A law firm has recently explained that a UK court ruling on affordable home exemptions could hinder smaller property developers. Property expert Simon Morris discusses what this could mean for the UK’s residential property market going forward.
UK housing shortage
The UK is currently facing a housing crisis. The BBC reported that back in 2005, the Barker Review of Housing Supply said that the UK needed to build 250,000 homes per year to alleviate the country’s housing shortage.
Smaller property developers have played a key role in ensuring that UK can meet this target, yet it still isn’t being hit. The government’s England House Building Report for Q1 2015 indicated that 140,500 homes were built across England in the year to March 2015. This is a rise of 5% from the previous year, yet still falls short of the target we need to hit to alleviate the UK’s housing shortage.
UK court ruling
The operations of smaller property developers have been aided by the fact that they have been exempted from contributing to affordable housing schemes. This exemption was introduced by the government to incentivise residential developers to initiate smaller housing developments. It was also designed to redevelop compact urban and rural spaces, to help meet the UK’s chronic housing shortage.
According to Property Wire, a recent UK court ruling has removed this exemption. The case was brought by the West Berkshire and Reading local authorities. They argued that the exemption would have a negative impact on the number of affordable housing available for low income buyers.
“Major blow for smaller residential developers.”
Nick Leavey, partner and head of commercial property at law firm Coffin Mew, recently explained the impact of this ruling. He commented that “this decision is a major blow for smaller residential developers looking to bring forward schemes in urban environments.”
Leavey went on to say: “The economic viability of small schemes is often on a knife edge, and this decision is likely to pull the rug from underneath those difficult to develop sites. It is also likely to have a negative effect on land values for future deals, exacerbating the housing crisis in the South East further. Nobody wins from this decision.”
Re-calculate risk vs. return
Here Leavey is saying that urban residential developments and small rural sites will be particularly impacted by this ruling. In other word, the removal of this exemption could place extra costs on smaller residential property developments. This means that, in Simon Morris’ opinion, investors will need to recalculate risk vs. return before they invest in smaller residential property developments going forward.