FINANCE: The Autumn Statement set the tone of the Conservative campaign for the run up to the next general election. Broadly pro-middle England. Broadly pro-development. And so far, studiously avoiding any explanation of where budget cuts are coming from to hit deficit reduction targets.
Who can blame them? We electorate are a fickle lot, and it’s hardly a vote winner. Never mind that tackling the budget issue over the long-term will involve unwinding the two largest Ponzi schemes in the UK: state pensions and the NHS. Now that would be political suicide.
Looking on the bright side, stamp duty reform has got to be a good thing for the housing market, even if the minority with the loudest voices (and largest houses) are not singing from the same hymn sheet.
Housing, in many forms, was high on the agenda this week. There were a number of helpful steps to reform planning. The “principle of development”, while yet to be fleshed out, will establish the right for land to be built upon. Speeding up planning applications and s106 negotiations is also a big plus. Alongside this, however, is the very real and practical problem of resourcing, given local authority budget cuts.
The government also recognised the need to inject infrastructure funding to kick start large-scale regeneration. It is doing this at Ebbsfleet with up to £200m to fund infrastructure and land remediation. This has the potential, over time, to unlock 15,000 homes. A further 13,000 homes may now come forward at Bicester following the £100m of public spending and loans announced this week to create a garden city. With transport key to facilitating any regeneration project, Barking Riverside was unlocked with a budgetary commitment to fund a £55m extension of the Overground rail service. This seed funding into infrastructure and other investment to expedite major development is all grist to the mill.
Yet it is a drop in the ocean compared to what really needs to be achieved to address the 300,000 homes per annum shortfall. To get anywhere close to this, government must pull just about every lever it has.
It has given a boost to the house builders’ coffers by finding them more buyers under the Help to Buy scheme which, originally expiring in December 2016, has now been extended to 2020. Unfortunately, the economics of supply and demand that I learned at school seem to be a bit stickier in the real world and supply has increased alongside demand.
Freeing up local authority land should have a more direct effect on increasing supply, with a commitment in the Autumn Statement to free up enough land between 2015 and 2020 to build 150,000 homes.
All this combined will still not touch the edges. That is why government needs to do more to support build to rent. Given the appetite of large institutions to invest large sums in this sector on a viable basis, build to rent has the potential to make the biggest impact of all on alleviating housing need.
To date, the viability of build to rent has been an issue in part because of land prices when it competes with house builders delivering open market sales. A lack of certainty and precedent around planning also plagues build to rent. Historically, where government has wanted to push for development it has allocated separate use classes. On that basis, if build to rent was allocated its own use class, it would become established as part of larger schemes, and have its own gains package attached. Establishing that, be it in the context of affordable housing, transport contributions or CIL, would help to create a “right-sized” package based on viability that would allow for head-on competition with other use classes.
The other element of political certainty required is a cross-party understanding that outdated rent control models will send capital running for the hills. There is a lot to get right, but a lot to go for. Positioned well, this sector could rise up and provide a substantial contribution to the critical shortfall in housing over the next 10 and 20 years.
In the meantime let’s hope growth and a moderate uptick in inflation enable the UK to muddle its way out of the deficit.
Rebecca Worthington is chief executive of Lodestone Capital
