The Treasury Committee has published report on the Autumn Budget 2017, which unanimously agrees that not enough has been promised to make a dent in the government’s target to build 300,000 new homes a year.
The report concludes that local authorities are limited in how much they can build through the cap on borrowing within Local Authority Housing Revenue Accounts. In Autumn Budget 2017, the Government raised the borrowing cap for councils in areas of high affordability by £1 billion to help achieve its target of 300,000 new homes per year.
Private housebuilders have consistently provided 150,000 units per year, so the target is unlikely to be met without a significant increase in supply by local authorities. To achieve this, the Housing Revenue Account borrowing cap should be removed. At the very least, the Treasury should define the allocation criteria for the additional £1 billion more clearly.
The Chancellor abolished Stamp Duty for first-time buyers (FTBs) on the first £300,000 of any property costing up to £500,000. The Office for Budget Responsibility (OBR) forecast that just 3,500 additional FTBs over the forecast period will become FTBs as a result of the policy change, at a cost of £3 billion. In isolation, the reduction in Stamp Duty is likely to increase prices for FTBs by as much, if not more, than the amount they will save as a result of the reduction in Stamp Duty.
Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said, “The Chancellor pledged to ‘fix the broken housing market’, but the government is going to find it very difficult to meet this ambition. The increase in the cap on borrowing for local authorities to build homes is a step in the right direction, but it doesn’t go far enough.
“The borrowing cap restricts the number of homes that local authorities could deliver. To achieve the government target of 300,000 new homes per year, the cap should be abolished. The potential of local authorities to build should be unleashed.”
Changes to Stamp Duty for first time buyers is having little immediate effect, according to the December 2017 RICS UK Residential Market Survey. After new buyer enquiries came close to stabilising in November, 15% more respondents noted a decline in demand (as opposed to an increase) in the month of December.
Furthermore, when contributors were asked whether they have seen an increase in first time buyer enquiries following changes to Stamp Duty in the Autumn Budget, an overwhelming majority of 86% across the UK said they hadn’t.
While this could be in part due to the time of year, respondents were also asked to consider the likely impact on the market over the coming months. Nationally, the majority of respondents (66%) anticipated the change having little consequence, whilst 12% felt it would result in higher overall activity. In London, however, 48% envisaged not much response but a higher proportion of respondents compared to the national figure (28%) did say the changes would increase overall market activity. The results for the wider South East are closer to the national picture.
Simon Rubinsohn, RICS Chief Economist, said, “The initial feedback from the market doesn’t suggest that the change in the Stamp Duty regime announced in the budget is going to have a material impact on activity. Indeed, the risk was always that a good portion of the benefit would be capitalised in the price, therefore limiting the benefit for the first-time buyer.”