Most years, the summer is a pretty quiet time. But 2019 isn’t like most years.
The biggest shift we’ve seen over the summer is, of course, a new Prime Minister. So what does that mean for property developers?
Well, nobody knows for sure. But what we can do is look at past experience and current talking points to see what the future could hold around planning and housing.
And, more importantly, what opportunities that could present for enterprising property developers.
Boris Johnson has spoken a fair bit about plans to reform Stamp Duty. And while there aren’t any definite plans yet, there are two big ideas he’s been floating. We might end up with one over the other, both, or of course neither.
The first is scrapping Stamp Duty for all properties under £500,000.
Under the current rules, residential buyers pay Stamp Duty on the value of properties above £125,000.
(There are different rules for first-time buyers to encourage homeownership – there’s no Stamp Duty under £300,000, and discounted rates up to £500,000.)
The first (and presumably intended) impact is to boost the number of early movers.
There’s already relief for first-time buyers, so the impact there might be minimal. Instead, this is likely to prove a big boost to those who have already bought their first property and are now looking to upsize to support a growing family (thus freeing up their property for another first-time buyer to get onto the property ladder – win-win).
The impact for developers could be that there’s less need to focus on building for first-time buyers.
By essentially offering a tax break to growing families, the government are facilitating moves to larger properties, which in turn means greater demand for larger properties.
That means developers who strategically build next-step homes below the £500,000 bracket could have much more demand for them. And of course, bigger properties can mean a bigger payday.
Plus this serves as a tax cut for investors too. There's been no word on whether this includes the 3% charge on buying additional properties or not – but it's still a big chunk of the Stamp Duty bill taken care of.
Any tax cut is likely to attract investment. And more investment is likely to inflate prices...
So longterm? The impact may be fairly minimal.
The main threat of this policy for developers is a slump in the number of people moving in the short term.
If the potential of a Stamp Duty cut is hanging around, people might delay their move until it takes effect. After all, if they’re buying a property priced at the £500,000 limit, buyers could avoid a bill for £15,000 under the proposed changes – which is worth waiting around for.
With, shall we say, other sources of uncertainty currently hovering over the housing market, this further incentive to delay could have some nasty knock-on effects.
The other Stamp Duty change that’s being talked about is moving the cost from buyers to sellers.
The theory is that it’s a taxation-neutral way to encourage more early-level buying. After all, someone is still paying the cost, so the Treasury get exactly the same income. And, in theory, the seller is in a better position to bear the brunt of the cost – they have equity, and it’s likely that the house has increased in value since they first bought it.
Moving the Stamp Duty cost to sellers will further encourage first time buyers – they won’t have to pay Stamp Duty, whatever the value of the property.
Over the longterm it should have a fairly neutral impact on house prices – the same amount of tax is being paid, it’s just who’s paying it that changes. And sellers will factor the cost into their sale price, so buyers will still foot the bill, just indirectly.
In the short term, you might want to hold fire on purchases of residential properties until the change comes in. There might be a chance to grab some deals while the market readjusts during the transition.
Alternatively – by buying now you can use the potential change as a great bargaining chip. Point out to potential sellers that they risk paying thousands in Stamp Duty if they decided to wait or drag out the sale.
For developers, there’s a good opportunity to price properties just below the thresholds. Building properties priced just below the next band could save sellers (and builders) thousands in Stamp Duty.
It’s an incentive that wasn’t there before – but one well worth considering now.
One big unintended consequence could be deterring downsizing. If people are forced to pay tens of thousands in tax to live in a smaller property, they may be more inclined to stay put. This could have a big impact if you specialise in later-life or retirement properties, and is well worth thinking about now.
One big unintended consequence could be deterring downsizing. This could have a big impact if you specialise in later-life or retirement properties, and is well worth thinking about now.
Then again, in the short term it might act as a good incentive for people to make decisions sooner…
A big one for bigger developers – Boris Johnson has talked a lot about loosening the restrictions on affordable home requirements in new build developments. As Mayor of London, he worked to loosen the definition of what qualified as “affordable” within the capital, so it’s definitely something he seems committed to.
Essentially this will free up developers to build more market-value units, increasing margins and reducing red tape.
As a general rule, less red tape makes life easier for developers.
Firstly, loosening those restrictions could make it easier to get planning permission for projects. It is highly likely that some developers out there have considered new build projects in the capital, but felt they were unable to make the numbers add up with the current affordable housing requirements.
Introducing lower affordability requirements could make the difference between a development being viable or not from a developer's perspective.
It may be time to re-visit that potential site you found where the current affordability requirements made your margins too low...
Obviously the hope here is that reducing affordability criteria will encourage new build development, and help drive up overall housing stock. The Government have consistently struggled to reach their house building targets, so expect more of this type of policy in the future.
The downside? There's not much affordable housing being built elsewhere either... The scarcity of new affordable or social housing stock entering the market could lead to serious issues further down the line.
Since 2010 the amount being spent on social housing has fallen. In fact, while serving as Mayor of London, Boris Johnson cut the number of social homes he provided funding for from 1,687 in 2012, to just 336 in the year he left the post.
In the short term, this doesn’t really affect developers. But long term? We’re kicking the housing-crisis can down the road.
Eventually, without new first-time buyers entering the market, there’ll be big problems for the industry (let alone the negative impact for society at large).
Boris Johnson has previously endorsed a plan from the Policy Exchange to develop 15 new towns on the outskirts of London.
These “millennial towns” are designed to help younger people live more affordably outside of London, but still access jobs in the city with a reasonable commute.
Of course, for developers who are able to get the land in the areas they look to build, this has the potential to be huge.
The scope of the 'millennial towns' project is potentially massive, and the scale of development required could offer sizeable contracts (and profits) for housebuilders.
It is highly likely that policy makers will do their best to remove red tape and encourage investment into the project. There have even been whispers of loosening planning restrictions to incentivise development.
Especially for developers interested in designing and building for the young professional market, this presents an opportunity to do some really interesting work to appeal to the millennial audience.
They’ve already identified some potential sites for the towns, so it’s worth looking into. Some projects are already underway, but for ambitious, fast-moving developers, there’s always an opportunity to be had...
The threat is that this proposal is yet another in a long line of fairly London-centric policies. Not near the capital? That’s too bad.
An infrastructure proposal on this scale will mean billions being invested, which is money that isn’t being invested elsewhere.
If you’re interested in finding out more about the “Millennial Towns” proposal, our Customer Success team will be demonstrating how you can use LandInsight to take advantage of the proposals at our next LandAcademy event.
The LandAcademy Summer Special is open to anyone – and it’s free to attend.
LandAcademy Summer Special | Wednesday 28th August | LandInsight HQ
So that’s what Boris Johnson has been talking about in the run-up to the election and in the short time since. And there’s a lot to digest.
But of course, with a new PM comes a cabinet reshuffle. That means new people in the top housing and planning positions. So, who are they? What are they talking about?
That’s what we take a look at in the next part – where we examine the people with housing power in the cabinet: Robert Jenrick and Esther McVey.
Read it here.
Jonny's the CEO at LandInsight. He lives and breathes PropTech – he’s often the guy who can see what's going to happen before it happens. He has strong principles and is known throughout the industry as an advocate for diversity in the workplace. He hates Diggerland and loves snowboarding.
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