10 steps to a happier housing market
What steps should the new government take to improve the UK's housing market? Liam Bailey, Knight Frank's head of residential research, suggests 10 simple changes to get Britain's home buyers, sellers, landlords and tenants smiling again.
(1) First, delay the Energy Performance Certificate (EPC)...
Thankfully it seems we can say goodbye to the unloved Home Information Pack (HIP), but the EPC will remain because it forms a requirement under an EU directive. However, even the Eurocrats don't insist that the certificate has to be in place when marketing commences, so let's follow the lead of our more relaxed European cousins. In France, Portugal, and other countries, the certificate is required only when terms for purchase are agreed. Until this change is made, the abolition of the HIP only goes half-way to encouraging more speculative vendors into the market and minimising wasted consumer expenditure.
...and then improve it
It seems that the only serious argument put forward for retaining the EPC is that it is a requirement of an EU directive. If there really is no consumer benefit from the EPC then start talking tough in Europe and negotiate for changes to the directive. The annual cost to UK consumers for EPCs, even in a low volume market, is close to £100m, which would seem to be reason enough to make an effort to improve their effectiveness.
(2) Streamline the provision of information
The HIP was flawed from the outset, but it did at least concentrate attention on the need to speed up the process of collating papers and searches prior to sale. The new government should contrast the speed and efficiency of the provision of information from the utilities and other agencies, with the slower and more cumbersome process of completing local authority searches and confirming planning issues. The introduction of compulsory time limits on local authorities would be a good first step. With some local authorities excelling in this area there must be scope for sharing best practice.
(3) Create a transparent conveyancing process
The Land Registry is slowly making progress in its e-conveyancing plans. The third consultation on its proposals is due to end on 25 June 2010, which would be a perfect opportunity to provide additional support and encouragement for this initiative. The ability for agents, solicitors, buyers and sellers to view the progress of their chain in a transparent way online should remove a considerable amount of the frustration caused by the lack of information provided during the purchase process.
(4) Licence estate and lettings agents
Perhaps we're biased as we already adhere to the highest standards, but here, dare we say it, is a rare example of a good new regulation. With the proliferation of consumer protection legislation covering the estate agency and lettings process, the Property Misdescriptions Act and Money Laundering Regulations amongst others, the introduction of a formal licensing system for estate and lettings agents would ensure that their consumer protection role is enhanced and promoted, and would be a positive step towards increasing consumer confidence.
(5) Encourage long-term residential investment
One of the main priorities for government will be to encourage the growth of residential new-build development volumes. One the key ways to achieve this will be through the growth of the private rental sector. Charging Stamp Duty on individual property values rather than on total portfolio value would be a useful first step to increasing liquidity in the market. In addition, the introduction of a residential property Real Estate Investment Trust (REIT) structure in the UK will encourage the longer-term investment the UK currently lacks. For the smaller investor the new higher CGT rates will obviously be a negative factor, we mention the reintroduction of taper relief below, an alternative could be some form of "rental business" entrepreneurs relief.
(6) Stop the retrospective AST threshold increase
The current rental threshold for an AST is £25,000 per annum, this figure is being increased to £100,000 on 1 October 2010. There are lots of reasons to welcome this change, which provides greater protection for tenants and their deposits. However the change as currently implemented will mean that rather than the new rule applying to new tenancies granted after 1 October, it will instead apply to all tenancies live at that date, effectively changing the status of existing tenancy agreements retrospectively. This will cause a costly administrative headache for managing agents, and is a classic example of poor legislation being introduced without proper consultation.
(7) Reverse the new HMO planning use class
From 6 April 2010 any new tenancy undertaken by more than three unrelated sharers (now defined as an HMO) must have a planning consent for a change of use from C3 to C4 (prior to 6 April it was mandatory for HMO's for five or more sharers to have a licence, and some local authorities also required a licence for properties with between three and five sharers). With planning consent being required prior to the start of the tenancy there will be a potential delay in starting tenancies, as well as a significant increase in planning costs for landlords. With local authorities now needing to dedicate time and resources to manage applications and appeals, a reversal of this legislation should be welcome across the board.
(8) Review development taxes before the introduction of "open-source" planning
There are lots of arguments for and against the existing "top-down" approach to planning and the proposed "open-source" localism approach promoted by the Conservatives. But rather than expending a huge amount of effort and energy on prioritising a radical overhaul of the current system, the most positive step would be to review the spiralling costs on development that have been introduced over the past decade. This review should look at the impact of the new Community Infrastructure Levy, the Section 106 agreement and the separate need to provide affordable housing. Simplifying the existing rules is the first requirement before introducing new ones.
(9) Encourage the building of homes people actually want to live in
If we are going to retain housing targets, and it seems likely that they will survive in some form, make sure they are based on the amount of accommodation provided (bedroom counts or floor area) not on numbers of units. This will mean that local authorities are encouraged to approve development for the type of housing needed by families in the UK rather than ticking boxes in order to fulfill a meaningless central diktat.
(10) Reform unhelpful taxes
The Lib-Dem proposal for equalising VAT for new-build and for refurbishment was an obvious non-starter. But how about levelling down the other way - to zero. With most "green" policy initiatives aimed at new-build developments, the removal of VAT on the refurbishment and renovation of our existing housing stock would be a significant step forward, particularly when we come to think about retrofitting green technologies into older homes.
And while you're at it why not reform the current slab structure of Stamp Duty, which sends tax bills soaring just because a house buyer spends an extra £1 over one of the £250,000, £500,000 and (from next April) £1m thresholds. The current system distorts the market, discourages liquidity and damages labour market flexibility.
It seems likely that it is too late to change the decision over the new high CGT rates, but we would say that an effort must be made to a recognise the difference between short-term and longer-term capital gains on investments, with an indexation allowance at the very least and ideally a revived taper relief structure.
*Liam Bailey is Knight Frank's head of residential research.
Article by: Liam Bailey* - www.realestateweb.co.za