With the surprise majority victory for the Conservatives in the General Election, this week saw the first Tory budget in nearly 20 years.
What does this mean and how will the new proposals affect construction and house building?
In truth it seems that the budget has largely avoided the main issues of addressing the supply of housing, however, there are a number of announcements which have direct implications for the housing, property and construction industries.
1. Social Housing
George Osborne announced that Social Housing rent is to fall by 1% a year. Whilst this may be welcome news to tenants this will inevitably put financial strain on Housing Associations and other social landlords already concerned by the Right to Buy initiative. In fact, the National Housing Federation estimates the lower rental income will reduce the number of homes being built by 27,000. The reduction in income will also have a knock on effect for private developers bound by Section 106 planning obligations, resulting in a fall in the total costs they are able to recover from social landlords.
Want to know more read our blog on the key figures from the Right to Buy scheme over the last financial year.
2. Non-dom tax rules
From April 2017 the permanent ‘non-dom’ tax status will be abolished. Whilst this might not seem to have an obvious effect on house builders it has been described as a ‘horror move’ for the luxury property market. Many purchasers of high value properties, particularly in central London, have been based overseas and as such have benefitted from this tax relief. By restricting the tax relief on such purchases there is a concern that the demand for high value properties will decrease. As a direct result of this announcement share prices in some of the country’s luxury property developers have already seen a drastic reduction in value.
If we were to mention Insurance Premium Tax (IPT) we doubt many of you would know what it is or how it affects you. However, IPT is payable on all general insurance premiums at a standard rate of 6%. From November this year this will rise to 9.5% causing all insurance premiums to increase including liability insurance, site insurance and of course structural warranties.
4. Northern Powerhouse
The budget showed that Manchester seems to be the focus of Osborne’s ‘Northern Powerhouse’ with increases in devolved powers under the control of a directly elected mayor. These include fire services, establishing a land commission and additional planning powers for the area. There were also talks of similar deals being developed in cities like Sheffield, Liverpool and Leeds.
5. Buy to let
Phased reductions in the tax relief available to buy-to-let landlords will be rolled out in 2017. This will prevent landlords from offsetting mortgage interest payments against their income. This action is in response to concerns that an increase in private rental properties is inflating house prices. The danger is that this increase in cost for landlords could simply be transferred onto tenants through increased rents.
6. New roads fund
A reform to vehicle excise duty will see the creation of a new roads fund. This fund will be used to ensure sustained investment in the road network of the UK. It is hoped this will drive locational investment through the devolution of powers and funding across Britain.
7. Skills shortage
To address the skills shortage companies are being incentivised with cash back if they invest in apprenticeships. This strategy aims to create 3 million apprenticeship opportunities across the UK. The housing and construction industry have welcomed this initiative as a way to encourage and reward companies taking responsibility for addressing the ageing workforce and skills shortages.
Read more on how the skills shortage and ageing workforce are causing a problem for the construction industry.
By Craig Ross