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News Release

Reaction from Jones Lang LaSalle's head of Residential Research

Government announces its housing strategy


London, 21st November 2011 – Following the government’s housing strategy, announced today, Monday 21st November, Jones Lang LaSalle believe this package of support is most welcome and will provide a much-needed boost for the UK property market. The strategy demonstrates that the Government recognises the grave problems facing the housing market – not least the low numbers of first-time buyers and a depressed house building industry which is producing fewer homes that any time since the Second World War.

Commenting on first-time buyers and the mortgage market, Jon Neale, head of Residential Research at Jones Lang LaSalle said: “At present, many potential first-time buyers are effectively locked out of the housing market as a result of onerous deposit requirements – with the products that are available to those with more limited means, charging prohibitively high interest rates. The mortgage indemnity proposals will help up to 100,000 people to buy a new home with just a 5% deposit – although it will not help those who do not wish to buy a new home or solve the lack of liquidity in the resale market.”

Neale goes on to say: “However, over the past few years there have been, on average, around 200,000 first-time buyers per annum, compared to an average of over 450,000 before the financial crisis. While this initiative is substantial and innovative – it has not been tried before in the UK – it cannot in itself restore first-time buyer numbers to more typical levels, or markedly reduce the backlog that has built up since first-time buyer numbers began falling around 2005/6. Regardless of mortgage concerns, affordability and the undersupply of new homes remain the major barriers.”

When looking at the undersupply of new homes, Jon Neale commented: “Luckily, the government appears also to be attempting to address this in its housing strategy. The £400m ‘Get Britain Building’ pot will enable up to 16,000 new homes to be built on stalled sites that are currently suffering from a shortage of development finance. This will be welcome news, particularly given the apparent focus on smaller, local developers who have suffered most over the past few years but remain significant suppliers of new housing.

“Once again, though, while the initiative is to be applauded, it will not in itself restore activity to pre-crisis levels. Over the past few years, there have been on average fewer than 100,000 starts on new homes, compared to an average of almost 175,000 during the five years leading up to 2007.
 
Britain faces a huge shortfall, with new households likely to form at the rate of around 232,000 per annum. An extra 16,000 new homes will be welcome, particularly to those employed on the sites or living in the eventual homes, but it is, sadly a ‘drop in the ocean’.”

Given the scale of requirements, and the ongoing growth of the private rented sector, initiatives to promote both private and institutional investment in new build stock could help stimulate growth, potentially far more than these initiatives. The government has already reformed stamp duty and is addressing limitations within the Real Estate Investment Trust legislation, but it is notable that it is now embarking on a larger study looking at the sector.

Finally, Neale adds on the extension of right-to-buy discounts that: “Whilst the extension of right-to-buy discounts is a welcome change, those buyers may also find it hard to access mortgage finance in today’s constrained market. The ability to use the receipts to fund affordable housing will be welcomed by those in the industry who only criticised the original initiative for failing to re-invest in the housing stock. This will help to tackle the profound backlog in the supply of both social and intermediate homes.”