Growth deal cities and retail-resi conversions benefit most in UK budget
The big question for budget-watchers leading up to the Chancellor’s speech today was how convincingly it will enact the beginning of the ‘end to austerity’ that was promised at the Conservative party conference earlier this month. But for property investors and professionals, another key question arose from another conference promise: whether the government would take steps to introduce a supplementary stamp duty levy on foreign property buyers.
Such a measure would be likely to further dampen prices in prime London and other areas frequented by foreign buyers while providing a slender advantage to UK-based purchasers. Yet as foreign buyers are disproportionally represented in off-plan sales of new developments, any resulting constriction in supply would likely underpin price gains in the market going forward.
However, interestingly, no such policy was mentioned by Mr Hammond. So aside from tweaks to first-time buyer stamp duty relief, lettings tax for landlords living under the same roof as tenants, and goodies to encourage or enable local government to increase housing supply, the budget was not particularly consequential for the property market. Given the Conservative party’s recent record, no news on this front is absolutely good news.
That said, the budget was full of titbits that will have indirect effects on property for years to come.
Notably, the Chancellor announced a greater effort to rejuvenate the high street by redeploying retail and commercial property for residential use, and with tax breaks for independent cafes, restaurants, pubs, and shops that will help keep the buzz alive in many town centres. Great news in my view and something that is long overdue. Not only will this help bring buildings and dilapidated towns and city centres back to life, this also potentially unlocks an expanded stock of exciting residential developments in interesting buildings and fantastic locations, and supplies more good reasons for people to want to live in city centres. Those that know us well will know that this has been a big focus for us in recent years - think Martins Mill in Halifax, Parker Street in Liverpool, Westbury Court in Bicester.
Mr Hammond also announced an increase to the Transforming Cities fund and greater spending in Northern Powerhouse and Midlands Engine cities, as well as three brand new city region growth deals worth around ￡300m on average – in the Tay region, North Wales, and Belfast. With such funding inevitably comes infrastructure and public space investment that will support house price growth going forward, so those should be regions, already on our radar are certainly ones for investors to watch.
Furthermore, the budget was a compelling showcase for the sure footing of the UK economy. Although growth forecasts remain little changed (and fairly pointless given the lack of finality in the Brexit negotiations), the Chancellor benefitted from what the FT has described as
‘the best news that the Office for Budget Responsibility has given to any Chancellor since its creation in 2010.’
This is the fact that the deficit has been cut by about a third compared with expectations – a near unheard of feat.
The significant reduction in the deficit supplies both an argument for the success of recent austerity measures, and an excuse to be more lavish with the public finances going forward. Whether or not today’s announcements usher in a new and generous era of public spending, it was a convincing step in the right direction.
Finally, when it comes to Brexit, the Chancellor made much of a ‘dual dividend’ idea. This refers to two benefits that will come after a Brexit deal is agreed and/or implemented: firstly, an end to uncertainty; and secondly, the release of the fiscal headroom that has been held in reserve until Brexit happens. This idea is also a potent metaphor for the property market, which will benefit most from the end of transaction-stalling uncertainty post-Brexit, and also has a meaty fund of fundamentals-driven growth held in reserve. To see what that dividend will look like for the public finances and the property market, we’ll have to wait until next year.
But this autumn statement offers good cause for optimism and we will certainly be continuing our focus on UK city centres where the fundamentals are strong and there is good opportunity.
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