A Way To Alleviate The Housing Crisis – But George Won’t Like It

8 March 2016

housing graph

Along with Brexit and the refugee/ migrant crisis, the other topic that is never out of the news currently is the seemingly dire shortage of housing and the failure of the construction industry to keep up with demand for new and affordable housing.

The Government has called for 200,000 new homes to be built every year until 2020. The NHBC argues that that figure should be closer to 250,000 per annum. The current rate of delivery is falling considerably short of that. The NHBC suggest that 140,000 new homes were completed in 2015 whereas the Government claim that the true figure was 152,000. Even taking the most favourable figure, the industry is falling nearly 25% below the 200,000 target.

The areas of blame and protagonists are all well known and there is not a single element or player at whom all of the blame can be fairly levelled. The housing crisis is the result of a variety of complex and interwoven factors that will take complex solutions.

A Suggestion For The Chancellor

In late 2015, the RICS Construction Market survey highlighted that the two main factors limiting building activity were financial constraints and a shortage of labour. These two factors are interwoven. The shortage of labour has pushed up costs which then in turn impacts on financial viability and willingness to bear risk by the developer/ contractor.

So, is there a way to encourage builders, especially smaller ones, back into the housing market and so reduce our reliance on the major contractors who invariably focus on larger and therefore more contentious schemes? I believe so. The developer/ contractor wants comfort that his scheme will be viable and he will not rely on rising house prices when assessing viability. Indeed, house price inflation is something that the Government is keen to reduce. Our proposal?

For a period of 5 years, the Chancellor exempts smaller house builders from the burden of Corporation Tax (currently 20%). Such a move will increase the margin for the smaller builder and alleviate the rising cost of labour. It will make schemes that were marginal more viable. It would need restrictions and I would propose that it apply only to companies with a turnover of less than £5m per annum and that it apply only to developments of less than 15 dwellings. These figures are of course arbitrary but are suggested to preclude abuse by larger organisations.

George Won’t Like It But He Should

The Chancellor is responsible for raising money, not giving it away so he would baulk at this, but he shouldn’t. Increasing liquidity into the construction and housing market will have a trickle down effect. The more homes that are built, the more Stamp Duty the Exchequer will harvest. The more homes that are built, the more carpets and curtains will be bought that will yield increased VAT receipts.

Taxation can be a very powerful and immediate tool. Witness the perhaps unintended consequences of the radical overhaul of the Stamp Duty landscape – the market in London, responsible for more than 40% of all SDLT receipts, has been paralysed and receipts will plummet. Using taxation in a constructive way as suggested here could make a difference by creating the incentive for smaller, local, less contentious schemes that could have a quick impact on the housing shortage.

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