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Jeremy Leaf

Rolling the dice imageIn his Autumn Statement, George Osborne vowed to turn Generation Rent into Generation Buy. He wants to alleviate the impact of Buy to let investors and second home buyers who are “squeezing out families who can’t afford a home to buy” and he wants to “level the playing field with first time buyers.”

Gamble No 1 There’s enough labour and materials to build the extra 400,000 new homes by 2020 to meet the inexorable rise in population and household formation.
Gamble No 2 Too many buy to let landlords may be tempted to leave the PRS because of cuts to tax relief and/or increases in stamp duty while those remaining won’t add to their portfolios.
Gamble No 3 Banks will lend to sufficient first-time buyers and landlords to maintain a balance between supply and demand, which will keep prices/rents in check.
Gamble No 4 Less competition for an increased supply of lower-priced starter homes will stimulate demand from first time buyers.
Gamble No 5 More concessions won’t be needed to persuade landlords to stay or re-invest in the PRS which may include further encouragement to institutional investors to fill the gap.
Gamble No 6 More transactions will result in higher stamp duty revenues.

What’s at stake?

Even if the Chancellor wins any or all of his bets, prices won’t necessarily be lower for first-time or any buyers for that matter. If he loses, the upward pressure on rents will increase, though the market will ultimately determine if they actually go up. In that case, deposit saving will be even more difficult for young people who are supposed to buy these new starter homes – a classic vicious circle!

The Chancellor wants to level the playing field, but success is uncertain.

Business consultancy PWC predicts that only 26 per cent of people currently aged 20 to 29 in England will be able to afford to live in a a home they own by 2025. 59 per cent will be locked out of the housing market and privately renting by that time – up from 45 per cent in 2013, mainly due to raising deposits.

Reduced demand from buy-to-let investors for new homes will make developers more dependent on those relying on Help to Buy, Starter Home initiative and Shared Ownership schemes.

Overall, landlords are unlikely to be rushing for the exit door, as (apparently) two thirds don’t have recourse to mortgage borrowing.

Landlords regard the rental market as a longer term investment which can still deliver competitive returns compared with other opportunities when taking into account capital growth and income.

Inevitably, increases in second home stamp duty will bring a market boom as investors and second home buyers try to avoid paying more, but just as easily result in a bust which compromises the housing market and the wider economy. However, buyers need to be careful that price falls after next April don’t wipe out the 3 per cent stamp duty saving by acting now; hopefully, prices will not fall as rapidly afterwards as when double mortgage tax relief was withdrawn in the Spring of 1988!

Bets are off

Changes to stamp duty last year did help buyers of properties up to £937,500 but drastically reduced the numbers able to trade down which has since distorted the market. As a result, developers are concentrating on delivering properties under £1m. Political expediency overruled common sense! Any measures helping first time buyers must be good news for the whole housing market. The extension of Help to Buy will increase demand but we need to strengthen supply and reduce delivery times too.

The UK needs more homes to buy and rent, but why should the government be any more successful in delivering these 400,000 desperately needed new homes when they’ve failed to get even close to previous targets particularly as no new measures have been announced to reduce planning and lending delays?

History shows that housebuilding numbers closely track property transactions but these have been constrained by mortgage restrictions and short supply for years. Just as first time buyers are the lifeblood of the housing sales so SME builders are the lifeblood of the supply chain and need encouragement to build more homes.

It’s great that housing is at or near top of political agenda but it seems the substantial number of young people who prefer more flexible short-term accommodation in the PRS appear to have been forgotten. After all, affordable rental accommodation can be delivered much more quickly and Jeremy Leafin larger numbers than homes for sale which wouldn’t be so much of a gamble!

Jeremy Leaf is a former RICS Chairman and Principal of Jeremy Leaf & co, North London Chartered Surveyors and Estate Agents.

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