Budget 2017: what now for SME homebuilders and investors?
Last week the Chancellor of the Exchequer took to the House of Commons to deliver the first Autumn Budget since 1996, and it was certainly an interesting and pivotal event.
Leading up to the Budget, the UK’s housing crisis was well publicised, with the Government signalling a determined commitment to fixing the dysfunctional housing market. This Budget highlighted that the only sustainable way to make housing more affordable over the long term is to build more homes in the right places.
Government action already increased housing supply to 217,000 new homes in 2016/17, but the Budget went further and announced a comprehensive package that will help raise housing supply to 300,000 per year by the mid-2020s.
However, the Housing white paper released in February 2017 pointed to the dramatic fall in the proportion of houses built by small and medium-sized housebuilders - a considerable drop of 40% between 2008 and 2015.
In the Budget, the Government provided details of a £15 billion housebuilding support package, with £1.5billion of this made available to SME builders through the Home Building Fund.
Designed to allow financial applications from smaller builders, who are still underrepresented in the market, the Home Building Fund should help smaller builders who have the potential to make a greater contribution to meeting those Government targets do just that.
The Government also indicated that it will invest at least £44 billion of capital funding, loans and guarantees over five years to support house building, with £2.7 billion invested to more than double the Housing Infrastructure Fund and a further £400 million for estate regeneration.
The infrastructure element is an important consideration - a key outcome from last week's Budget was a commitment to address the skills gap that could otherwise obstruct plans to build homes on the scale required.
It’s a known fact there is a huge skills shortage in the construction sector, both in trade and professional remits, to which the Government has promised an additional £34 million, helping to develop construction skills across the UK.
The role of the property investor
Interpreting these outcomes through an investor’s lens, an innovative means of investing in property appears to offer an ideal solution. The government is addressing the need to build more homes, making investing into property an option that aligns to these needs.
The 2017 Housing white paper also suggests a general focus on increasing the number of homes being built in the North East. This should pique the interest of institutional and professional investors who have previously focused on Greater London.
What’s more, investors have increasing opportunity to invest directly into residential property developments. This provides a means of supporting the needs of the economy and smaller builders to deliver the homes required without reliance on Government investment (and with the potential for an appealing financial return). This combination should give investors greater confidence to invest in smaller builders and the work they're doing.
In addition to this, equity crowdfunding is an investment option that is increasingly popular. Platforms are emerging that enable the principles of crowdfunding – many investors, some investing very small sums – to translate to property.
GrowthFunders is a great example of this. The equity crowdfunding approach enables individual investors to take on the role of property developers, investing in special purpose vehicles (SPVs) that acquire sites, build those much-needed homes, and ultimately sell them.
This approach aligns with the inherent appeal of property investing, which is often the speed at which it can deliver capital growth. Amongst other asset classes, achieving growth is typically a longer-term ambition; rapid capital growth is an elusive goal.
To conclude, last week's Budget provided mixed news for SME homebuilders. There were a lot of commitments that appeared positive, but only time will tell whether these materialise and truly help the smaller housebuilders do what they do best - build much needed homes on foundations of strong, local knowledge.
From a property investor's perspective, this was more positive. More homes are needed, and the Government is providing support to ensure this happens, opening up the potential for more property investment opportunities than we've seen before.
Importantly, this means regardless of how the government helps (or conversely, doesn't help) SME homebuilders, there will be clear opportunities for property investors to expand the supply of housing; a vital first step as the UK seeks to tackle its long-running housing crisis.