What are the takeaways from the ‘mini’ Budget for residential developers?
Stamp duty, the prospect of localised planning reform, and rising student numbers
3 minutes to read
Taxing times
There was plenty to unpack for the residential development market in last week’s ‘mini’ Budget.
It’s clear from the announcements that the new UK Government is pro-housing supply, and supportive of the positive impact the housing market can have on boosting economic growth. In the short-term, the stamp duty cut should give new homes demand a little boost, though given its permanent nature there won’t be the same rush we’ve seen around previous SDLT holidays.
One-bedroom flats and two-bedroom houses may see activity pick up more notably due to the greater incentives on offer to first-time buyers, particularly in London and the South East. The weak pound will continue to stimulate activity among overseas buyers.
An important dose of realism, though. The Bank of England raised the bank rate to 2.25% from 1.75% last Thursday. Many buyers will find the impact of rising mortgage rates soon eclipses the benefit of the stamp duty cut.
Our view remains that tightening affordability will temper demand and pricing next year.
Planning under review (again)
A promise to “liberalise planning rules” will have been of particular interest to the development sector. Nearly a third of SME and volume housebuilders believe planning delays are their biggest challenge, a view shared in the Bank of England’s interviews with more than 700 businesses across the UK which suggest the planning system, is slowing the pace of new residential projects starting.
Any attempt to remove red tape and speed up the planning process is therefore welcome. Detail on what this looks like in practice will be published shortly, but as Knight Frank's head of planning Stuart Baillie reminds me planning reform is a thorny subject and moving from concept to legislation can be a long and drawn-out process (see the recently abandoned Planning White Paper).
The Government also pledged to release more land for housing and commercial development. The availability of land is a major constraint on the market with demand for sites far exceeding supply, pushing prices for greenfield land up by nearly 14% year-on-year in Q2. Any attempt to rebalance the supply and demand of land will help ease upwards pressure on land values.
Back to school
The measures announced in the Budget are a gamble from the new government to boost sluggish economic growth. The UK economy grew 0.2% during July, according to official figures. Construction shrank 0.8%, capping a broadly flat quarter for the economy.
There is better news elsewhere. The unemployment rate now sits at 3.6%, the lowest since 1974, according to a separate release from the ONS. The reduction in unemployment was driven by the rising rate of economic inactivity, rather than signs of economic strength, due in part to rising numbers of people opting to move into education.
That's likely to feed into what were already rising student numbers, driven by record participation rates among school leavers in England, Wales and Northern Ireland for the 2022/2023 academic year. Expect investor interest in student accommodation to remain strong as a result.
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