More radical measures need for UK property market recovery

Yesterday's Budget is designed to water the seeds of housing market recovery, but the measures need to be more radical to have any effect, according to experts at international property advisers Savills.

This budget was clearly an attempt to encourage the mainstream housing market, but has neither addressed the underlying structural problems of the market nor some of the new challenges it faces in future..

Development funding, addressing the non-viability of development, levelling the playing field for investors, counteracting the lack of mortgage finance and barriers to market entry will remain big issues that will affect both the industry and consumers beyond this budget.

Below we list the key measures for the housing industry announced in today's Budget, and Savills' comment on each.

£1billion – but the sums don't add up

The Chancellor headlined a sum of £1bn to help the housebuilding industry but his speech failed to break this down fully.  He referred to £500m going directly into support for home building on stalled sites, though in the budget report, the figure is only £400m.  There may be more devil in the detail but there is little evidence in the full budget report of any further direct help for the industry.  There will be some impact on the industry as a result of the £100m for Local Authorities to develop new housing and in the £50m refurbishment of Armed Forces stock but the sums seem to stop short of what the industry may have hoped for.

There is uncertainty as to how the £400m or £500m will be spent.  It may be spent by the Treasury going into partnership with private companies to ensure that developments proceed, the Government buying unsold private stock and turning it into social housing, and the Government completing local roads/other infrastructure for private developers.  Yolande Barnes, head of Savills Research, said: 'We have made a very rough estimate that the number of committed but unsold new-build stock is at least 50,000 units nationwide so this money amounts to around £10,000 per unit for help in getting these units occupied.

'It is difficult to see how the funds can stretch very much further to unlocking new development and delivering many thousands of new homes on top of this.  The HCA or other administrators of these funds, will have a hard job prioritising which schemes to support.'

Dominic Grace, head of residential development for Savills, said: 'Any assistance is to be welcomed but the full details of how it will work remain to be seen.  It is difficult to picture how this can have a meaningful impact on house-building.  What we need is a completely new funding model for house-building, for example one designed to stimulate build-to-let development, or other models with a longer-term cashflow perspective.'

Community Infrastructure Levy

Some developers may have hoped for an abolition of the Community Infrastructure Levy (CIL). This was not forthcoming but its introduction has been delayed until April 2010 which will please developers who might otherwise have been faced with a major cost on the grant of planning permission but in the absence of any cashflow.  This basic issue will remain a problem when it is introduced however – unless arrangements can be made with Local Authorities to delay payment until the point of unit sale.  There does seem to be an acknowledgement in the budget report that regulatory burden and land-value capture costs will need to be ameliorated and this will be welcomed by the industry.

Roger Hepher, head of Savills Planning and Regeneration team, said: 'We welcome this news.  If the Government had pressed ahead with CIL too soon, there was a real danger that today's market boosting measures would be negated, and any green shoots strangled before germination.'

Potential impact of tax changes

Despite the lack of detailed measures specifically aimed at helping the property market, the Chancellor included more general measures such as pension tax relief that could play an important part in breathing new life into the property market.

This was widely expected to be a budget to 'soak the rich' and it will be interesting to see how the tax changes at the higher end impact on slowly reviving sentiment in the prime residential market.  My view is that the new tax band for high earners could well be marginal in an environment where owners and potential buyers are already anticipating constrained incomes.  More interesting to watch will be the impact of changes to pension relief which may encourage investment in property as a savings vehicle."

£80m for HomeBuy Direct Government shared equity mortgage scheme

HomeBuy Direct has already proved to be an effective, transparent and manageable way of helping many people into their own homes.  It has also assisted developers and Registered Social Landlords (RSLs) retain vital sales during very difficult times.  Any more money will be welcomed and can be instantly effective, said Peter Sloane, head of RSL Private New Homes at Savills. 'Realistically, the £80m will probably help a maximum of 2,000 people to buy homes with this scheme.'

Stamp duty holiday on properties worth up to £175,000 – extended from September to the end of 2009

Although the Chancellor announced that this would mean 60% of buyers would pay no stamp duty over this time, the direct effects in England will be on about 25% benefiting from the extension. In 2008, only a further 20% of transactions in England fell below the £125,000 zero-rate threshold. In London and southern regions, the benefits will be felt by far fewer.

There is no mention of legislation change hoped for by investors, who currently pay stamp duty (at the highest rate) on the TOTAL price of flats bought in a portfolio, rather than on the price of each individual apartment.  This penalises bulk investors and needs to be changed if institutions and professional investors are to be attracted to the sector, says , says Yolande Barnes. 'This is a missed opportunity to help stimulate the private rented market.'

'If the Chancellor wants to help the housing market, and particularly first-time buyers, he needs to look at  how Stamp Duty is paid in broader terms.  It is currently a huge barrier to market entry for first time buyers who, especially in London and the South East, have to find huge sums for this as well as their deposit. It is a pity that the budget didn't announce a stamp duty amnesty for all first time buyers or, more radical still, look at charging vendors rather than purchasers to eliminate the market entry problem.'