2017: What Does The Future Hold?
SLC’s Crystal Ball Reveals All.
Nostradamus predicted, in Quatrain 81, the election of “the great shameless audacious bawler”. And we got Donald Trump. He also reckons 2017 to be the year of WWIII and the great economic collapse. It’s not known if he was given to smiling. Much.
Even though Michel de Nostredame believed 2017 to be a touch bleak, we’ll try to look dispassionately into our precociously prescient globe of glass.
Interestingly, the first thing on the agenda is something we should already have had: the Housing White Paper. Expected to be delivered alongside the Autumn Statement, Sajid Javed postponed it until the New Year and probably to be delivered in January. So what can we expect to see?
Likely principal subjects will be:
- Alterations to the National Planning Policy Framework (NPPF) some of which were consulted on earlier in the year, and other, related, technical implementation responses.
- Nodding approval and encouragement for modern construction methods. Especially modular where financial incentives may be offered.
- Detail of Permitted Development Rights (PDR) where offices may be demolished to make way for residential.
- Clear guidance on future policy and legislative approach to starter homes
- Lastly, the outcome of and response to, the Community infrastructure Levy (CIL) review.
Also, strongly tipped to be included in the White Paper are:
- Incentives and promotion of Build to Rent
- Rationale and suggests of ways to penalise developers for not implementing planning consents.
- Enable updates on Locally-Led Garden Settlements.
- Additional support for small to medium sized house builders
- Refer to the work by Lord Heseltine’s Estate Regeneration Panel.
Essentially, the most important of these to our clients would be; potential changes to the planning system, support for Build to Rent, support for modular housing and the extension of PDR to allow for demolition. All of which impact, in some way or another, on the PRS where SLC lead the field in terms of downstream advisory services and development of appropriate AST agreements and SLA’s to incorporate the latest thinking in management and service delivery.
Clearly, this White Paper is seen as extremely important both by the industry and government. Let’s hope it contains real incentives to the industry. Amendments to SDLT are hoped for, especially the removal of the 3% surcharge and a reduction of the higher rates which have crippled the upper end of the market. But, in truth, the most we can hope for is an exemption from the surcharge on Build to Rent schemes; possibly following criteria laid down by the Mayor of London Sadiq Khan.
‘Uncertainty’ is best how we could describe the economy. Similarly, house prices. Whilst not all doom and gloom, very few pundits are forecasting growth of any significance. The common consensus is that house prices will remain flat for 2017; 1 or 2% at best. With some small growth in subsequent years. Perhaps this is wishful thinking since Brexit
and Trump’s presidency have made for uncertain navigation in uncharted waters. At a recent ULI Residential Council meeting, it was noted that whilst current new house completions seemed to indicate a buoyant industry, demolition and ground workers were crying out for work. Thus indicating serious future pipeline issues. Clearly, supply may
be the main factor in determining house prices in the years beyond 2017.
Normally, when the sales market is flat, falling or activity is low, it usually means that the lettings market is more vigorous. But, that’s not the case and there’s a lot been going on. For the BTL industry 2016 could best be described as an ‘annus horribilis’ with both landlords and lettings agents under fire from the Chancellor. Last week, the Daily
Telegraph ran a story with the headline ‘the full shocking extent of the buy-to-let market collapse’. The figures make grim reading: a fall of 63.7% in properties sold to investors YOY, and a fall of 59.2 landlords registering to buy. The ONS has rental growth for the year as relatively small, and agents are reporting sluggish activity. But, if supply side issues
become chronic, we could easily see rents rise. It will be this, and not agents passing fees onto landlords in the wake of a ban on fees to tenants that will put pressure on what tenants will pay. In any event, Phillip Hammond is unlikely to introduce such a ban in the near future. And perhaps, not in 2017, despite the ASAP urgency in the Autumn
statement. The Build to Rent sector will not be mature enough to pick up the slack.
The Build to Rent sector will not be mature enough to pick up the slack in the PRS for a good few years. Whilst there are a significant number of schemes planned and institutional investors and operators may benefit from Government incentives, it’s unlikely any significant supply will filter through in 2017. It will come, and it will be interesting to see the various iterations coming to the market. The ULI have been to the forefront of driving change and supporting understanding of the underlying principles of this nascent sector. Alexandra Notay, previously Policy Director at the ULI and now Director of Product and Service Innovation at Places for People, has been tireless in driving the institutional PRS and
B2R message home and her influence cannot be underestimated. The UKAA, a body representing the new sector, will help in delivering standards and quality. This sets the institutional sector apart, and It is determined to create a new asset class where the tenants are treated as valued consumers rather than inconveniences. With luck and the
passion in the industry to raise standards, we think they’ll succeed. But not, so noticeably, in 2017. It’ll be a few years yet before B2R becomes a force. SLC are fully embedded in this sector and we are excited for the future.
Significant damage to the economy could come in the shape of inflation. Whilst the Euro has shown signs of unpredictability, the pound
has fallen sharply against the Euro and most currencies. This will place inflationary pressures on the economy. Especially via imports. As is often the case, these pressures will not be instant and will take time to filter through. We feel 2017 will be the year where these pressures begin to bear. Coupled with inflationary pressures, is the possibility of interest rises. The BOE will have to control inflation and the most common mechanism is via interest rates. Clearly, this will have significant impact on home-owners and BTL investors, and will serve to cramp the market further. Outside of inflationary controls, there is talk of the Federal Reserve implementing an interest rate rise. Global economies tend to mirror each other to maintain a tacit equilibrium and this will be yet another pressure on the BOE, forcing an increase in interest rates. It’s going to be something of a ‘wait and see’ situation but the portents are not wholly positive.
So there you have it! Whilst we at SLC are not as downcast as Nostradamus for 2017, we think fiscal caution is the watch-word. As far as our clients are concerned, some of what 2017 may bring could mean tighter credit control and stricter management of downstream systems to maximise efficiency. Throughout 2017, we’ll be ready to react to legislative changes that impact on our client’s business and help pilot them through any difficult and choppy waters.