黑洞社区

Shares in housebuilders Taylor Wimpey and Persimmon have this week fallen 7-8% below the level they were at when Kwasi Kwarteng stood up to make his much heralded not-a-Budget announcement last Friday. This wiped about 拢600m off the value of those firms alone.

Persimmon and Taylor Wimpey are just two examples 鈥� on Monday all of the major housebuilders fell well below where they opened on Friday morning, with investors clearly believing their medium-term prospects have been damaged by what the chancellor brought forward. And this is despite his statement including a series of planning reforms, tax breaks designed to stimulate growth 鈥� including a 拢1.6bn a-year permanent stamp duty change directly targeted to help homebuyers 鈥� and other dedicatedly pro-growth reforms.

So, are the capital markets rights to be so gloomy about prospects for the residential sector under the government鈥檚 growth plan? What does it really all add up to?

The stock market falls for housebuilders are, of course, not really anything to do with an assessment of the specific housing and planning measures in the growth plan. They are simply the reaction of investors to the turmoil in the foreign exchange markets which has followed the publication of the plan.

This is because of the expectation that the Bank of England will have to intervene with action to increase interest rates 鈥� further and faster than previously thought necessary 鈥� in order to prop up the value of the pound.

The 鈥済iveaway鈥� tax measures for housebuilders in the mini budget will not generate nearly enough positive momentum to outweigh the drag from the higher interest rates

Economist Mohamed El Erian, president of Queen鈥檚 College, Cambridge, and chief economic adviser at Allianz, has described the current situation 鈥� where the government has launched a no-holds barred growth strategy based on borrowing-fuelled tax cuts, while the Bank of England raises interest rates in order to dampen growth to curb inflation 鈥� as 鈥渆quivalent to a car being driven with one foot on the brake and the other, 鈥減edal to the metal鈥�, on the accelerator鈥�.

And, if there is a tension between a drive for growth and a drive to limit it, the fall in value of housebuilder shares clearly implies investors believe the balance of the impact will be to stifle growth.

Their verdict has been that the 鈥済iveaway鈥� tax measures for housebuilders in the mini-Budget 鈥� a freeze on corporation tax and a lifting of stamp duty 鈥� will not generate nearly enough positive momentum to outweigh the drag from the higher interest rates now expected to be consequent of the statement overall. After all, the Economist said today that the markets now expect the base rate to hit nearly 6% next year.

Of course, the capital markets have been wrong plenty of times before. Hands up anyone who remembers the 40% falls in housebuilder share prices the day after Brexit vote?

By no means does this week鈥檚 slump consign Friday鈥檚 intervention to definite failure. But it is an important indicator of how changes such as the tweaks to stamp duty 鈥� which were positive for builders and welcomed, but relatively modest compared to what was expected 鈥� are just one part of the wider economic situation in which home buyers find themselves, a picture in which interest rates are a key determinant.

Of more practical day-to-day significance for those working in residential development were the planning reform proposals put forward in the chancellor鈥檚 speech. In the growth plan, Kwarteng sounded more aggressively pro-housebuilding than prime minister Liz Truss had managed during a number of shire Tory-friendly comments made during the summer leadership contest, where she pledged to scrap 鈥淪talinist鈥� local top down housing targets.

>> See also: Industry criticises lack of support for affordable housing in mini Budget

>> See also: Industry disappointed by Kwarteng鈥檚 lack of action on retrofit

However, despite this very positive pro-development rhetoric 鈥� a world away from what the industry saw under former housing secretary Michael Gove 鈥� it is very unclear what Friday鈥檚 reforms will practically add up to.

From a housing perspective there are essentially two parts of interest: investment zones, which will cover commercial and residential development and benefit from relaxed planning rules, and a new Planning and Infrastructure Bill, which (among other things) looks set to shake up the environmental assessment regime and habitats rules 鈥� meaning it will presumably be the venue where the government tackles the 鈥渘utrient neutrality鈥� issue.

From the examples given it seems clear these Investment Zones will not cover great swathes of  authorities, but instead tightly-defined sites where the principle of development and, indeed, the actual planning permission in many cases, has already been established.

