The general sentiment of house builders, as reported in the press, is that they are concerned the reforms do not go far enough and that some aspects could, potentially, be financially damaging. The feedback from the financial sector is that the buy-to-let market will be stifled, as will the growth in housing association stock – both vital markets for niche lenders.
Attempts at radical legislative reform may usher in a greater probability of legal challenges, but could also bring significant benefits to the property industry. By removing obstacles and speeding up the planning process, developers will be able to initiate and build developments with the benefit of less scrutiny and reduced scope for objection to applications.
The Government’s proposals to allow the future Mayor of Greater Manchester and the Mayor of London to push through complex brownfield developments, build individual houses upwards without planning permission and promote the use of Compulsory Purchase Orders may result in a rise in contaminated land issues and increased rights to lights claims.
Furthermore, as the planning process becomes more complicated, with an increased number of pathways for obtaining planning approval, over-stretched and under-funded local authorities may struggle to cope. Uncertainty and lack of confidence in the new planning regime may see the use of judicial review, as well as a rise in enforcement of covenants and other title defects, as a means of blocking development. This could increase the need for title insurance to protect house builders and their purchasers.
As well as the potential legal implications, there may also be financial issues for lenders and house builders. As buy-to-let landlords exit the market, due to the proposed changes to their tax relief, niche lenders may see a decrease in the overall size of the market. More sophisticated buy-to-let landlords may also move their holdings into corporate vehicles which require lending above their thresholds.
If the effect of the reforms on the lending market is reduced lending capabilities then niche lenders will need to look towards cost savings, perhaps by using insurance to reduce title diligence transaction costs. If house builders are looking to maintain profits, they will need to pursue the sites which have the potential to generate the highest margins; these sites will most frequently be found in green belt areas where local communities are more likely to generate judicial review, title and other challenges.
The debate over the right to housing, social housing and the profitability of the housebuilding sector is an ongoing one, but lying at the heart of most of the Government’s proposals is a genuine desire to promote productivity. As is stated in the policy document: “An effective land and housing market promotes productivity by enabling the economy to adapt to change, helping firms to locate where they can be most efficient and create jobs, and enabling people to live and own homes close to where they work. Housing starts fell by nearly two-thirds between 2007 and 2009, and the number of first time buyers fell by more than 50% between 2006 and 2008…An excessively strict planning system can prevent land and other resources from being used efficiently, impeding productivity.”
In some ways the reforms will “fix the foundations”, as the Chancellor puts it, but economic realities faced by house builders, lenders and investors is ultimately what will build on those foundations.
By Chris Taylor, CEO of Titlesolv
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