What would a real property industry Budget look like?

The Spring Budget last Wednesday rounded out to be mostly a disappointment for the property industry, but it was also perhaps an unsurprising one given the Chancellor’s limited fiscal headroom for manoeuvrability. We’re currently in a dysfunctional lame duck limbo state where the incumbent party seems all but certain to face defeat in the next election. But whoever wins will face considerable economic challenges that will shape their policies in way that likely won’t please all parties.

This is an area which unsurprisingly generates considerable debate among the industry. And not without good reason. But it’s also a conversation that’s been deeply driven by divides laid down by various challenges that it’s fair to say were very much out of our hands. The crux of these were laid down by the Office for Budget Responsibility (OBR) in their analysis (or rather dissection) of the Government’s Spring Budget. Now, it’s fair to say that our poor Chancellor had a right difficult task ahead of him – challenging fiscal headwinds, a depleted Treasury and of course the demands and the expectations of a party on the political backfoot (by quite some margin) seeking some wins amidst an election year.

The OBR claims inflation is on the decline as we emerge from the twin global shocks of the pandemic and the Russian invasion of Ukraine – a point to the positive towards the economy and consumer confidence to be sure – nonetheless we are, they say, entering a period of stagnating output, which is almost an accurate perspective on our political structure as it is to the economic – though to be fair to the economy, its factors are as much external as they are internal. With that that in mind what might a real property industry Budget look like that could bring reassurance to a market in crisis?

A Budget for thee but not for me

The main housing takeaway in the Budget for my take was the drop in the higher rate of capital gains tax on residential property from 28% to 24%. Now the Chancellor claimed that this would result in more transactions but as always, the devil is in the detail and the OBR was quick to pour ice on the fire in their forecast, suggesting that the cut in CGT for properties would only increase transactions by around 2% in the near team before tapering away.  A small near-term increase in transactions may seem like a win but it is a continuation of the lack of long-term stimulus that the property industry needs to boost sustained growth and, as many would argue, reduce the challenges of the housing market for many would-be buyers, renters and landlords.

Unfortunately, the Budget did little to address the challenges of affordability in a time when costs for everyone are increasing. Record rents are hitting tenant affordability (and their deposit potential) all whilst landlords struggle with their own financial burdens – with themselves unfairly targeted by the government despite the value they bring to local economies. Couple these with OBR’s forecast of even higher mortgage interest rates all up to a peak of 4.2% in 2027 and it’s looking likely that the housing market will face further slowdown unless meaningful changes are made.  

Kevin Shaw, national sales managing director at Leaders Romans Group also raised these challenges ahead of the Budget, saying that: “Movement in the housing market also contributes substantially to a sense of wellbeing in the economy and in individuals’ lives – both of which are fundamental when it comes to voting to keep the government in power or go for an alternative.” Sadly, an internal game of politics is being played at the expense of the electorate, and what we got fell far short of hopes and expectations.

Waiting on the chickens to make the omelette

Uncertainty is always one of the unfortunate side-effects of an election year. Who will win? What are their policies? And how many of these will they stick to once they’re in power? That uncertainty feeds into the consumer consciousness and leads to delayed actions as the domain of housing becomes a test of patience over who will move first – the market or the consumer. It’s fair to say that many of us expected more out of this Spring Budget, even a few economically detrimental giveaways for first-time buyer’s were anticipated to buy votes. But fiscal restraint won out perhaps unexpectedly.

There have been some calls for the government to reintroduce the Help to Buy scheme, with a Countrywide survey conducted last month ahead of the Budget finding that just over a third of property professionals surveyed were hoping for a new scheme to be announced. Or even a more robust reform of Stamp Duty that unfortunately did not emerge (beyond the cancelled relief for people buying more than one dwelling) - as Tim Bannister, Rightmove's property expert commented: "We had hoped the government would seize the opportunity to help first-time buyers and reform the outdated stamp duty system, instead, home-movers are left with very little.”

Often however, it does just seem like the Government simply doesn’t understand the market, and perhaps a government-commissioned, independently chaired review of the market would be worthwhile to understand impact that policy measures (or lack thereof) are having on its overall health. Affordability impacts everyone to a certain extent, from renters and first-time buyers to landlords and downsizers, and if the housing market, as is so often claimed, represents the health of the wider economy, then it’s high time that the government (whoever runs it) sees it that way too.