Shahil Kotecha

A decided change or more of the same?



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Last Monday saw Philip Hammond at the dispatch box delivering his last Budget before Brexit.

The chancellor was expected to appropriate funds to strained public services in a self-proclaimed “end of austerity”. Despite having the strings of his Budget purse still firmly tied to a workable Brexit deal, he managed to deliver a Budget that satisfied both the front and back benches of the Tory party, creating at least a momentary sense of unity.

As is customary in most landmark government policy announcements these days, housing took centre stage with a variety of big policy moves. The biggest of which was probably the two-year extension of the government’s equity loan Help to Buy scheme, which will now end in 2023 rather than April 2021 as previously announced.

The chancellor also confirmed the stamp duty hikes on foreign investors into the UK property market, which the PM had previously announced, with a consultation set for January 2019. The effectiveness of this policy is questionable. At a time of increasing uncertainty in the UK economy, discouraging foreign investors from entering the UK market sends the wrong message to international capital and slows down transaction rates. If foreign buyers are faced with punitive taxes when buying a home, how are they incentivised to make Britain the base for their business? In the face of Brexit, this is the exact opposite of what we should be doing.

Rather than simply tinkering with the demand side of the market, the chancellor did table a variety of policies to help boost the supply of homes and increase build-out rates. Chief among these was an additional £500m for the housing infrastructure fund that will – according to the chancellor – help build 650,000 new homes across the country. In addition, the government announced that it has partnered with a number of housing associations to deliver additional homes in an effort to tackle issues of affordability at the lower end of the market.

Most interestingly of all, however, was the chancellor’s focus on high street renewal and his efforts to increase competition in the housebuilding sector. As part of his plan to renew the British high street, Mr Hammond allocated £675m to help councils transform struggling parts of the high street into housing, namely through easing planning requirements and ramping up permitted development rights conversions. This could, in practice, deliver a huge amount of new housing for the UK market, intensifying land use and revamping the high street in the process.

What’s more, the chancellor took a positive step to increase competition in the housebuilding sector by supporting SME developers with up to £1bn of British Business Bank guarantees. SME developers are vitally important in helping to deliver the necessary quantity of affordable homes needed each year, but their access to capital is often restricted because of their size. And while alternative lenders can go some way in filling the void, the introduction of up to £1bn of bank guarantees will certainly help get them building. This policy – in combination with the proposed shake up of the land market in the Oliver Letwin review – has the potential to create a much more open development market, where both large and small developers can contribute to the ambitious housing targets.

At first glance, Budget 2018 seems to be a decided change of direction for the Tory government. Instead of simply tinkering with the demand side of the housing market, the government has got serious about addressing the supply-side issues. The result is a bolder, more ambitious housing policy, where government intervenes to incentivise industry and creates partnerships where needed. Yet, this Budget becoming a reality depends on that looming behemoth: Brexit. If the UK crashes out without a deal, then austerity certainly won’t be over, and the spending plans outlined by the chancellor will be curtailed. The silver lining? We only have to wait five months to find out.

 

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