The property industry is desperately in need of legislative changes to address the ailing housing … [+]
123RF.com/Ekaterina Pokrovsky
It’s that time of the year where many of us start thinking about our Christmas and New Year wishlists – all that we hope to receive, and all we hope to achieve in the coming year. It’s a time of cruising to the finish line, but this year will be decidedly different as a cruising gets swapped out for voting – and all the upheaval that comes with an election.
But with change of any kind, comes the hope of new opportunities. The property industry is desperately in need of legislative changes to address the ailing housing industry in the U.K. And while there are several changes that I believe the next government can implement to address these issues and improve housing circumstances for everyone, here’s my top-five electoral wishlist:
Stamp duty reform
Stamp duty is a multi-faceted issue – like most forms of taxation it’s good for the public coffers, raising billions each year that can be reinvested in public infrastructure. But it’s also financially prohibitive for many people trying to get on the housing ladder, and with consumer uncertainty rife with Brexit, receipts from stamp duty have dropped 7% to £11.9 billion in the year to 5 April 2019. As I’ve raised previously, reforming stamp duty could help do more than just boost Treasury finances.
No surprises then that I want to see stamp duty reform sit at the top of the next parliament’s housing priorities. The slowing housing market could be incentivised by reducing the financial burden on buyers trying to move home. And this should not just be limited to first-time buyers who currently benefit from stamp-duty exemption on properties up £300,000. Legislative changes such as raising the minimum stamp duty threshold to £500,000 and rates across the board would incentivise buyers and lead to higher transactions, which in turn would see more stamp duty receipts and help boost a healthy economy.
Accelerate the development of new homes
One of the biggest issues with the housing market today is that of supply and demand, and in a circularl fashion this is affecting both the residential and lettings sectors. The bottom line is that we need to build new homes. It’s no doubt a long-shot wish, as successive governments have failed to realise this dream of millions. Nevertheless it’s electoral poison not to promise new home construction, and with both the major parties promising millions of new homes over the coming year, it’s an electoral wish that for once I hope gets realised.
The demand for new homes is particularly pressing, and looking at the ecosystem of the housing market, meeting that demand with matching supply would go some way to resolving or at least mitigating several of the issues causing downturns in the housing market. Getting more people on the ladder would in turn take people out of the rental market, freeing up supply there and helping to push down record-high rents driven by surplus demand – £953 per month in October. Of course, even an election might do little to incentivise new construction, as many maintain that it’s Brexit not electoral prospects that’s the main impediment to new growth and investment in the construction sector. Question is, can the next government clear the field of uncertainty quickly and efficiently enough to fulfil their electoral house-building promises? Time will tell…
Improve Help to Buy (and not just on new builds)
First introduced back in 2013 by then Chancellor of the Exchequer George Osborne, Help to Buy was meant to help first-time buyers onto the housing ladder with the support of a 5% deposit. Now facing the twilight of its era, the government of today has extended the equity loan portion of Help to Buy from 2021 to 2023, which sounds good, but a review of the legislation has led many to believe that it’s not quite had the positive impact intended, with it doing little to bolster market supply, instead pushing house prices up, and more often than not benefiting higher earners over those lower end of the spectrum.
Nevertheless, Help to Buy remains popular overall, and I would rather see reform over repeal in this legislation. The Conservatives have committed to maintain Help to Buy in its current state, with a non-committal suggestion that it could be extended past 2023; Labour’s manifesto includes the pledge to “reform Help to Buy to focus it on first-time buyers on ordinary incomes.”
For my part neither of these pledges really go far enough, neither helping those who truly need it, nor to addressing the issues that accompany the current legislation. What I’d like to see is Help to Buy extended to existing properties, not just new builds. Doing so would really increase the options available for first-time buyers, particularly with new home construction at an all-time low. It might help to reduce new-build prices as well, as the scheme currently seems to do more to boost the construction industry’s profits than put affordable housing on the market. Overall, it will plough the benefit of more transactions straight back into the housing market instead of the construction industry. And that’s something worth wishing for.
Launch a review on landlord taxation
One thing we can all agree on is that a healthy housing market is crucial for a healthy economy. That means a fair balance on taxes, and an equal balancing of supply and demand. With renters in the UK now creeping up to 35% of the equation, keeping landlords and available lettings supply on board is critical to maintaining this balance. However, the increasing tax burden on landlords in the form of mortgage interest rate relief on income tax, a 3% surcharge on stamp duty, and especially Section 24’s incremental reduction of letting relief on capital gains tax, has led many landlords to consider either downsizing their portfolios or to exit the market entirely, because it’s simply becoming too expensive to maintain the costs of a rental property. This lowers the pool of available properties for let, in turn driving up prices, which as I’ve raised previous has several knock-on effects elsewhere in the housing market.
What I’d like to see with the next parliament is a review on landlord taxation. It’s clear that many landlords are struggling to find good reasons to remain in the lettings market, and their exit bodes poorly for tenants. A review should look at the benefits of restoring some of the cost deductions that landlords receive on their rental properties pushed down by the changes of Section 24 legislation. A package of Capital Gains Tax reduction measures could also help to lift the tax burden on landlords, encouraging them to either reinvest into their lettings properties or encouraging them to sell poorly performing properties to release equity that can be reinvested elsewhere in the economy.
Streamlining of the property process
The average time frame for buying or selling a home in the U.K. is six months. That’s a long window for something to go wrong, and it frequently does, with over 30% of housing transactions in 2018 failing to complete. Overwhelmingly the biggest cause of transactions falling through seems to be buyers changing their minds. And it’s easy to see why, with all the complications and stresses that arise from sitting in a housing chain for several months. It’s enough for many to want to pull the plug. Not to mention doing so when a better offer comes along and buyers faced with the danger of gazumping. Changes which streamline the process for buyers whilst removing the obvious pitfalls should be at the centre of the next government’s housing legislation.
Focusing on gazumping would be a good start. The current government has been mooting the introduction of reservation agreements since 2018, with such a scheme originally to be introduced in 2020 – the election now throws that skyward, but I would like to see it return in some form in the next parliament. However as I’ve raised previously, any such agreements need to be financially and legally sufficient to act as an effective deterrent. A hypothetical £500–1,000 fine is not likely going to put a seller off from accepting a higher offer.
New technologies could also help to digitalise and simplify the property process. Back in April, a blockchain trial in the U.K proved that the property transaction process could be reduced from three months to three weeks. This technology is picking up speed, and buyers can follow their transaction end-to-end via a blockchain app offered by a blockchain consortium called Coadjute. If the next government really wants to help streamline the property process, they would be wise to review and possibly invest in these frontier technologies, which could lead to positive kickbacks for the economy.
Final thoughts
Is five an exhaustive list? Hardly. But these five wishes, realised, have the ability to transform our housing market, making it more fair for all, and more robust in the face of any uncertainty that might still come our way.