How Does Chancellor Osborne Plan To Fix The Economy With Housing?

By Author: Bradley Weiss
Total Articles: 272
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Housing is in the matrix of economic activities that make for a stable and prosperous Britain. The homes shortage can be fixed with policy and investment.



Chancellor of the Exchequer George Osborne published a presentation to Parliament in July 2015 that outlines his ideas for stimulating the British economy. Titled “Fixing the foundations: Creating a more prosperous nation,” in it Osborne speaks of the drivers of productivity: “A dynamic, open, enterprising economy supported by long-term public and private investment in infrastructure, skills and science.”



No small part of this plan is what the UK does to ensure adequate and good quality housing. Fixing the foundations states as a premise that the country has fallen behind in building residences to accommodate a growing population. Osborne reads this as bad for people, but also bad for business: it “harms productivity and restricts labour market flexibility, and it frustrates the ambitions of thousands of people who would like to own their own home,” reads the report.



This is a critical ...
... consideration to investors who want to build new homes. Strategic land developers must work with local planning authorities to get permission to build; what comes out of Whitehall can influence councils at the local level. As anyone who has been through this development process will attest, it is not a cakewalk.



Osborne’s plan to increase housing as an economic stimulus comes in five pieces, fundamentally serving the need to provide homes that people can afford close to where they want to work:



Develop a zonal system for brownfield sites - In effect, it would grant automatic permission to build on suitable land that has fallen into redundancy.



Enforce requirements that local authorities develop their own local plans - Surprisingly, about half of the local councils lack a plan called for in the National Planning Policy Framework, which since 2013 has required each council to outline where new homes can be built. Osborne says “the Government will publish league tables, setting out local authorities’ progress on providing a plan for the jobs and homes needed locally.” Where local authorities fall short, the Secretary of State for Communities and Local Government will consult with local people in an intervention to arrange for writing local plans.



Encourage strong and fair compulsory purchase powers - This is a devolution of power to planners in London and Manchester. According to the document, the intention is “to bring forward more brownfield land for development by making the compulsory purchase regime clearer, faster and fairer for all parties.”



Support first time buyers - Provide 200,000 Starter Homes built by 2020, and extend Right to Buy to housing association tenants. Starter Homes will first be built on underused brownfield land; residential-unviable land can be used for retail, leisure and institutional uses.



Alter the tax structure for landlords - Under the current system landlords have the advantage of being able to deduct costs when calculating the tax they pay on their rental income - they still enjoy Mortgage Interest Relief that homeowners lost 15 years ago. Osborne proposes that this relief should be restricted and will be phased in over three years beginning April 2017, shifting the balance between landlords and homeowners.



The fact that Osborne stresses the work-home proximity factor is worth noting to those involved in alternative land investments. The proposal notes that labour market inflexibility is frustrating to employers as much as to workers. He remains critical of the strict planning system, even after the reforms begun in 2011, because it increases the costs and uncertainties in investments. Only better-managed strategic land investors understand how to navigate the system in such ways that a profit can be extracted from the enterprise.



Osborne does acknowledge the planning system has improved, that housing starts are at a seven-year high, and that government programmes such as Help to Buy have put 100,000 households onto the housing ladder. For those who invest in land for the purpose of development, this is encouraging.



Investors should always consult with an independent financial advisor to fully understand the implications of alternative assets and their risks. Investment in UK land and property can be lucrative, but the experience of the specialists managing the development or related funds needs to be considered as well.