Ho Ho Ho! – Christmas comes early for house builders as David Cameron is set to announce another extension of the Help to Buy scheme at his party’s conference in Birmingham this week.
Under the latest proposals, David Cameron anticipates that up to 100,000 houses would be built on so-called ‘brownfield’ land and offered for sale only to young people buying their first home in England. The new homes would be offered at discounted prices of 20% less than their market value. Exactly who will be valuing the new homes and “comparable” homes has yet to be clarified, but it should be expected that the house builders would set the “market prices” and then “discount” them by 20%. So, in theory at least, a new house worth £200,000 could be bought by a first-time buyer under 40 for £160,000 with a potential saving of £40,000.
To make the discount possible, the Conservatives are proposing to exempt house builders from certain taxes and requirements such as the Section 106 provision of affordable and social housing, the Community Infrastructure Levy and the Zero Carbon Homes Standard on these sites. In addition, brownfield sites – land previously used for commercial or industrial purposes – and surplus public sector land will be released to house builders at knock-down prices to fund the discounting – savings which house builders will be “obliged” to pass on to buyers.
House builders will be required to demonstrate, before planning approval is given, that the homes they are proposing to build will be at least a 20% cheaper than comparable houses in order to qualify for the discounted land and tax exemptions. That could mean that at the outset, the homes would have a price set before planning and could perhaps discourage house builders from land banking these sites. Brownfield land can be notoriously costly to develop. Previous industrial and commercial sites are often contaminated and the demolition and clean up of toxins can be as time-consuming as it is expensive. Factor in that it will also be necessary to bring in clean topsoil and that costly foundation designs may also be required, it is not surprising that the house builder’s preference is always going to be Greenfield land.
‘Buy to Regret’ as Landlords face even more red tape
The popularity of Buy to Let may be coming to an end as new rules and regulations come in force and rental yields and property prices stagnate. Add in the increasing numbers of tenants “misbehaving” and many landlords may soon decide enough is enough.
Landlords are being forced to delay rent increases: Until recently, rents were rising by as much as 8% a year in London. But now across most parts of the country rent increases are being either reduced or postponed as achievable affordable rents have now reached a peak. However, attractive homes in areas of high demand do still command high rental yields.
Property prices rises levelling out: Recent monthly reports of property prices show that rises are slowing down. This means landlords’ easy paper profits on their property portfolios are coming to an end and may even go into reverse when (not if) the property market falls.
Large fines for not checking tenants are legally allowed to be in the country: The Immigration Bill 2014 which comes into force next month, means landlords must check that their tenants have a legal right to be in the country before giving them the keys. If they do not, landlords can face fines of up to £3,000.
Problem tenants on the increase: The number of “tenants behaving badly” is on the increase. Insurer AXA reports that a number of tenants are making life difficult for landlords. Nearly 20% of tenants admit they have kept pets in the property and broken the terms of their leases. A third regularly pay their rent late and one in ten do a moonlight flit at the end of their tenancy to skip paying any final bills. Nearly one in six tenants has had noise complaints made against them, with 10% of tenants having had the police called to the property. Landlords can even face prosecution if their tenants are producing cannabis or any other banned substances in their property under the Misuse of Drugs Act 1971.
Other regulations and red tape landlords are now required to do:
- Comply with fire prevention rules on the type and standard of furniture.
- Carry out Annual gas safety checks on boilers and gas appliances.
- Test electrical appliances.
- Supply an Energy Performance Certificate if a tenant requests one.
- Landlords must use a government-backed deposit protection scheme within 30 days of receiving it from the tenant. Failure to do so could result in a fine of up to three times the value of the deposit.
Hardly a person to let an opportunity slip to gripe about the perceived failings of the planning process and other woes of the house building industry, Redrow’s CEO Steve Morgan, is becoming a regular whinger whenever his company release results or issue interim statements to the City. His latest tirade this week concerned the release of greenbelt land for house building, capacity issues relating to labour and materials shortages and his perceived restrictive planning policies.
Reasons to be cheerful?
Morgan’s company Redrow released a record set of results and doubled the dividend paid to its shareholders on the back of a 91% increase in profits to £132.6 million for the year to the end of June. The average selling price of a Redrow home is also up 13% to £239,500 – the fifth highest of the large house builders. The number of new homes built was also 27% higher, up 727 to 3,597. All of this thanks to the government’s Help to Buy scheme, acknowledged by Redrow and facilitating over a third of their private sales (35%).
You would think this would make for a very happy bunny – especially when you consider that Morgan will be £3million richer as he owns 150 million shares in his company – but not apparently so.
On brick shortages:
According to Morgan, there are just not enough bricks being made to go round. Strange, as his competitors Barratt managed to build 13,663 new homes, nearly four times more than Redrow and Taylor Wimpey also managed to get bricks for the 11,600 new homes they built last year, again over three times the number Redrow built!
It takes around 10,000 bricks to build the average UK house. Around 1,560 million bricks were made last year – enough for 156,000 new houses. Nowhere near that number of houses will be built in 2014; in fact, it would be a surprise if a total of 156,000 new homes are built this year! So enough bricks are being made and Redrow’s competitors manage to order sufficient quantities so perhaps Morgan should be looking closer to home!