November 13, 2020 jim1

Does the Government have any understanding of the Housing Market?

If you look at the Actions of the Treasury over the last few years, you might conclude that it has no understanding of the residential property market.

A straight list of the actions taken to impact the market over the last few years is to say the least a little confusing.

The objective was to increase the amount of residential property stock available for Home ownership.

Initially money was pumped into residential building companies via various grants and savings offered to new home buyers, alongside a continuing reduction in the planning regulations to allow more development. Then when the reality dawned that it would take many years to build sufficient houses to satisfy housing demand a second front was opened in an attempt to release more housing stock into the market.

This involved a declaration of war on the many small landlords who had invested their newly released pension funds into the Buy to Let market. Punitive tax and allowance changes were introduced to discourage investment and to encourage small landlords to sell their properties with the hope of releasing a large amount of housing back into the residential ownership market.

The changes did impact on larger landlords. The fact they traded as a company though offered them shelter from some of the changes. As well a loophole offered small landlords the opportunity to flip into Holiday or Short term lets which could also be traded as a business.

The impact on the housing market was a reducion in overall demand which for a period of time sent prices into a static or even falling trend. Of course the side effect was a reduction in the level of rental property available and subsequent boosting of rental prices. What the changes did not do however was rapidly release large amounts of rental property into the residential ownership market. Instead overall it created more of a trickle of movement from the rental into the ownership sectors of the housing market.

So gradually as the impact of changes were absorbed year on year we then saw a recovery in the market in terms of property prices.

Then came the great pandemic.

Initially reluctant to act in any way, suddenly the Government exploded into action. Those people who operated their Buy to Let portfolio as a business suddenly found themselves offered various loans and tax freezes to help them through the crisis.

Those that operated their portfolio as a Holiday Let, often second home owners, really hit the jackpot with tax free grants flowing into their coffers. Post lockdown, the bonus of a captive staycation population also saw rentals soar, resulting in a number having had their most profitable year.

The housing market in fact showed no real adverse reaction to the pandemic bar the suspension of some construction. The only sector of the residential market in trouble seemed to be the Flats and Apartment sector. This sector was hit by an increased desire to move out of cities. As well a complete logjam already existed following the Health and Safety certification requirements post Grenfell.

So for reasons which are hard to discern he Chancellor thinks now is the time to offer a stamp duty incentive! Not a targeted one, aimed at the sectors in trouble or first time buyers as in the past, but a general one benefiting everyone in the market including Landlords.

So having used stamp duty as a method of discouraging Buy to Let investment, suddenly it is used in a way which encouraged Buy to Let investment.

The result of the Stamp Duty cut is that house prices rise again, a massive backlog in House sales builds. To help keep the pot boiling the Government also talks about more incentives in the future to help people into residential property ownership.

How much of the property purchased during this period will go into the Rental market. Whether the incentive has just brought forward demand leading to a future slump. These are just a few of the questions it is hard to answer at this stage.

What is not hard to see though is that over a remarkably short period of time the Chancellor, Government and Treasury has dipped into the residential property market in a number of self cancelling ways. In every case the driver which is a short term based issue, has been allowed to override long term intentions.

So watch this space in 2021 for the next raft of changes, reduction in capital gains relief?, incentives for first time buyers, who knows!

The only guarantee is that the Treasury will not be able to resist stepping in again. No doubt what it gives with one hand, it will more than take away with the other.

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