Britain to launch reits next year
Richard Warren in London
But critics say the tight planning system means developers cannot build enough homes to satisfy supply
The British property sector was less than enthralled by British Chancellor of the Exchequer Gordon Brown's 10th budget, announced last week.
The biggest and most anticipated measure was the announcement that real estate investment trusts (reits) could start operating in Britain from next January. The government hopes reits will bring new money into residential property development, thereby helping to relieve a widely perceived housing shortage in the country.
According to the government, the number of households in England is expected to increase from 20.9 million in 2003 to 25.7 million by 2026, an increase of 209,000 per year - a result of a growing adult population, increased numbers of single households, rising divorce rates and more immigration.
However, critics say reits will have minimal impact, because the tight planning system means developers are unable to build enough homes to keep up with supply.
'The chancellor linked the new reit vehicle to the government's aim of boosting housing supply, but it is likely to take several years before the reit market makes a material difference to supply,' said Ed Stansfield, property economist at consultancy Capital Economics. 'And in any case, new capital flows via reits will only be of help if the government is also successful in improving the planning system.'
The chancellor's desire to introduce a new development tax, the planning gain supplement, would restrict construction further, house builders said.
'The consequences could be devastating for house builders who are already struggling to meet housing demand within the parameters of the existing planning system,' said Philip Davies, chief executive of house builder Linden Homes.
'It will put landowners off releasing land to avoid the charge and instead wait for a new government to come to power and change legislation. This would make the housing shortage even worse and push up prices of existing stock still further, thereby fuelling the housing crisis.'
Mr Brown's decision to raise the stamp duty threshold from GBP120,000 ($1.6 million) to GBP125,000 was insufficient, property experts said. The Royal Institution of Chartered Surveyors (Rics) said the threshold should rise to GBP150,000 to help first-time buyers, because the average price of a home was GBP185,000.
Mr Brown announced more support for first-time buyers via shared equity schemes in which ownership of a property is split between buyer and mortgage lender or government - GBP970 million will be used to support 35,000 prospective homeowners. But this represents just 1 per cent of all first-time buyers.
To widen home ownership further, the government wants housing associations, local authorities and builders as well as mortgage lenders to offer shared equity schemes. It will pilot schemes where buyers can have holdings as low as 25 per cent.
Rics chief economist Milan Khatri said: 'The budget is offering little to first-time buyers and very little on the affordability of homes.'