Faithful+Gould Budget Commentary

Simon Raine
Faithful+Gould's Simon Raine, director of commercial services, comments on the potential medium term impact of the 2011 Budget on construction volumes.

Faithful+Gould's Simon Raine, director of commercial services, comments on the potential medium term impact of the 2011 Budget on construction volumes.

  • Confirmation of new enterprise zones which will allow less restrictive planning controls in defined areas as well as offer a range of tax benefits. Eleven zones have been announced from Tees Valley to London with a further ten to be announced in the summer.
  • Introduction of Firstbuy Direct, the £250m scheme to help first-time house buyers into the housing market. Those with a combined income of less than £60,000 will be eligible for a 75% mortgage on new build homes provided they can find a 5% deposit. The balance will be covered by a 5 year interest free loan.
  • Easier change of use in planning to facilitate conversion of retail and commercial property into housing. Also proposed is public land released for development through public auctions and automatic permission for "green" housing developments.
  • Changes to stamp duty and REIT structures are proposed to encourage investment in housing.
  • The zero carbon homes requirements for 2016 will be relaxed so that developers will only be accountable for CO2 emissions that are covered by the Building Regulations. Offsite carbon reductions will be considered provided they are cost effective.
  • Private land auctions to local authorities which will allow authorities to ask landowners to submit sealed bids for the price at which they would be prepared to sell their land, allowing the authority to purchase the land, grant planning permission, sell the land on and pocket the profit.
  • A proposal to defer payment for purchase of public land to allow developers to build and sell homes before paying for the land.
  • National targets for development of brownfield land will be devolved allowing local authorities choice regarding the use of such land.

Other proposals that will have a peripheral effect on construction are additional funding for the Green Investment Bank, a carbon price floor for electricity generation from 1 April 2013 and a review of construction standards and codes to remove obsolescence and duplication.

The measures advanced by the Chancellor in the budget will provide a little relief to the construction industry particularly the house builders, where many of the measures are focused. However, the relief is fairly small compared with the dramatic effect of both the downturn of confidence in the commercial sector arising from the banking crisis in 2008/9 and the severe cuts to the public building programme. The Chancellor may have hoped that confidence would have returned to the commercial sector to balance the reduction in public sector construction but has done little to stimulate this sector. The Coalition's earlier decision to reduce the threshold for empty rates exemption remains in place and is seen as a major setback for development.

Creation of the new enterprise zones, with 100% discount on rates to a capped level and access to high speed broadband, will attract development in these areas but this may be at the expense of other locations rather than proving to be an incentive that will increase overall development.

As a market leader in facilitating carbon knowledge and reduction, Faithful+Gould welcomes the carbon price floor for electricity in 2013 but is concerned at the reduction in the 2016 zero carbon homes commitment for which there was considerable support across many stakeholders.

The overall economy is targeted to grow at a disappointing 1.7% this year and the OBR predictions of around 3% per annum from 2013 may be viewed as ambitious and over optimistic if previous predictions are considered. The budget has not markedly changed the general consensus that construction volumes in 2011/12 will do well to remain at the relatively low levels of 2010/11 and any increase in 2012/13 will be modest. A prolonged recession in construction will result in many leaving the sector permanently, as happened in 1990-95, leaving it ill equipped to manage a future upturn.

Faithful+Gould expects to see little change in the current extremely competitive tender market as a result of the budget proposals.