A weekly news summary covering all aspects of the housebuilding industry. Available to members only.
Budget
Treasury Economic Forecasts
The Treasury expects the economy to maintain robust economic growth of 3-3.5% in 2005 and 2.5-3.0% in 2006, after the economy expanded by 3.1% in 2004. Inflation is expected to edge up from 1.6% at the end of 2004 to 1.75% by the end of 2005 and 2.0% by the end of 2006.
Stamp Duty
The threshold for stamp duty has been doubled from £60,000 to £120,000 with immediate effect. Rates and other thresholds are unchanged. The higher threshold will cost the Treasury £250 million in 2005-06 and exempt an extra 300,000 home buyers from stamp duty per year. (In its Budget Submission, HBF had urged the Chancellor to raise the threshold to £170,000, in line with the rise in house prices since the threshold was set in April 1993, and to reform the current slab system.) The threshold in the 2,000 Enterprise Areas is unchanged at £150,000. The previous exemption for non-residential transactions in Designated Disadvantaged Areas ends today. (Full details of tax rates, allowances, etc., including stamp duty, are available on the Treasury web site in Press Notice 2, www.hm-treasury.gov.uk/budget/budget_05/press_notices/bud_bud05_press02.cfm.)
HBF Note: HBF welcomed the increase, but commented that the basic problem of housing supply also needed to be solved. FT.com quoted from Rob Ashmead’s statement that “This change to stamp duty is not a panacea for the problems many people face in getting into the housing market. A year on from publication of the Barker Report there are still severe constraints in housing supply. Improving the supply of new houses must be the basis for longer-term solutions to housing affordability.”
Ian Robertson of Wilson Bowden commented in the Financial Times: "The doubling of the threshold stamp duty is very welcome. It now needs to be backed up with positive action on the Barker inquiry to enable us to develop far more products in that price range and benefit those buying at that end of the range.
Other commentators have pointed out that the benefit of the increased threshold will vary considerably regionally. Property website Rightmove said an analysis of 440,000 properties showed that just 2% of homes in London and 7% of those in the south-east were on the market for less than £120,000. The north of Britain is the main beneficiary.
REITs
Treasury has published a further discussion paper on Real Estate Investment Trusts. “Subject to finding a workable solution that meets the stated objectives… the Government aims to legislate for a UK-REIT in Finance Bill 2006.” (www.hm-treasury.gov.uk/budget/budget_05/other_documents/bud_bud05_odreits.cfm).
The plans were greeted as less restrictive than the property industry had feared. The new structures are to be called UK-Reits after ministers abandoned attempts to call them Pifs (property investment funds). They will be allowed to invest in any type of property, anywhere in the world, and there will be no minimum holding period. Reits will be allowed to develop buildings, contrary to earlier indications, and will not have to include an element of residential property. Companies will also be able to run both internal and external Reit funds.
Most listed UK property companies, and some private groups and institutional funds, are expected to turn themselves into Reits. But questions remain over how companies will be taxed when they convert. This could either be a levy on outstanding capital gains tax or on total assets, or a hybrid of the two. A windfall of more than £1 bn could be raised, analysts have suggested. Another question is whether the government will restrict Reits' borrowings, as these could be used to shield them from paying tax. The government has also not decided whether Reits will have to be listed or not.
Key Economic Data (www.statistics.gov.uk)
Average earnings growth levelled off somewhat in January. Earnings, both including and excluding bonuses, rose by 4.4% for the three months to January compared to the same period a year earlier, unchanged rates from the three months to December. The fact that the figures appear to have stabilised just below 4.5%, above which the Bank of England considers earnings growth to be a threat to the medium term inflation target, will offer some degree of comfort the MPC.
The ILO measure of unemployment increased marginally to 4.7% for the three months to January, up 0.1% from the preceding three months.
The volume of retail sales rose by a seasonally adjusted 0.2% between January and February to stand 3.6% higher than in February 2004. However, sales were 0.6% lower for the three months to February than in the preceding three months.
Treasury is considering land tax, says Barker
The Guardian quoted Kate Barker on Tuesday (pre-Budget) as saying that a land tax on the huge profits arising from land development was a live issue politically. "It is certainly still on the Treasury's radar screen," she told the newspaper.
The Guardian also reported that she thought the idea for a possible planning gain supplement could be included in another review of local government finance by Sir Michael Lyons, the former head of Birmingham City Council. It added: “With the government committed to 200,000 extra homes in four big growth areas in the south, local councils are increasingly concerned that cash for vital community facilities will not be forthcoming unless ministers find a way of tapping into land speculation.”
Government adds £235m to sustainable communities funding
The government is to add £235 million to its growth area funding pot. Over the two years from 2006 to 2008 the money will be made available across three areas: Milton Keynes South Midlands, Ashford and the London-Stansted-Cambridge-Peterborough corridor. ODPM Minister Lord Rooker said: “This is a major boost for the newer growth areas and should put us on course towards achieving their share of the 200,000 extra homes set out in the Sustainable Communities Plan.”
