A weekly news summary covering all aspects of the housebuilding industry. Available to members only.
Budget 2006
Economic Forecasts
The Treasury expects economic growth to pick up over the next two years. After expanding by 1¾% in 2005, the economy is expected to grow by 2-2½% in 2006 and 2¾-3¼% in 2007 and 2008. CPI inflation is expected to fall back from 2¼% in 2005 Q4 to 2% in 2006, 2007 and 2008, exactly in line with the Bank of England’s target rate.
Household consumption grew by 1¾% in 2005. Growth is expected to accelerate gently over the next three years to 2-2½% in 2006, 2¼-2¾% in 2007 and 2½-3% in 2008. Real household disposable income increased by 2¼% in 2005 and is expected grow by 2½-2¾% in 2006, 2-2½% in 2007 and 2¼-2¾% in 2008.
Housing Announcements
The Government’s 5th December announcement said “new housing supply in England will need to increase over the next decade to 200,000 net additions per year”. The 2006 Budget says: “new housing supply in England will need to increase over the next decade to at least 200,000 net additions per year”. The addition of “at least” is undoubtedly a response to the 2003-based household projections, which put projected household growth in England at 209,000 per year 2003-2021.
The lower threshold for stamp duty has been raised from £120,000 to £125,000 from 23 March, with rates and other thresholds unchanged. It is notable that the Chancellor has effectively indexed the lower threshold in line with house price inflation. In the past, this threshold has been left unchanged for many years, thereby pushing more and more home buyers into the stamp duty net. The higher threshold will cost the Treasury £40 million in 2006/07 and £30 million in 2007/08, and will exempt an estimated 40,000 extra home buyers per year. The threshold in the 2,000 Enterprise Areas is unchanged at £150,000.
The Government has announced a Shared Equity Task Force to consider the scope for shared equity products. It will work with, among others, house builders “to determine whether there are market or state failures holding back the development of affordable shared-equity products”. The Deputy Prime Minister has announced the allocation of £970 million for shared equity to help 35,000 new homeowners get their first step on the home ownership ladder. The Government will pilot minimum holdings as low as 25%.
The Government will legislate in the 2006 Finance Bill to create Real Estate Investment Trusts (UK-REITs). Following the recent consultation, “significant changes” have been announced:
A reduction in the required distribution rate to 90% of net profits;
A reduction of the interest cover test to 1.25 on a pre-capital allowances basis; and
Forthcoming HMRC guidance which will set out mechanisms through which companies can operate the 10% shareholding limit through their Articles of Association.
An interim report of the Barker Review of land-use planning will be published in the Summer.
It was confirmed that the inheritance tax threshold is to increase to £285,000 for the tax year 2006/07, £300,000 in 2007/08, £312,000 in 2008/09 and £325,000 in 2009/10. The value of estates above the threshold is taxed at 40 per cent.
In response to the Barker Review recommendation that contaminated land tax credit should be extended to long-term derelict land, the Treasury says “it is unclear how this can be done in a cost-effective way and without encouraging dereliction or subsidising development that would have taken place anyway”. However the Treasury “will continue to examine the potential for tax measures to bring forward land that would not otherwise be developed”.
From 1 April 2006, the landfill tax standard rate will rise by £3 a tonne to £21 a tonne in 2006/07. The standard rate for inert wastes remains at £2 per tonne.
In 2005/06, the aggregates levy rate will remain frozen at £1.60 per tonne in 2006/07.
The Chancellor re-iterated the policy on the proposed Planning-gain Supplement that a “significant majority of PGS revenues are retained for infrastructure priorities within the local authority area where the revenue derived”. (Budget Announcements and Reports)
Responses to Budget
In response to the change in the stamp duty threshold Stewart Baseley, Executive Chairman of HBF, was quoted in the Financial Times: “You either index it or you don’t. The increase doesn’t represent the rate of inflation or house price inflation. Stamp duty is a tax the Chancellor should look at again.”
HBF Director of Economic Affairs, John Stewart, was also quoted in the FT in response to the government’s shared equity scheme: “In theory, it’s a good idea, but it has never affected a major chunk of the market.”
