What did yesterday’s budget mean for the property sector?VTurner
When reflecting on the Autumn Budget, the temptation merely to rehash the contents of the announcement is compelling. However it’s an unavoidable and unsurprising fact that I couldn’t interpret Mr Hammond’s speech or its many potential consequences more effectively than the media reports that you are every bit as capable of finding and reading as I am.
But there remain some areas in which we can add insight. By now we all know what changes are coming, but what do they mean for Space and Time’s housebuilder clients, and for the property sector in general?
300,000 new homes to be built per year. Not a huge quantity of detail was given on how this might be achieved. It consistently hasn’t happened over previous years. We’re constantly reminded that this figure and greater volumes have been achieved before, but such claims overlook that that this was the gross figure- when we (“we”: I was minus eleven at the time and my contribution was nil, but the spirit was there) built 300k homes in 1970, the country was engaged in a number of substantial regeneration projects: these weren’t 300k extra homes, many of them were built as part of ongoing slum clearance activity.
You will have your own view no doubt, but for my money Peter Truscott’s suggestion on Radio 4 this morning of about 225k homes built over 2018 is probably going to end up being pretty much spot on.
Compulsory Purchase Powers will be used to reduce the gap each year between the number of homes built and the number of planning approvals granted. This one seems to have spooked the city slightly, with most speculators believing that slight price drops for some of the UK’s major housebuilders arising from a belief that this rule will “have teeth”.
While this change may give builders pause before they consider hanging onto parcels of land for strategic purposes, it’s likely that many other issues are contributing to the gap between planning approvals and completions. The change will do nothing to increase the volume of skilled tradespeople available to the sector, or to expedite the delivery of such infrastructure or utilities as are essential to the completion of a development, for example.
Stamp Duty: the big one for most headline writers, and probably for many of our property developer clients. There was a significant expectation ahead of Wednesday’s budget that something would be done in this area to provide a boost to the property market. The change announced on the day was the removal of SDLT on home purchases by first-time buyers for all properties below £300k, and for the first £300k of all properties priced between £300k and £500k. The Office of Budget Responsibility has already been critical of this change, suggesting that the main beneficiaries will be people whose current home will rise in value because of the increased movement at the bottom of the market, and that this rise will inevitably be to the major detriment of first time buyers. Perhaps more significantly, it’s also likely that a saving of £1,700 in tax is likely to have a negligible impact when average FTB deposits are well over £30k.
From a technical perspective, the notion of a first-time buyer is also problematic. Is this somebody who isn’t selling a house in this transaction, or somebody who has never owned a house? Or would the purchaser need to have sold a house a significant period earlier? What if one party in a couple is selling his or her home so that the couple can buy together? What if a purchase is being funded in part by the sale of a parent’s house?
It’s also worth considering that the payment of this stamp duty has traditionally been a handy incentive for housebuilders to offer their purchaser; a point of difference with the second-hand market. Robbed of this option, we’ll just have to come up with something of a similar value to offer, and promote instead the many other advantages of buying new.
Regardless of the potential modelled outcomes of this change or the intricacies of its methodology, one significant benefit to the property marketplace will surely be the fact that it has been made at all. The press coverage and consumer energy created by this announcement will have a significant positive impact on the market. It shows a government willing to support the industry, to make changes that make future slumps less likely. It has pushed property and the prospect of buying a first home into the public consciousness with considerable vigour. Even if the actual impact of this change on a specific household’s finances is negligible, it will nonetheless engender conversations across the country about whether now is the right time to buy. Frankly, this publicity will have raised a great deal more awareness than even the most-costly paid media campaigns could achieve.
And in summary
With Brexit still lurking and its precise consequences for the entirety of commerce and society still so far from being defined, this budget will have done little to give certainty to business or to bolster the prospects of UK plc.
What impact then for property developers from these changes or from their announcement? Given the time of year, I would posit none initially.
However, it is tempting to suggest that January 2018 might be as active for this sector as January 2017 was. Through 2018 as a whole and over the longer term, it’s clear that we may well all be in for a comprehensive kicking. But I suspect that the limited financial impact of the bogey-person that was the long-awaited base rate increase, coupled to this stamp duty change and the awareness it has created, might flush out and inspire a goodly volume of lurking purchasers and so provide a short-term boost to the newbuild sector. People who have most of their deposit finances in place but have been studying the market and waiting to choose their moment might now be given the motivation to jump in. Having considered the decision all Christmas, and finding their home now full of gifted clutter and stinking of sprouts, for many people January will be as good a time as any.
Should such an outcome materialise, our job is to begin the year hard and fast; to ensure that share of voice is as big as the marketing budget allows right from Boxing Day. Beyond that, if you’ll forgive an extended metaphor, we must be certain that lead handling is watertight: if a deluge of leads arrives in January but these may well slow to a trickle by March, then even the smallest leakage is a massive issue.
As you will have heard us say before, in a tighter market, getting the basics right will be essential: the value of every lead must be fully realised; every development must be presented as well as possible; every sales negotiator must fully understand that development’s points of difference; every media buy must begin and end with an understanding of what success will look like and how it can be measured. The value of data will increase exponentially, and we must glean every last piece of insight we can from the actions and decisions of purchasers and potential purchasers.
With the proper application of insight, diligence and graft, it’s more than possible for the new build sector to weather any downturn.