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Autumn Statement: Shot in the arm for housebuilders

Ambitious plans to ramp up the supply of new homes boost housebuilder share prices
November 25, 2015

UK chancellor George Osborne gave house builders a shot in the arm by promising to spend nearly £7bn to address the chronic shortage of new homes. In his Autumn statement, the chancellor outlined plans to pay developers £2.3bn to build 200,000 starter homes for first-time buyers, who will receive a 20 per cent discount on prices up to £450,000 in London and £250,000 elsewhere.

A further £4bn will help to build 135,000 Help to Buy shared ownership homes for households earning less than £80,000 a year (£90,000 in London). There will also be £200m to support 10,000 homes that tenants can live in for up to five years at reduced rents while they save for a deposit. They will then have first option to buy the home they are renting. Finally, a further £400m will be allocated to build 8,000 specialist homes for older people or those with disabilities. There are also plans to introduce a London Help to Buy scheme, whereby first-time buyers will require just a 5 per cent deposit to gain access to an interest rate-free loan for up to 40 per cent of the value.

The discount scheme was actually announced earlier this year, along with plans to build 200,000 starter homes by 2020, although this differs from the 1m new homes specified in the latest housing and planning bill and the 400,000 affordable homes mentioned in the Autumn statement. The key point here is that the authorities appear to be long on rhetoric and very short on delivery. The latest plans are a welcome step and may be the start of real progress on delivery, but there is another essential step to be taken, and that is to address the mechanics of delivery.

At the moment, there will have to be major changes before these schemes get off the ground. The first is the planning process. Attempts to speed up the planning process are being hindered by the chronic lack of funding. Most local authority planning departments are overworked and under resourced as councils are obliged to rein in on spending to meet further subsidy cuts from the Treasury. However, some relief on this might come with proposals to allow local authorities to keep the proceeds of asset sales and to retain and control business rates where there is an elected mayor.

The second problem is that the building process itself is simply not strong enough to sustain what would amount to a doubling in the number of houses being built each year. Around 300,000 skilled workers left the building sector in the last recession, and attempts to replace them have been met with only limited success. There are apprenticeship schemes run by the house builders themselves, and an element of imported labour, but the numbers still do not stack up. Apprenticeship numbers are set to grow further, but it will take time to fill the gap.

Already, more than a third of all builders have identified labour costs as a major constraint on output, while those citing availability of skilled labour as a constraint rose to 60 per cent, the second highest reading on record. And all of this is before a single foundation for the proposed accelerated building programme has been laid.