Bruce Ritchie, Residential Land’s CEO and Founder, comments on London’s social housing, super-prime and everything in between in MIPIM UK Daily News. Bruce Ritchie has also been on the panel discussing the same topic together with Nick Candy, CEO of Candy & Candy, Iain Gilbey Head of Planning & Environment in Pinsent Masons, Stephen Howlett, Chief Executive of Peabody and Ritchard Fletcher, Business Editor for “The Times”.
A plague on both houses
From social housing to super prime. No subject could be more relevant in today’s London residential market, and here’s why. To begin with, we need to understand that in London, residential has traditionally performed more strongly than commercial property. Discard arguments about relatively low yields – the capital growth achieved by London residential beats commercial over any period in recent times.
But in recent years we have had the perfect storm of tax changes in residential. From the introduction of annual tax on enveloped dwellings to offshore capital gains tax, from clampdowns on corporate vehicles buying property to the removal of buy-to-let relief, and then the one that threatens to tip the market over the edge – stamp duty land tax.
The principle underpinning UK home ownership is that you do not pay tax on the gains on your personal primary residence over the long term. Imagine you are a homeowner who 10 years ago bought a flat for £1m, spent more than £500,000 on it since, and it is now worth £2.5m. Anyone looking to buy your home is likely to discount their offer by up to £300,000 to take in to account the new stamp duty land tax rate. This is the equivalent of 30% tax on the profit you have made, not taking into account the 12% stamp duty you will pay on your next £2.5m home.
Big numbers scare purchasers. A 9% upper band between £1.5m and £10m with 10% over this level would have been a better call. In London the market has cooled considerably for homes priced between £5m and £10m, less between £2.5m and £5m and is continuing to hold its own but with reduced volume in the £1.5m to £2m bracket. Some might say this was the chancellor’s aim, to slow the market and bring in revenues. However, there are consequences.
While moving to a “slab” system of stamp duty designed to harvest more tax from the rich, the unanticipated consequence will also be to limit the supply of affordable homes for the less well-off. This is because the profit generated on
flats priced above £2m in a large development funds the affordable housing that is also built as a result of the development.
Force a discount in the price of the larger, more expensive flats and you limit the scope of the developer to provide affordable housing within that scheme.
The good news is that in the long term London still has a golden future for residential. For the long-term buyer, there is quite simply no better store for wealth.
As the global economic situation becomes more volatile, the “gold standard” of London residential property only increases the city’s appeal.
At the same time, a lack of cheap and readily available land, a complex planning system and other barriers to development, such as the community infrastructure levy and s106 requirements, mean housing supply in London isn’t going to increase sharply any time soon.
It is vital that policy makers understand that the supply of “social housing to super prime” is inextricably linked to the prices achieved. Without understanding that link, the capital will struggle to provide the affordable homes
To see the full article in the MIPIM UK Dailies Day 1, please follow the link here >>