Budget weighs on housing market activity (and tax take)

Labour's manifesto-breaking rise in income tax is off the table, the FT reported yesterday. There will be some tinkering with the thresholds at which people pay certain rates of income tax, but the headline basic and higher rates of the tax will remain unchanged.

This could all shift again, of course, but we're now less than two weeks out from the Budget, and the change was sourced from a list of "major measures" submitted to the Office for Budget Responsibility, due to be announced on the 26th.

This won't raise as much cash, which is the key point for the property market. The smorgasbord of narrower tax rises is back; "a new gambling levy and higher taxes on expensive properties are expected to be included," the paper reports. 

Several versions of property taxes have been floated in recent weeks, but this is likely to be similar – or even identical – to the Mansion Tax first floated by the Liberal Democrats thirteen years ago. See more from Tom Bill here. 

Suspended in animation

The closer the Budget gets, the more homebuyers are inclined to sit tight and wait for clarity. The new buyer enquiries metric in the October RICS Residential Market Survey fell to a net balance of -24%, the weakest reading since April. Anything below zero represents a contraction compared to the previous month. All of this, of course, weighs on stamp duty receipts, which only underscores the bizarre decision to float so many tax options in public over the summer.

Turn to the agents' comments at the back of the report and the Budget is mentioned more than 70 times – it's fuelling "inertia" and "nervousness", while the market feels "suspended in animation", report frustrated respondents.

The sales agreed metric fell to -24%, down from -17% recorded previously. Interestingly, the consensus view appears to be that a recovery will begin to take hold once the uncertainty of the Budget passes – or at the very least the rate at which activity declines should begin to slow. Near-term sales expectations hit a net balance of -3% , which is an improvement on the -10% reported last time. Over a twelve-month horizon, a net balance of +7% of respondents anticipate a pickup in sales activity, notably less pessimistic than the -9% reading seen in the previous survey.

Tenant demand has flattened in the rental market recently. The latest net balance of -4% – from the quarterly seasonally adjusted lettings dataset – eased from +5% and +13% in the preceding two quarters. Landlord instructions remain on a firmly downward trend, hitting a net balance reading of -33% in the three months to October. That's the weakest level since April 2020

Some softening

Persimmon also noted "some softening in the market since the summer, with consumer confidence affected by ongoing uncertainties including the upcoming Government budget," according to a trading update published yesterday.

That said, the company is trading in-line with expectations: it hit 0.76 net private sales per outlet per week, or 0.63 when excluding bulk sales, representing an increase of 3% on the prior year. On a total sales per week basis, that equates to growth of 14% to 208 sales per week.

Persimmon's current private forward sales position has increased 15% to £2.09bn. Of this year's expected private delivery, 83% has already been exchanged or completed. 
"We remain mindful of affordability constraints and the potential impact the upcoming Government budget might have on our private customers and on our institutional build-to-rent and affordable housing partners," the company added. "Our market fundamentals remain strong and we are confident the business will increase margins, returns and shareholder value, as previously outlined, over the medium term."

Boosting viability

More than 100,000 Built-to-Rent homes have full planning granted and are yet to begin on site, according to the latest Knight Frank data. When many of these will be built remains uncertain – the number of units under construction is 8% lower than a year ago. The market is caught up in the wider slowdown in development. 

Regulatory hurdles and high costs continue to stall construction, particularly for high-rise apartments. Many developers are unable to proceed due to unviable site economics or delays in the Gateway process. Official figures show it now takes 36 weeks on average to secure Gateway 2 approval. Uncertainty around Gateway 3 timelines further complicates project viability.

Completions are going to fall in the years ahead, but there remains a lot to play for. The British Property Federation this week published a new policy paper exploring how the government might boost viability in the sector. Addressing delays at various points of the investment cycle, sorting out the complex patchwork of up-front levies and allowing a period of stability when it comes to policy and taxation will all be familiar. Other suggestions include reintroducing SDLT support for high-density housing or even a carve out from SDLT completely in areas with very low land value, such as brownfield land and regeneration sites.

In other news...

Data Centres: Taking Stock of Sustainability (Knight Frank).