DEVELOPMENT: The Elephant in the Room

Labour’s aim to build 1.5m new homes during their first term is certainly ambitious, but leaves a few things to be desired.

Last week saw the new Chancellor Rachel Reeves deliver her first major speech since Labour’s landslide election victory. Laying out the new government’s plans to rebuild Britain, a significant portion of Reeves’ address concerned reforms to the UK’s planning system, detailing the introduction of mandatory housing targets and the removal of “red tape” for the approval of developments. The overarching goal of the new Labour government is to kickstart an ambitious housebuilding goal of 1.5m new homes by the end of the current parliamentary term. According to David Hannah, Group Chairman of Cornerstone Tax, the plans outlined by Reeves, whilst ambitious, fails to mention one essential factor: private developers.

Across the UK, private developers have gone from crisis to crisis over the past few years, record high-interest rates and the highest tax burden in over 70 years have stymied the ability for developers to take risks and build speculatively. According to a CMA probe earlier this year, the complex and unpredictable planning system has resulted in persistent under delivery of new houses, with developers missing their target by 50,000 in 2023.

In light of Reeves’ speech, Hannah asserts that developers simply do not have the ability to ramp up their work overnight, whilst also suggesting that stricter housebuilding targets will only discourage growth within the construction industry through adverse incentives. In order to stimulate the development sector and get Britain building again, Hannah instead recommends that developers be offered a tax break, encouraging market entrants whilst providing the necessary capital to embark on Labour’s ambitious homebuilding goals.

David Hannah, Group Chairman of Cornerstone Tax, comments:

“The Chancellor’s first major speech was incredibly ambitious, no doubt about that, however, there remain several important elements that are yet to be addressed. It’s been described by some commentators as a ‘War on NIMBYs’ and it’s not hard to see why. The decision to cut red tape and remove blockages to planning make for good soundbites, but we have little clarity as to what this means in practice. Will Labour ignore the concerns of local residents in favour of the ‘greater good’? It remains to be seen.

“Labour must also address the ‘Developer-shaped’ Elephant in the room. For years private developers have been plagued with high interest rates and an ever-increasing tax burden. Earlier this year, a CMA probe found that several major firms had been persistently under delivering on their housing targets, perhaps due to a chronic lack of working capital. Developers cannot simply ramp up their output overnight, the new government must create new incentives for the sector, and punitive housing targets are not the way to go. 

“Private developers ought to be offered a tax break for the vital services that they provide, encouraging new entrants to the market whilst also stimulating further economic growth.”