Home Real Estate How Might Potential New ‘Locals First’ Regulations Impact London Property Prices?

How Might Potential New ‘Locals First’ Regulations Impact London Property Prices?

by Jonathan Adams

The prospect of heightened government regulation of the housing market knocked another £500 million off the value of listed UK house builders yesterday, adding to similar losses over Monday and Tuesday. Housing secretary Sajid Javid came out earlier in the week to announce that house builders can expect a ‘muscular’ approach from the Government on what is considered a damaging trend of companies land banking sites with building permission, stating:

“There is definitely some hoarding of land by developers. The government needs to play a more active, more muscular role.”

A recent report released by Shelter, the housing charity, indicates that house builders have a combined land bank of almost a million plots that have planning permission but are not being built on. The report further highlighted that of the 1,725, 382 homes planning permission was issued for between 2006 and 2014, less than half, at 816, 450, had been built within 3 years. House builders are sitting on these plots until prices rise, increasing profit margins. This strangling of supply also contributes towards rising prices in itself.

Javid’s ‘get tough’ approach to land banking by developers contributing to the UK’s housing crisis is strongly supported by Chancellor of the Exchequer Phillip Hammond. He is said to be in favour of planning permission being issued with a reasonable window within which construction must begin, or planning permission will be withdrawn.

London’s mayor Sadiq Khan also came out yesterday with his own commentary on the housing issue. He wants new regulation that would mean newly built homes in London to be first offered to British residents before they can be marketed or sold to overseas investors, saying:

““I want to help Londoners by looking at what measures I can offer to make sure they get first dibs on more new homes.”

13.2% of all newly built residential properties across London are sold to foreign investors. This figure rises to 36% in the more expensive neighbourhoods. Half of the new London homes sold abroad are in the £200,000-£500,000 price band, many of which are thought to be acquired as investment properties.

The argument of house builders is that with bank financing for construction often requiring that they sell at least 30% of properties off-plan, being able to market to foreign buyers is crucial. However, the counter argument would be that this 30% could be sold off-plan to locals if price premiums were compromised on.

A clamp-down forcing developers to more quickly start construction, increasing supply, and giving first option to local buyers will be welcomed by British buyers in London, with the expectation this might temper price rises which are already at the edge of affordability. However, house builders and property investors will be concerned such a move would further deflate a London property market currently stalling. The Government’s argument would be that increased supply and the potential drop in prices that could lead to is necessary if the housing crisis is to be alleviated.

This article is for information purposes only.
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