The latest research by new home specialists, Stone Real Estate, has revealed that the latest government initiative, the First Home Scheme, could cost British house builders £2bn a year.
On the 7 February 2020, the government announced plans to cut the cost of a proportion of new build homes by 30% for first-time buyers in order to ‘turn the dial on affordability’.
It will be aimed primarily at military veterans and other ‘key workers’ such as nurses, police officers, teachers and firefighters, although thousands of buyers in other professions will also benefit.
The government is yet to reveal just what proportion of new builds will fall within the scheme but has suggested tens of thousands of properties will qualify, having previously stated it could be some 19,000 homes by the middle of this year.
With this in mind, Stone Real Estate looked at the cost to British house builders based on new build sales over the last 12 months which totalled 117,256 across Great Britain according to the Land Registry.
Based on a very conservative estimate that 20% of these sales could soon fall under the First Home scheme annually, let alone over a six-month window, this would see some 23,451 homes each year selling at a 30% discount.
On the current British new build house price of £295,295, the average buyer would save £88,588 but when you multiply this saving by the 23,451 homes that could qualify, that’s a loss of £2,077,504,793 across the new build sector on an annual basis.
Developers in London would stand to lose the most with £356.5m wiped off in new build sales values, with Edinburgh (£23m), Birmingham (£16.6m), Leeds (£13.7m) and Liverpool (£13.4m) also amongst the largest declines.
Founder and CEO of Stone Real Estate, Michael Stone said, “A positive announcement on the face of it and one that has been made with the good intentions of addressing affordability for the nation’s first-time buyers.
“However, as is often the case, the devil will be very much in the detail and it is still relatively unclear as to how this will impact the existing parameters of the new build sector when it comes to social housing commitments and site constraints.
“As a result, this news will understandably be met with some initial concern from the nation’s house builders and a wider degree of scepticism from the industry as a whole for a few reasons.
“We are currently building more new homes than we have done in the last 30-years but at the same time, the number of first-time buyers, in particular, has increased dramatically. Previous schemes like Help to Buy have fuelled this increase in demand and ironically, the result has been an increase in house prices for the very people the Government is trying to reduce affordability issues for.
“Therefore we must continue to deliver the stock required but to force house builders to do so on the government’s terms could well backfire and see the number of homes being delivered decline. We’ve seen a similar trend within the rental space whereby landlords have opted to leave the sector due to the recent ban on tenant fees, reducing stock and causing rents to increase.
“If this latest initiative does impact the supply-demand balance negatively, house prices will increase at a greater rate and it could arguably do more harm than good in the long run.”