Following earlier funding of £164 million for the growth areas, he added that: “This time, we expect partners to come forward with proposals for more large scale and innovative schemes based on their strategic business plans, including the infrastructure necessary for the creation of truly sustainable communities”. A shortlist of new transport schemes that could be in line to benefit from the new £200 million community infrastructure fund (CIF) for the four growth areas, including the Thames Gateway was also announced.
Housing Market
The Office of the Deputy Prime Minister reported that the annual rate of house price growth fell from 10.7% in December to 10.0% in January, after a (non seasonally adjusted) 0.1% fall in prices over the month. Regionally, London saw an increase in the annual growth rate from 3.0% to 5.0%. (www.odpm.gov.uk/pns/displaypn.cgi?pn_id=2005_0057)
Price slowdown eases off
The RICS survey reported that falls in house prices eased for the third successive month. The survey also found that the number of properties coming onto the market rose at a pace not seen since January 2003. This has led to the stock of unsold properties reaching its highest level since March 2003.
Milan Khatri, chief economist at RICS, said: “The market has reached a trough, and I don’t think we’re going to see any significant decline occurring now. But we are not going to see any renewed pick up in the market or significant increase in sales activity as long as an interest rate rise remains a threat.” (Times, FT) Details at:
“Room to move?” – launch of HBF research on housing consumption
“Room to Move?”, HBF’s new research on trends in housing consumption by size of dwelling was launched successfully at a seminar held at the Social Market Foundation in London on 15 March. The seminar was attended by senior officials from No 10, Treasury and ODPM as well as journalists and has generated significant press interest.
The Financial Times on 16 March (pages 1 and 6) reported: “Ministers are wrong in their presumption that more high-density flats are needed to solve the lack of housing, according to the HBF. It said the country should plan for a rise in demand for larger homes and a decline in demand for smaller ones.
"This is contrary to conventional wisdom and challenges the key policy assumption that demographic trends will require many more smaller dwellings," says the report by Dave King, of the department of planning at Anglia Polytechnic University.”
John Stewart was also interviewed about the research on Radio 4’s “You and Yours” on 16 March and said: “What we’re saying is over the next 20 years - and the research focuses on the twenty year time horizon - we need to be building a whole range of housing and particularly larger homes. That’s what all the trends tell us is happening. And at the moment, because too few homes have been built, we’re meeting need and demand at the smaller end of the market; but House Builders are not able to meet the needs at the larger end - and for family homes, for example.”
And CABE agree….
On 18 March CABE announced the results of new research undertaken for them by MORI – showing that more than half the population want to live in a detached house, compared to 22% who preferred a bungalow, 14% a semi and 7% a terrace. The detached house was the most popular choice for the public regardless of social status or ethnicity.
In a addition, according to CABE’s press release, a new CABE report “What Home Buyers Want” reveals “a significant gap between the current preferences of homebuyers and the vision of planners and architects”. CABE Chief Executive, Richard Simmons, said: “The challenge for us is how we reconcile this consumer preference with the need to build more homes and not devour the green belt.”
HBF Note: The CABE research complements and supports the findings of HBF’s research and provides additional opportunities for generating coverage. We are pursuing these opportunities and will also be seeking to use the research to support our representations on national and regional planning issues.
Conservative Housing Policy
Conservative Shadow Minister for Housing and Planning, John Hayes, launched a new 10 point action plan for housing – “Right Homes in the Right Places” – at a press conference today to which HBF was invited.
The new plan while meeting core Conservative voter sensitivities is presented as a further step towards a more developer friendly stance by the Conservatives and emphasises a lighter touch planning and regulatory regime for development that is brownfield based and sympathetic in scale and form to the local context. Several times Hayes stated his wish to provide a climate within which developers could work successfully.
A critical point remains whether the Conservative focus on a bottom-up and local authority based approach to housing and wider development provision – backed by various planning, regulatory and fiscal incentives for suitable schemes - is a robust model for overcoming Nimby objections.
HBF Note: Hayes also stated in his plan that the Conservatives will oppose a new development land tax – which appears to suggest there will be an interesting debate with government about the nature of future strategic infrastructure funding.
Bovis confidence reflects upbeat market
Bovis Homes has promised to double its dividend over the next four years to take advantage of record cash flows. Shares in the company rose by 2% to 710p as they reported pre tax profits of £145.2 million for 2004, an increase of 18%. Bovis is now targeting a 10% increase in house volumes over the next year.
The positive message follows that of other housebuilders who have reported a pick up in the market this year. Chief executive Malcolm Harris said: “The stability of base interest rates since August 2004 has assisted consumer confidence and visitor numbers and reservations in early 2005 have been encouraging. (Times, Guardian)
Crest fights off Heron bid
Crest Nicholson has rebuffed a takeover bid from the privately owned Heron Corporation run by Gerald Ronson. Crest said Heron’s offer of 345p to 430p a share, which could value the housebuilder at up to £480 million, significantly undervalued the company. Crest have also refused to allow Heron access to its books saying it will only do this if it receives an offer it feels it can recommend to shareholders.
John Slaughter
Director of External Affairs
House Builders Federation