John Rodger: Innovative funding solutions required to avoid continued demise of housebuilders

John Rodger: Innovative funding solutions required to avoid continued demise of housebuilders

John Rodger

John Rodger discusses the challenges faced by the housebuilding sector in Scotland, following the closure of Stewart Milne, recent cutbacks by other firms, highlighting the need for innovative funding solutions from both the UK and Scottish governments to prevent a housing crisis.

Last month’s announcement that housebuilder Stewart Milne would be forced to shut down was preceded by further unwelcome news that fellow Scottish housebuilder, Cruden, would be cutting contracting work after incurring a loss of over £11m. Meanwhile Elgin-based Springfield Properties announced it would no longer be taking on affordable housing contracts due to “build-cost inflation”.

These unfortunate events have been accompanied by a range of economic challenges threatening a sector that is vital in addressing our ever-increasing housing shortage.

Scotland needs over 100,000 new homes by 2032 yet housing stock levels continue to fall. Figures released by the Scottish Government at the end of last year showed a six per cent decrease in new homes completions and a staggering 24% drop in the number of new housebuilding projects being started. Edinburgh and Glasgow reported a 23% and 46% fall respectively in new home starts compared to the previous year.

There are a number of issues contributing to these tough market conditions. Increased mortgage rates and cost of living challenges are restricting affordability for buyers while the spike in borrowing costs coupled with a decline in available finance has hit housebuilders.

While there are signs that this is stabilising, increased materials costs have also impacted housebuilders’ profits. Along with shortages in skilled labour, this has made many UK new build projects unviable. There are specific factors impacting the sector in Scotland including the planning regime. While the UK government is in the process of reforming planning processes to support increased house-building south of the Border, we have yet to see a similar approach adopted in Scotland.

The Land Business Transaction Tax (LBTT), Scotland’s form of stamp duty which is set at the highest rate of anywhere in the UK, is another measure which appears to be adversely affecting Scottish housebuilders. The Scottish Government could look to reduce LBTT levels to stimulate further house sales creating a positive knock-on effect for the housebuilding sector. Further targeted support for first-time buyers or measures to help older homeowners to downsize could also have a positive impact. While Scottish housebuilders could enhance their market position by focusing on low-cost, energy-efficient homes, further UK or Scottish Government tax breaks for this type of new-build would also help the sector and accelerate green housing stock.

With lower inflation levels being forecast, we would expect to see a drop in interest rates which should make borrowing more palatable for would-be home buyers. The UK government could add a further stimulus by backing first-time buyer borrowing, similar to schemes operating in the US.

Given the significant cashflow required to build new homes, further government support for the sector could come through tax-deferring measures that would allow housebuilders to postpone some HMRC payments until after newly built stock is sold.

Scotland must have a healthy housebuilding sector to build the thousands of new homes we desperately need. This will require innovate funding solutions from governments on both sides of the Border. Failure to deliver this threatens to turn our current housing shortage into a serious crisis.

John Rodger is senior tax partner and property specialist at accountants CT

Share icon
Share this article: