has reaffirmed his defermination not to build on the Green Belt and this is reflected in the new London Plan. A rigid focus on brownfield land will limit the potential to increase delivery, particularly in areas in the South East where housing need is highest. London delivered 39,000 net additional dwellings in 2016-17, but has a housing need of 90,000-100,000 new homes. The city already prioritises brownfield development and intensification, as it has in every iteration of the London Plan since 2004. In 2015/16, 98% of all units delivered were on brownfield land and 56% were on sites that were intensified beyond the recommendations in the London density matrix. This suggests there is very limited capacity to increase delivery while sticking to this policy. Consideration should be given to Green Belt release in areas surrounding existing transport hubs. 60% of London s Green Belt is within 2km of an existing rail or tube station. Selective release of land in these areas would allow for increased sustainable housing delivery in locations already connected to economic centres, and could be mitigated by allocating more Green Belt land in other locations. Review of build out rates The government will set up a review panel, chaired by Sir Oliver Letwin, to investigate the relationship between housing completions and planning permissions. Additionally, they will establish a register to track all residential planning permissions. These two measures aim to tackle the supposed problem of landbanking. This focus on landbanking comes despite multiple investigations in recent years, including from the Home Builders Federation in 2016 and DCLG in 2014, which concluded that landbanking of permissioned land is minimal. Our own analysis suggests that there are between 100,000 and 120,000 units across England, Scotland and Wales, that have gained full consent since 2012 and are not either under construction or progressing towards construction. This is equivalent to slightly more than a third of a year s supply, and is significantly lower that the figure of 500,000 quoted by the LGA. If the review panel reaches similar conclusions to previous reports, it should restore full focus on ensuring there is a sufficient pipeline of development land, and that local authorities have resources to deal with complex planning applications. First time buyer led development The government will consult on a policy under which local authorities will be expected to grant permission to sites outside local plan allocations if the site provides a high proportion of affordable homes for first-time buyers, or for affordable rent. 3
This is a similar approach to the Starter Homes scheme, which was announced in 2014 and is yet to deliver any new homes. In contrast to Starter Homes, this proposal also encompasses affordable rent as well as homes for first time buyers. Therefore, if adopted, this proposal would be likely to produce a higher proportion of truly additional delivery, as there would be less overlap with markets already served by shared ownership schemes and Help to Buy. However, this proposal is likely to only be implementable if land is available at a value that makes the delivery of a high proportion of affordable housing viable. Additional Funding for development There is now a total of 44 billion of funding for housing in the 2018-2023 period, although only 15.3 billion of the funding announced in the Budget is new. The 15.3bn comprises: 8bn of new guarantees to support housebuilding, SMEs and purpose built rented housing; An extra 2.7bn for the Housing Infrastructure Fund; An additional 1.5bn in the Home Building Fund for SME builders; 1.1bn land assembly fund, focused on urban regeneration; 400m for estate regeneration. An additional 800m for local authority housebuilding 600m for small sites infrastructure remediation 200m to develop training, innovation and skills in the construction sector The success of these measures depends on how effectively they are deployed. Much depends on how they can be used to support the rapidly expanding, but nascent, Build to Rent sector, They will also have more impact if they help to unlock the development aspirations of Houisng Associations as well as private sector housebuilders. Alongside this, the Homes and Communities Agency will bw been rebranded as Homes England, with increased investment and planning powers. The agency will administer the new Land Assembly Fund, in addition to the increased Housing Infrastructure Fund, Home Building Fund and Affordable Homes Program. To maximise this potential, Homes England must be able to target interventions in areas where it will be most effective, to increase supply to improve the affordability of housing and support economic growth alongside the Government s industrial strategy. Funding for Affordable Housing The extra 2 billion of funding for affordable housing announced in October was reconfirmed, meaning that the total budget for the Affordable Homes Program for the period to 2020-21 is 9.1 billion. There is further help for the delivery of affordable homes through the lifting of Housing Revenue Account (HRA) borrowing caps in areas of high affordability pressure. It is very positive that the government has recognised the contribution to be made by local authorities to increasing housing supply. If this additional borrowing can be combined with right to buy receipts, other forms of funding, and the potential for joint ventures with other partners to share capital and risk, this is a firm step in the right direction. We have consistently made the case to ease the debt threshold and enable councils to build. Our recent analysis concluded that if councils were allowed to manage their own HRAs within the local authority Prudential Code, this could create capacity for an extra 15,000 homes across England. But more needs to be done. There is still a case for even greater investment in affordable housing. Nearly 100,000 new households are in need of submarket housing each year and much greater investment in social rented housing could be a cost effective solution to housing them. The 2016-21 Shared Ownership and Affordable Homes Programme could be better targeted to acknowledge the different needs of local markets and deliver the most suitable tenures of housing across the country. Increasing grant, directing it to the areas with the highest affordability pressures and allowing providers more flexibility to deliver different tenures are all essential components of the solution to the housing crisis. 4
Taxation: Stamp duty changes The rabbit-out-of-the-hat in the budget was the abolition of stamp duty for first time buyers on purchases up to 300,000 (for properties in over 300,000, no stamp duty will be paid on the first 300,000 of the purchase price up to 500,000). Our analysis of the 2016/17 tax year suggests that in the order of 850m of stamp duty was paid by mortgaged first time buyers in 2016-17, with an average bill of around 2,700. That sum is: less than 10% of the total stamp duty from residential property ( 8.6 billion); less than half the amount raised from the 3% stamp duty surcharge for buyers of additional properties in its first year of operation ( 1.7bn); and less than a fifth of the estimated amount of stamp duty paid by cash buyers ( 4.7bn). Of the 850m, we estimate that around 50% was paid by first time buyers in London ( 424m in 2016/17.) Having an estimated average stamp duty liability of around 10,100, they would clearly have the most to gain from a blanket exemption for first time buyers. This announcement will temper some of the cost pressure on first time buyers at the time of completion, but does not impact the real challenge that of the deposit requirement, particularly in higher value markets. Against an average first time buyer deposit of 25,652 across the UK, the maximum 5,000 saving on stamp duty looks significant, but against the average 99,753 deposit requirement in London it is far less so. Table 1 - SDLT savings for first time buyers House Price Previous SDLT New SDLT (FTBs only) Saving 150,000 500 0 500 200,000 1,500 0 1,500 250,000 2,500 0 2,500 300,000 5,000 0 5,000 350,000 7,500 2,500 5,000 400,000 10,000 5,000 5,000 450,000 12,500 7,500 5,000 500,000 15,000 10,000 5,000 Source: Savills The OBR calculations acknowledge there is a risk that this translates into slightly (+0.3%) higher house prices. As anticipated, the extra levy on second home and investment properties and the reforms introduced in 2014 have remained in place. Contacts Website www.savills.co.uk/research Emily Williams Associate ewilliams@savills.com 020 7016 3896 Frances Clacy Associate fclacy@savills.com 020 7409 5905 This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. 5