Tax and property: How tax efficiency schemes could support property developersfjpinvestment
The UK is experiencing many challenges in the current climate. Whilst the upcoming withdrawal from the European Union will take the spotlight, a massive problem is emerging. The UK may be facing a critical housing crisis.
Whilst it is easy to blame the government for any potential issue with housing across the UK, with past experience perhaps making us jump to this conclusion, but this is not the sole reason.
The UK Government have made a number of positive efforts to help address the mismatch of supply and demand in the market. The ENABLE program was brought in earlier this year, promising to provide small developers £1 billion of guarantee support, as revealed by the British Business Bank.
In addition, there are promises of 300,000 new homes for those that need it, and changes in stamp duty to encourage first time buyers into the market. Clearly then, the government are taking some steps to help mitigate the adverse effects a housing crisis could have on the property market and economy as a whole.
However, there is a real need to think outside the box with this issue. We also need to be addressing the major issue here, this being the actual building of suitable housing as a means to match the needs of the UK population.
Some alarming statistics
We are already facing an undersupply of housing across the UK; this trend only appears to continue – a tall task to fill it would seem. On the upper end of the scale, an estimated 340,000 new homes need to be built to satisfy demand this year. With just 220,000 homes being built in 2017/18, serious changes need to be implemented to increase this production.
Small house builders and developers on the face of it appear key to solving this problem. Supporting their efforts needs to be the focus, but small developers are reducing in numbers. We need to restore confidence to house builders, and this comes with more viable options for finance.
The major issue facing developers is access to finance. A recent survey revealed that over half of developers identified a lack of funding as the biggest obstacle they face when it comes to the production of new housing.
The reason for this shift in difficulty is largely due to the 2008 housing crisis. Since the crash, banks have become far more risk-adverse when it comes to lending criteria. This has ultimately made it far more difficult for developers to access funding needed to kick-start the property construction process.
The benefits of tax efficient schemes
Investors continue to see bricks and mortar as a popular asset for investors. With new-build developments rising in popularity, particularly in the North, the need to utilise this popularity to build more commercial and residential developments is key.
The Enterprise investment Scheme (EIS) is a recent success story in this respect. Created by the UK government as a means to support start-ups and early-stage businesses through beneficial tax incentives, we have seen major uptakes in success for new businesses since its introduction.
In fact, nearly 30,000 companies have directly benefited and received investment since the scheme’s inception some twenty years ago, with over £20 billion worth of funds being raised over this time.
The benefits of this scheme are pretty evident – but this has not been applied yet to the property sector. Could this be the solution to encourage greater property production?
Currently SME house builders are generally excluded from this plan but considering the urgency of housing needed across the UK, a scheme similar to this will benefit the property market massively. All of this for what is a pretty small change.
Tax schemes should be carefully considered by our government, and not be put to the side amongst the uncertainty of our political climate. Creative solutions like this and debt investment should support the UK housing market, and ultimately our economy.