UK Property - Pre-budget report provides little relief for the housing market

Jon Neale, head of development research at Knight Frank, commented:

"The additional £150m announced for the construction of 2,000 new social rented houses in the pre-budget report is welcome, as is the £100m announced for regeneration schemes, but these are small amounts given the scale of the current problem. To put it in perspective, the housing budget for London alone over the next three years is £5bn.

“The government should pursue more innovative schemes aimed at getting the development industry moving – for example, measures designed to promote the development of new homes for private or intermediate rent that could be sold when the market recovers.

“Land values have plummeted over the past year, offering an opportunity for the public sector to buy development sites at low cost. It is the right time to build up of a ‘war chest’ of land that could be used to stimulate housing delivery over the next few years, particularly when values begin rising again.

Sue Cocking, head of affordable housing at Knight Frank, added:

“It is disappointing that there is no further support for low-cost homeownership schemes in the pre-budget report. Many homes built for shared equity are standing empty and unsold as mortgage providers are unwilling to lend for this type of purchase.

“There is an urgent need for the government to convince lenders that shared equity is not a high-risk investment – indeed, the lender has considerably more security than in conventional house purchase. For example the retained equity held by the affordable housing provider can be used to manage any risk resulting from negative equity. Many affordable housing providers also offer 'buy back' or 'flexible tenure' in the event of job loss, offering further comfort to lenders. Failing that, the government should consider offering competitive mortgages itself in this area. It is disappointing that at a time when house prices are finally becoming slightly more affordable that more is not being done to protect the option to buy through shared equity.

"Also, the delivery of social housing over the past few years has been cross-subsidised by increased land values and end sales prices in the open market. This is no longer feasible, and the amount of housing grant required to build one home needs to increase dramatically, but there is no sign in the pre-budget report that any change is being considered."

Courtesy: Knight Frank Residential Research

For further information, please contact:

Jon Neale, Knight Frank, head of development research,
Tel: +44 (0) 20 7861 1551, +44 (0) 7795 684990
Email: [email protected]

Sue Cocking, Knight Frank, head of affordable housing,
Tel: +44 (0) 20 7173 4920
Email: [email protected]

Tania McNally, Knight Frank, residential development pr,
Tel: +44 (0) 20 7861 1068
Email: [email protected]

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