Why the Spring Budget could be a make or break for Britain’s housebuilders?
British housebuilders have suffered difficult market conditions in the past year, but the tide may finally be turning for the sector.
New home completions, profits and share prices fell across much of the industry, with a difficult comparison with two previous strong years exacerbated by weak British consumers.
But mortgage interest rates are falling, and next March’s budget could provide the sector with the rejuvenation it needs, as the looming general election spurs the government to tackle Britain’s housing shortage.
Home builders built fewer homes last year, as they look to protect their profits from falling demand
The country’s 10 largest homebuilders completed just 71,000 homes in 2023, down from 85,000 the previous year, according to Peel Hunt figures.
The broker expects only 69,300 homes to be completed in 2024, It is likely to jeopardize the government’s purpose To build 300,000 homes annually by mid-2020, the current annual average is only 235,000 homes.
The ongoing housing crisis in the UK This has left Britain suffering from a severe shortage of affordable homesThe crisis was exacerbated by cost-of-living pressures that weakened the purchasing power of Britons.
Meanwhile, home prices continued their upward climb for the fourth month in a rowAn increase of 1.3 percent in January.
A typical home now costs £291,029, which is almost £4,000 more than it did in December.
but, Major lenders have begun lowering mortgage interest ratesWhich helps revive demand for existing properties.
“Mortgage availability has improved, mortgage rates have fallen, and the number of successful mortgage applications is rising,” said Anthony Codling, managing director of RBC Capital Markets.
“There remains a shortage of second-hand homes for sale, so UK housebuilders are positioned to benefit from improving mortgage market trends.”
New housing starts declined in the third quarter of 2023
What do home builders say?
Homebuilders have protected their profits in 2023 by building fewer homes, thus managing the decline in demand caused by multiple interest rate hikes.
According to data from the Department for Settlement, Housing and Communities, led by Michael Gove, the number of sites where construction work had begun stood at 21,300 as of September 30, down 68 per cent year-on-year during the quarter.
In the year ending September 30, the number of on-site starts fell from the previous year in six out of nine regions. Completions were down in seven of nine areas compared to the previous year.
Taylor Wimpey, one of the UK’s largest housebuilders, said its outlook for the new year was uncertainIt warned of entering 2024 with a reduced order book.
The FTSE 100 company noted that contracts awarded to UK builders in 2023 fell by £11.1 billion to £69.2 billion, with residential housebuilding deals down 13 per cent.
FTSE 250 persimmon counterpart He also warned that market conditions are expected to remain “highly uncertain,” especially with elections likely in 2024.
However, the York-based group said buyers were returning to the market amid speculation that the Bank of England may cut interest rates sooner than expected.
Persimmons also saw completions drop to their lowest level in more than a decade.
Barratt Developments has acquired Redrow for £2.5bn, forming Barratt Redrow.
Vestry, another FTSE 250 builder, said the easing in mortgage rates was “encouraging” and that the group was “optimistic that this will help stimulate demand in FY24”.
“(It is also expected) that the housing crisis will be high on the political agenda in the run-up to the general election, with Vestre very well placed to play its part in increasing the supply of affordable homes across the country,” she added. Country.’
while, Barat shocked the market on Wednesday It revealed a deal worth £2.5 billion to acquire its competitor Redrow.
The merger “will accelerate the delivery of the homes this country needs,” Barratt said.
“If open market conditions improve…homebuilders are likely to outperform from here,” Codling said.
Home builders have had a good start to the year. Mortgage rates are falling and home prices are stabilizing, so homebuyer confidence is rising.
What can the government do to revive the housing market?
The UK housing market could be in the spotlight ahead of the election.
The prospect of a general election in the autumn means the next spring budget in March will see the government set out its plan for the economy as it looks to appeal to voters.
Liberum analysts Sam Cullen and Clyde Lewis have identified four ways the government can take to stimulate the market and revamp the housing sector.
Of these options, analysts suggest that the “cleanest (but most politically challenging) course of action” would be to plan to reform the system.
Chancellor Jeremy Hunt will set the government’s budget in March
According to housebuilders themselves, the UK’s faltering planning system is to blame for the current housing shortage, with David Thomas, chief executive of Barratt, recently describing the system as “ineffective”.
Codling agrees, warning: “The wheels of the planning system turn very slowly.”
“Planning departments need things.” More staff and housing targets. Planning departments are understaffed, with no set targets, fewer permissions are given to build the homes we need, and the classic case of what you measure is what you get.
“I fear the Budget addresses the demand for homes rather than the supply of homes, but it is supply, not demand, that needs to be strengthened by the Budget.”
They claim that the UK’s planning system has held back developers’ plans for too long. Although critics in the sector in turn accused construction companies of exploiting land opportunistically.
Planning department budgets have been halved since 2009, and the number of plots of land receiving planning permissions has fallen by 50,000 plots, or about 15 per cent, over the past five years.
“In our view, no significant expenditure will be needed to reverse this trend. We estimate that returning to the 2010 funding level would cost around £500 million. Based on average past site sizes, this could result in “Almost doubling the number of approved sites, which in turn could lead to a 20 percent increase in volumes each year.”
Based on these calculations, there could be up to £12bn of extra spending, which Bill Hunt says could lead to an additional £2.2bn tax take, while 125,000 jobs would also be created in the process. .
Analysts see an alternative measure as a new scheme similar to Help to Buy, which was launched under the coalition government in 2013.
Only 10 to 15 per cent of buyers would have been able to make the same purchase without getting help to buy, according to Bank of England data analyzed by Bill Hunt.
Help to Buy lending (£1 million)
Analysts say the £5bn renewable scheme could fund the construction of 35,000 homes, and bring in £2bn in taxes.
However, the original scheme was criticized for causing price inflation, preventing more people from buying homes than it helped.
Analysts point out that this is unlikely in a demand-driven scheme with a “relatively small number of loans”.
There could also be a reduction in stamp duty on cards for the upcoming March Budget, although Peel Hunt points out that they represent a major source of revenue for HMRC, bringing in £11.7bn in the last financial year.
Stamp duty is Charged on the purchase price of the home and settled at different rates above thresholds.
Stamp duty on home purchases is levied at 5 per cent for homes worth between £250,001 and £925,000 – rising to 12 per cent for properties worth more than £1.5 million.
UK residential voting intention by housing tenure in the 2019 general election
Analysts point out that eliminating stamp duty could lead to the sale of an additional 15,000 private homes, which would generate an additional £800m in tax revenue, create 6,000 jobs and £11.25bn of economic activity.
The Chancellor could also look to increase the number of apprentices joining the construction industry, either by increasing funding or by removing the barriers that small housebuilders face when it comes to recruiting apprentices.
The UK construction workforce faces losing a quarter of its workforce within 10 to 15 years, meaning 50,000 new workers will need to be added every year, compared to just 15,000 in 2023, Bill Hunt says.
To provide growth, analysts suggest the government could increase funding for construction apprenticeships, or reorganize the apprenticeship levy that currently sees large employers pay 0.5 per cent of the annual wage bill, while smaller employers pay 5 per cent of the cost. Vocational training. an exercise.
Bill Hunt says the tax prevents big companies from “spending their money as they see fit”, while the scheme is still too expensive for some small businesses.
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(tags for translation) Daily Mail