By Head of Research, Nicola Almond

300,000 is the headline number for measures aimed at solving the housing crisis in yesterday’s budget – this is both the target annual house building figure and the new stamp duty threshold.

The government aims to leach this level of supply by the middle of the next decade through a combination of carrot and stick policies, including £44bn to fund loans, guarantees and skill supply, and ‘use it or lose it’ measures to address ‘land banking’ by developers. On the demand side, stamp duty is to be abolished for first time buyers on purchases up to £300,000, and cut to 5% from £300,000 to £500,000 (a maximum saving of £5,000).

Although these measures are to be welcomed, it is questionable whether they will be enough to improve the situation in London, where the issue of housing delivery and affordability is most acute. With the average property price in the capital fast approaching £500,000, the main problem for first time buyers is not stamp duty but the deposit. The average deposit in London is about £100,000, so whilst a stamp duty saving of £5,000 is helpful, it is not a ‘make or break’ saving. And with the OBR already forecasting that the stamp duty cuts will boost prices by 0.3%, this will erode £1,500 of the tax saving on a £500,000 purchase.

As all hopes fade for a Buy to Let tax reprieve, the continued exodus of these landlords will mean higher rents as the supply of properties to rent is squeezed. This unintended consequence may well be compounded by plans to make landlords offer longer contracts. A good pool of rental properties is essential to a healthy property market, and the government needs to consider how this supply can be boosted, not only in terms of institutional landlords (who had hoped for relief from the additional levy) but also small landlords who play a crucial role in the housing market, especially in London. Planned measures such as forcing landlords to offer longer contracts may well be counterproductive, as has been the 3% stamp duty surcharge.

Rising rents make it harder for Generation Rent to save for a deposit. Help to Buy has helped bridge this gap for those who can’t resort to the bank of mum and dad, but more help is needed. We would have liked to see bolder measures to address affordability by increasing the supply of homes which young Londoners can afford to buy. This means delivering many more properties, especially in the Outer London boroughs, where relatively low price levels mean they are genuinely affordable.

On the demand side, the increasingly popular Help to Buy shared ownership and equity loan schemes should be further expanded. Whilst the previously announced £10bn additional funding for the Help to Buy / Equity Loan scheme is expected to help around 135,000 more people to buy homes by 2021, in our view this is not enough. More funds should be found for both the equity loan and shared ownership schemes, accompanied by a major public information programme, as they offer the only viable routes to purchase for many, and are generally not well understood.

Overall however, the budget measures are likely to boost sentiment and prices in the short term, which is good news for property owners, if not for those waiting in the wings. In the longer term, we need to see the delivery of promises such as planning reform and the release of public land for development to help address the structural supply problem.

Group CEO Anne Currell said:

“Whilst we welcome all the measures announced yesterday, the government continues to tinker at the edges, and has failed to address the real issue which is affordability, especially in London. It really needs to pay attention to the bigger picture, particularly the rental market – retaining the punitive 3% stamp duty surcharge on landlords whilst simultaneously expecting them to deliver more rental properties with longer contracts smacks of trying to have your cake and eat it.”