The autumn statement has been a mixed bag for the property and construction sector. Whilst it provides good news for larger scale infrastructure projects it fails to address some of the sector’s key concerns. Here’s our summary of the main points:
What does this mean for the Construction sector?
Fears were raised earlier this year that the construction sector is heading for recession which is largely blamed on a drop in demand for new homes and a drop in housing repair, maintenance and improvement projects.
The decreased demand for new homes has largely been driven by a lack of affordability due to interest rate rises, the cost-of-living crisis and the withdrawal of the help-to-buy scheme. These factors are making it increasingly difficult for first time buyers to afford homes, which is having a knock-on effect on demand. It was hoped that some kind of help-to-buy scheme would be re-introduced to stimulate demand, but this has not materialised.
Housing improvement projects are also stalling due to inflation pushing up costs and there were calls for the Government to introduce incentives to homeowners and landlords who spend money on improving the energy efficiency of residential properties. Sadly, this has also been ignored.
It’s not all bad news, however. Public funds are being made available to help increase housing supply by tackling backlogs of planning applications and unlocking stalled planning permissions. There will also be a new Permitted Development Right which will enable single houses to be converted into two homes. Whilst these measures should help to increase the potential supply of housing, it remains to be seen whether demand will also improve. If there’s no demand, solving supply issues will have little benefit.
Moving away from the housing market, construction companies involved in infrastructure projects should welcome the Government’s continuing commitment to fund Investment Zones and green industries which will increase demand for construction work. Furthermore, it has been announced that “full expensing” will be made permanent. Full expensing is a tax benefit that allows companies to claim a 100% first year allowance on the purchase price of qualifying plant and machinery and will greatly benefit larger-sized construction companies who typically invest heavily in this.
What does this mean for the Private landlords?
Private landlords have been suffering in recent years. The phasing out of tax relief on finance costs came into full effect in tax year 2020-21 and means that recent increases in interest rates are having a significant impact on landlords’ tax bills. Some landlords are paying tax even though they are not profitable. Landlords who rent to low-income tenants are also experiencing an increase in rent arrears and UK Finance recently announced that more than 11,500 buy-to-let mortgages are in arrears as a result.
Although it was announced that there would be an increase in Local Housing Allowance rates (i.e., an increase in Housing Benefit or Universal Credit that can be claimed by low-income families renting from a private landlord), it is unlikely that this will significantly benefit landlords. Many were hoping for a reversal of the interest restriction rules but will be sadly disappointed.
Without any significant help to combat rent arrears and rising interest rates, it seems inevitable that many landlords will want to sell up. This could be disastrous for low-income tenants as there is a lack of alternative social housing.
Our summary of the autumn statement for the property and construction sector
Whilst the Autumn Statement re-affirms the Government’s commitment to larger scale infrastructure and investment which will be welcome news for larger construction companies, it seems to ignore the issues of decreased demand for homes, decreased spending on home improvements and a growing issue in the private rental sector which could lead to a shortage of rental homes.