30 October 2024
If you are covering the housing measures announced in the budget and the impact on the government’s 1.5m new homes target, please find below a comment from Oli Creasey, property research analyst at Quilter Cheviot:
“For housebuilders, and the housing sector more generally, today’s budget includes incrementally positive news, but nothing to materially change the outlook.
“The £500m boost to the existing Affordable Homes Programme (AFP) is of interest, but is a relatively small investment that will result in “up to 5,000” new homes – compared to the target of 1.5m new homes over the next five years, this is unlikely to move the needle. Of more interest will be the expected announcement of future grant investment beyond the existing AFP in phase 2 of the spending review, concluding in Q2 2025.
“Social housing rent settlement (CPI + 1% for five years) offers more certainty to those building/owning social housing projects, giving them more confidence in the financial outcomes of their plans. Talk of a 10-year settlement will provide further clarity on this. However, the £3bn of additional housing guarantee scheme cash is likely to prove most supportive – inexpensive loans for affordable house builders should help unlock more new projects, and the previous £3bn of funding (announced in Feb 2024) was expected to support the building of 20,000 new homes, so we would expect a similar impact this time around. Furthermore, given this funding comes in the form of loans, it is possible it can be recycled back into the housing sector upon repayment, making it a relatively inexpensive option for Government.
“However, it still feels that the sector is some way short of achieving the stated 300,000 new homes per year target. Other plans, such as making planning permission quicker and easier to achieve are somewhat helpful, but the sector remains stuck between expensive homes (both to build and buy) and expensive financing ie: high mortgage rates. Boosting supply of permissible land will help, but until there are more buyers willing and able to buy, the impact will remain muted. The Government is also making the existing mortgage guarantee scheme permanent, but again take-up of new mortgages is largely constrained by relatively expensive mortgage rates vs the preceding period of low inflation, and the guarantee scheme does little to address that.
“Housebuilder shares initially reacted positively this afternoon, but have given back most of their gains. We think this largely reflects changes in bond yields, which compressed initially, but have since widened. Given how important low interest rates (and hence low mortgage rates) are to the sector, we think this remains the biggest concern to housebuilder investors, and perhaps also the hardest one for the Government to address.”