Kwarteng said the government was in discussions with 38 authorities about investment zones (I understand Whitehall officials called councils about the idea on Monday last with a deadline to express a general interest, 鈥測ea鈥� or 鈥渘ay鈥�, by Wednesday lunchtime 鈥� hence don鈥檛 be surprised at the lack of more detail). Of course 38 councils represents just one tenth of English local authorities.

From the examples given, such as Blackpool Airport, Langarth Garden Village in Cornwall and Sunderland Riverside, it seems clear that these investment zones will not, however, cover great swathes of those authorities, but instead tightly-defined sites where the principle of development and, indeed, the actual planning permission in many cases, has already been established.

Guidance published over the weekend promises a 鈥渟treamlined鈥� consent process for those areas in investment zones that do not already have permission, which will knock out the need for 鈥渂urdensome EU requirements鈥�, some 鈥渄eveloper contributions鈥� and some statutory consultees, but retain from the existing system 鈥渒ey planning policies to ensure developments are well designed鈥�, as well as green belt, heritage, flood risk, highways and other public safety policies.

If local housing numbers are abolished it is very hard to see how this plan will add up to a big boost to the sector.

For areas that already have consents, it is really not clear what the investment zone will add, planning-wise, but the government promises it will be 鈥渁ccelerated鈥�, nonetheless. More generally, it is very uncertain what, if anything, the zones will deliver in the way of 鈥渁dditionality鈥� in housing numbers.

As one senior industry figure told me: 鈥淚n these areas, planning is just simply not a problem. Any of these issues can already be easily dealt with via the local plan, where there is support.鈥�

Of much greater significance to most in the industry will be what happens to planning in the 90% of council areas not covered by these zones. Here, beyond the signalled review of environmental regulations in the Planning and Infrastructure Bill, which will be welcomed by some builders but politically difficult, hard fought and with an uncertain outcome, there is some suggestion of positive change 鈥� but nothing in the way of detail.

The growth plan states simply that 鈥渓ater this autumn, the government will set out its vision to unlock homeownership for a new generation by building more homes in the places people want to live and work and by getting our housing market moving鈥�. More information, it says, will be available in 鈥渄ue course鈥�.

It is very uncertain what, if anything, the Investments Zones will deliver in the way of 鈥渁dditionality鈥� in housing numbers. 

What this forthcoming vision contains is likely to depend in part on the fate of the planning reforms in train prior to Truss becoming prime minister. A draft of the new National Planning Policy Framework had already been expected in autumn to accompany the reforms in the Levelling Up and Regeneration Bill (LURB), by setting out proposals for new national development management policies, changes strengthening green belt policy and a raft of other tweaks. But sources suggest the LURB鈥檚 fate is uncertain given the new reforms, though , meaning the content of this update appears up for grabs.

Industry sources suggest this new vision is likely to focus instead on implementing Truss鈥檚 campaign promise to abolish 鈥渢op down鈥� local housing targets, replacing that with a different system for generating housing numbers. Whether this does result in a system that delivers 鈥渕ore homes in the places people want to live鈥� remains to be seen, with most in the industry very nervous about the likely response from anti-development local authorities if they are asked to generate their own housing targets.

Certainly, if the LURB goes ahead, then the requirement for councils to demonstrate a five-year land supply will also go, which alongside the abolition of housing targets could leave practically zero external pressure on most councils to allocate sites for homes. And could lead to a return to lengthy appeal debates over housing numbers.

So far it remains unclear if Truss, Kwarteng and incoming housing secretary Simon Clarke want to retain the overall 300,000 housing target contained in the 2019 Conservative Party manifesto. At this point the fear is that the number will be meaningless even if it is retained.

If local housing numbers are abolished and investment zones simply cover those areas where local authorities have already earmarked sites for significant development, then it is very hard to see how this plan will add up to a big boost to the sector.

While the new growth rhetoric and for many, the industry will want some reassurance on these wider points, and quickly.

Meanwhile, the goal that many in the industry really want 鈥� for the planning policy tinkering to ease and for the current system to be properly resourced with enough people to deliver to its potential 鈥� remains the wish forever asked for and never granted.

Joey Gardiner is contributing editor at 黑洞社区 and Housing Today