The National Association of Estate Agents described the increase in the minimum stamp duty threshold as “pitiful” and said that the Chancellor had let first-time buyers down. (NAEA Response)
The Council of Mortgage Lenders observed that although raising the stamp duty threshold level is helpful, the number of buyers who would have escaped the duty last year as a result of the higher threshold is outweighed by those who became liable due to rising prices. The CML was interested in the advent of REITS, but believe it is unlikely to significantly impact the supply of rented housing. (CML Response)
The Royal Institution of Chartered Surveyors described the rise in the stamp duty threshold as “derisory”, and believe it should be set at £150,000 and a marginal tax. However, RICS were supportive of the forthcoming introduction of REITS, which it believes will help to improve efficiency in both commercial and residential investment markets, praising the government for listening on gearing restrictions. (RICS Response)
The Local Government Association commented on the prospect of local authorities retaining money that would be raised by the proposed Planning-gain Supplement. LGA chairman Sir Sandy Bruce Lockhart said: “This is a move in the right direction but much more needs to be done. Local government wants to make sure that people gain direct benefits from house building in the area where they live. The LGA still wants to make sure that all of the revenue raised from development will be retained locally and that none of the money will be transferred to Whitehall before being redistributed to the local area.” (LGA Response)
HBF News
New Homes Week
The New Homes press pack has been successful in generating coverage on regional and local radio stations across the country. The media focused on the challenge facing first-time buyers and the ways in which developers are trying to help with this, underpinned by a strong broadcasting interest in what the solution to the affordability problem is. This has provided a good platform for HBF to make the case for an improved housing supply backed by the publication last week of new household growth projections. Over the course if the week HBF took part in radio programmes with a total potential audience of nearly seven million listeners. (New Homes Website)
Economic News
MPC voting pattern remains unchanged
The voting pattern at the Monetary Policy Committee (MPC) meeting on 8/9 March remained unchanged from the three previous meetings, with 8 members of the Committee voting for no change and Stephen Nickell voting for a 25 basis point cut. There appears to be some divergence of opinion on the Committee emerging on the risks to consumption looking forward. The minutes of the meeting reveal that “for some members, there were still downside risks to consumption, and the softer data since Christmas suggested that these might be crystallising. For others, there remained some upside risks to consumption resulting from the apparent strengthening of the housing market at a time when GDP growth was recovering.” (MPC Minutes)
Inflation on target
The Consumer Prices Index (CPI), the Bank of England’s official target measure, saw a slight increase in the annual rate of inflation to 2.0% in February from 1.9% in January. This is exactly in the centre of the target range of 2.0%, +/- 1.0%. There was a relatively large upward effect on the CPI from “recreation and culture”, with the price of computer games rising, while the prices of hardback books recovered after widespread special offers in January.
The Retail Prices Index (RPI – which includes a number of housing costs that the CPI excludes), remained stable at 2.4% in February. The former target measure of inflation RPIX (which excludes mortgage interest payments from the RPI) was stable at 2.3%, marginally below the centre of what was the target range of 2.5%, +/- 1.0%. (Consumer Prices Release)
Corporate News
Correction to reporting of Bovis results in last week’s summary
There was an error in the reporting of Bovis Homes results last week. The quote should have been attributed to Chairman Tim Melville-Ross. Mr Melville-Ross’s name was inadvertently shortened. We apologise for this oversight.
Housing Market
House prices rise
House prices rose by 0.9% in the four weeks to 11 March, to stand 4.3% higher than a year earlier, according to website Rightmove. This followed a 2.7% rise in the preceding five weeks. Rightmove also revealed that only 16% of properties advertised on the website fall below the stamp duty threshold of £120,000.
Commercial Director Miles Shipside commented: “You’d have thought record prices and most buyers being caught by the stamp duty trap would have slowed the market. However, the need to put a roof over your head and the lack of other options mean buyers are faced with no other realistic choice than to stretch themselves further if they can.” (Rightmove House Price Index)
Consultation/Key Publication Dates
Code for Sustainable Homes Consultation 5 December - 6 March
Implementation To be advised
Home Information Packs (HIPs) Consultation Closed 31 December
HIPs Dry Run Timeline published 16 Mar
HIPs Introduction 1 June 2007
Barker Review of Land Use Planning 25 January - 28 March
Energy Review Consultation 25 January - 14 April
Part L Implementation date 6 April
HBF/HBM/NHMB Events
New Homes Week 20 - 26 March
For a full list of HBF events please visit the HB Media website
Paul Samter
Senior Analyst - Economic and Policy Affairs
Home Builders Federation
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