Labour’s Housing Target vs the Autumn Budget
We spoke recently about how new planning regulations were a step backwards for housing development and the government’s pledge to build 1.5 million new homes over the next five years.
On paper, the pledge is a powerful narrative. But for those of us in the construction industry, this promise feels like little more than a political soundbite – a goal increasingly out of touch with the current financial and regulatory climate.
The harsh reality is that if what we expect from the 2024 autumn Budget on Wednesday, 30 October is announced – capital gains tax hikes in addition to stringent changes to employment law – it will be nearly impossible for development companies – small, medium, or large – to function efficiently, let alone ramp up production to hit these lofty targets. If anything, the government’s anticipated policies are setting us up for a year of stagnation.
Why?
Let’s Start With A Dose Of Reality
According to the Ministry of Housing, Communities & Local Government, in 2023, the UK saw the completion of approximately 242,000 new homes – a far cry from the 300,000 annually that experts suggest is needed to meet demand. But even this number, which was achieved under relatively stable conditions, is unlikely to be matched this year.
So far for 2024, the construction landscape looks bleak. Labour’s budgetary measures are likely to include an increase in capital gains tax, which directly impacts developers. When profit margins are squeezed, developers are less likely to take on new projects or expand existing ones. Instead, we’ll see delays, downsizing, and fewer applications for planning permission. These moves, intended to increase revenue for the Treasury, might ultimately backfire by stalling construction and deterring much-needed investment in housing.
Employment Law Changes: The Straw That Breaks the Camel’s Back?
Then there’s the issue of employment law reform. Labour’s commitment to enhancing worker rights, while commendable in principle, brings with it increased costs and legal responsibilities for construction firms. The introduction of tougher regulations around employee contracts, sick pay, and holiday entitlements means construction firms must navigate a minefield of compliance.
For small and medium-sized developers, this increased red tape can be crippling. Administrative and HR costs are set to skyrocket, while the threat of legal challenges looms larger. For larger companies, the issue is not one of survival but of profitability. With slim margins already prevalent in the industry, these additional pressures may force many to reconsider their project timelines, potentially shelving developments that would have otherwise contributed to easing the housing shortage.
Where’s the Incentive to Build?
One of the Labour government’s key assumptions is that developers, if given enough land and permission, will automatically rush to build. But the relationship between land, planning, and building is far more complex. In fact, many developers already hold onto land for years, waiting for optimal market conditions to begin construction. And with Labour’s current financial policies, those “optimal conditions” may be further away than ever.
We’ve already seen evidence of a cooling market. Recent surveys from the Royal Institution of Chartered Surveyors (RICS) indicate that developers are increasingly pessimistic about the next 12 months, with a growing number expecting housebuilding to slow down. The reasons are simple: less profit, more regulation, and rising costs across the board.
A Crisis in the Making
There’s a stark disconnect between the government’s idealistic pledges and the realities of the construction industry. Until they find a way to ease the burdens placed on developers – whether through tax incentives, streamlined planning processes, or a rethink of employment law – we’ll be lucky to even maintain current building levels, let alone achieve a dramatic increase.
It’s time for the government to get real: ease the financial and regulatory pressures, and we might just stand a chance of solving the housing crisis.