Will Osborne’s housing pledges have the desired effect?

Last week, the Chancellor, George Osborne, announced this year’s Autumn Statement – or Spending Review – and housing was a big focus; the Government made several pledges to help struggling parts of the UK housing market, in particular, affordable housing.

He pledged £2.3bn to be paid to developers to build starter homes to be sold to first time buyers who will receive a 20 per cent discount. Furthermore, £4bn will be made available to build 135,000 ‘Help to Buy: Shared Ownership’ properties for households whose earnings are below £80,000 across the UK, and under £90,000 in Greater London.

Additionally, for those in the rental market, another £200m will be pledged to create 10,000 new homes that will be available to let to tenants for five years at sub-market rent so they can save for a deposit at the same time. Once the deposit has been raised, they will be given priority to buy the home they are renting.

Whilst it’s great to see the government taking seriously the difficulties faced by many buyers, I still question whether the policies being introduced will really help tackle the underlying affordability issues. London, in particular, is such an international and expensive city and house prices have increased so much over the years versus wages. Pair this with transaction costs already being so high when buying a property and I can’t help but conclude that, whilst some lucky buyers may benefit from the schemes, they don’t solve the underlying economic problems.
As well as affordable housing, older people were also taken into consideration and the government pledged an additional £400m to help build 8,000 specialist homes which will cater for elderly residents or those with disabilities. This is definitely welcome news as we see many elderly home owners seeking to downsize to more suitable housing. However, again, whilst 8,000 sounds like a lot, it won’t make a dramatic impact on this market as a whole.

The other major announcement was that, as of 1st April 2016, an extra 3% stamp duty will be payable by buy-to-let investors and those buying second homes. Although the policy is subject to further consultation, the only expected exemptions to this will be corporate or funds with more than 15 properties.

Buyers in central London are already contending with higher stamp duty rates which were introduced in last year’s Spending Review and this new measure will likely suppress those investors and second home buyers who are on the fence about their purchases, or those who are borrowing higher amounts and are more sensitive to greater transaction costs. Rental yields in central London are already low and higher purchase costs will no doubt make investors think twice about buying property versus other assets.

The central London market has been underpinned to a certain extent by these types of buyers so, whilst we may see a rush of buyers before April, I think transaction levels and prices will stagnate post April.

The Chancellor said that the extra tax revenue earned by the stamp duty increase will be used to help provide £60 million for communities in England ‘where the impact of second homes is particularly acute’; how this money will be spent remains to be confirmed though, and there is a question mark about how much extra tax will actually be collected. Without knowing the finer details, it’s not yet clear whether loopholes will be there to be exploited; for example, how will the government determine whether a property is being bought for a family member rather than an investment, or will owners switch their ‘primary residence’ to the new property being bought rather than confirming it will be used as a second home.

In the wider picture, reducing demand from investor and second home owners may be seen as good news by those owner occupier buyers who are competing with them. In reality, I’m not convinced it will free up enough supply to make a significant difference but only time will tell. Also, the government need to be careful not to make the buy-to-let industry completely unappealing, as London has a big renting community and it’s important that good housing supply is available to them.

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