The critical state of the UK’s housing market is widely recognised and debated by policymakers and yet policy to date has largely hindered the creation of new supply. Instead of addressing this fundamental problem, many consider the government’s actions on the issue in recent years to be scapegoating.
Landlords, overseas buyers and developers have all been at the receiving end of poor policy decisions, but these groups must be part of the solution if our industry is to work together to solve the supply crisis in any meaningful way.
In the past few years, tax disincentives have been introduced to discourage buy-to-let landlords, including additional stamp duty and the withdrawal of higher-rate tax relief on mortgage interest, which will disappear for good in 2020.
These measures, among others, have gradually forced buy-to-let investors to withdraw from the market – the number of buy-to-let mortgages has fallen sharply in the past few years from a high of 117,500 in 2015 to 74,900 in 2017.
While these measures were an attempt to decrease the unaffordability of homes for first-time buyers, they deprive developers of a key source of demand and restrict their capacity to build. The government should incentivise buy-to-let landlords to return to the market, easing the supply of rental properties and cooling the overheated market.
Foreign investors also continue to suffer from the government’s ill-founded belief that they snap up expensive central London new-build flats and leave them empty – a ‘lock and leave’ approach – reducing housing stock. In fact, foreign investment stimulates growth.
In the main, UK housebuyers do not purchase off-plan properties as they can rarely finance them. But developers need off-plan sales to make schemes viable. Pre-sales are more likely to come from foreign buyers, who take a punt on prices rising (or falling) before completion and can commit to purchase far earlier in the development cycle.
A recent London School of Economics report found that almost all of London’s large residential development sites have benefited from overseas investment to get them started and speed up development.
There is a widely held misbelief that international buyers and buy-to-letters squeeze out other buyers, rather than helping to create a more fluid market. But if these types of buyers withdraw and demand contracts at the top of the chain, the effect will be felt below – measures designed to hit the wealthy end up hurting those further down the property ladder. Without overseas buyers and buy-to-let landlords, the effect is a supply crisis, which becomes compounded when fewer homes are built as a result.
This scapegoating needs to cease if housebuilding is to increase.
Ashley Osborne, head of residential, Colliers