Housing policy must better reflect economic and social reality in 2024

The current broad framework promoting housing delivery is primarily shaped around the concept of home ownership. However, while ‘build to sell’ developers and investors remain vital for a thriving UK housing market, more needs to be done to support the ‘build-to-rent’ sector – particularly as changes in consumer lifestyles coupled with high mortgage costs and other costs of living, have led to growing demand for private rented housing.

In this context, we see an opportunity for more large-scale, multi-tenure, residential schemes to emerge in 2024 – featuring a mixture of new housing for sale, including intermediate affordable housing, as well as new housing built specifically for rent. In appropriate locations, multi-tenure schemes may also feature purpose-built co-living, ‘later living’ or student accommodation too.

In the current market, high mortgage costs coupled with increased costs of living have had a dampening effect on the sale of new homes even though several mortgage providers have recently cut their mortgage rates in light of the Bank of England base rate of interest stabilising. Savills has predicted that it will not be until 2025 before the average UK house price begins to rise again. On the supply side, while the economic outlook is predicted to improve throughout 2024, housebuilders are still grappling with inflationary pressures driving up the price of materials and this, coupled with reduced sales, is suppressing open market sale volumes.

In this environment, delivering large-scale single-tenure ‘build to sell’ schemes can be unusually risky, as there is a natural relationship between absorption rates and the developer’s financial ability – and incentive – to work on completing other units on site, and therefore the price that can be achieved for those units where supply outstrips demand.

In 2023 we saw a real growth in housebuilders partnering with build to rent investors to deliver ‘single family’ housing, with more than £1 billion invested in the single family rented housing market alone in the first three quarters of 2023. There is significant room for this market to grow and we expect, increasingly, to see large scale schemes designed to include build to rent and build to sell units from day one. This will, ultimately, increase the speed of delivery of housing whilst unlocking the finance to deliver enabling infrastructure needed to make the development a more attractive place to live – like roads, shops, or community facilities, which itself can attract other new buyers and renters, and encourage broader investment in the area by businesses.

Local authorities have a role within such partnership models, not only as developers in or sponsors of certain projects but also in identifying appropriate sites for development and helping those developers to take their plans through the planning process in a way that creates an institutionally investable product.

We are also seeing agencies such as Homes England embrace multi-tenure schemes, recognising the opportunities they offer for delivering affordable new housing within the development. Homes England has a stated appetite for joint venturing with others including institutional funds and developers and registered providers, to accelerate the delivery of affordable housing – the Axa/Hyde/Homes England joint venture created in 2023 is a recent example, with the anticipation we will see more innovative partnerships emerging in 2024.

Multi-tenure schemes can also support wider regeneration plans. We expect to see a continued emphasis on residential development around major transport hubs in 2024 as local authorities seek to reinvigorate city centre economies post-Covid. We see that a range of institutional investors – including pension funds – standing ready to support such development.

However, in what is almost certainly a general election year in the UK, political parties must recognise how the housing market is changing and take a holistic view on matters of policy and regulation, to supercharge the delivery of a suitable mix of new housing. Ultimately, this means recognising that, to deliver targets, multiple housing tenures need to be delivered.

What political parties say and commit to has real world consequences in the housing market. We have already seen evidence of potential investment in ‘multi-family’ ‘build to rent’ development being delayed by continued uncertainty over the detail of the government’s  ‘second staircase’ policy under the building and fire safety regime in England. Similarly, some uncertainty over the Labour Party position on possible new rent controls has caused developers and investors to raise concern about the impact that such controls could have on the ‘build to rent’ sector at a time when Savills has estimated that £250 billion of investment in the sector is needed to support future demand.

The SDLT regime is also not particularly supportive of ‘build to rent’ housebuilding due to the additional SDLT applicable to acquisitions of residential property by corporate entities. Whilst there is an exemption to the 15% rate of SDLT applicable to the acquisition of residential property for over £500,000 by non-natural persons where the acquisition is for the purposes of a property lettings business, there is no similar exemption to the 3% higher rates for additional dwellings surcharge for ‘build to rent’. There is such an exemption for student accommodation. Consequently, ‘build to rent’ purchasers face either paying at non-residential rates or claiming multiple dwellings relief but with each SDLT band facing an additional 3% surcharge. 

These additional SDLT costs can be significant and make the difference, in the current macro-economic climate, between whether a scheme is viable or not. We would hope one of the possible changes to the SDLT regime being considered by government ahead of the forthcoming Budget would be an exemption from the additional rate for ‘build to rent’ similar to that for student accommodation.

Similarly, the planning “system” does not yet fully recognise and support a multi-tenure approach to housing delivery. There is an inconsistent approach to affordable housing requirements and often a failure to recognise the benefits that different tenure types – and market entry points – can bring in terms of providing access to high quality housing. The planning system needs to support all tenures to allow increased supply. That requires an understanding of the different economic drivers and delivery models of those involved in the delivery, funding, and operation of each tenure.

Both the incumbent government and Labour set out plans to accelerate the delivery of new housing and other infrastructure during party conference season in 2023. Both clearly recognise how important that is for meeting social need and promoting economic growth. However, residential real estate developers and investors are rightly looking for the next government to get a better handle on the factors influencing housing development across the country and identify the levers they can pull to unlock the finance and collaborative partnership needed. Only by doing that will the industry be able to support the next government to deliver on its pledges and support the wider need for ‘place-making’ and the reimagining of city centres.

Co-written by Tom Johnson, Andrew McCarthy, and Richard Croker of Pinsent Masons.