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Home Builders Federation reports additional £4.5 billion cost in new home delivery due to increased tax and regulation

Elizabeth Small, corporate partner

The Home Builders Federation (HBF) represents firms responsible for around 80% of all new build homes in England and Wales, published their “Building Homes in a Changing Business Environment” report (the Report) in October 2022. The Report identifies 12 new taxes and regulations which it estimates will result in an additional total cost of £4.5 billion in the delivery of new homes, equating to an average of £22,000 per home.

Viability of Residential Development

The Report notes that in determining whether a residential development project is viable, developers have regarded the final development value of a site minus the total development costs. Costs which include taxes and compliance with regulations, in addition to the more obvious costs of construction. This figure represents the potential return on a development, which in turn affects the corresponding appetite for investment. Simply put, if this figure is not at least positive, developers will not build new homes.

One might expect these costs to simply be factored into the price of a new home, removing the strain on home builders. However, the Report notes that,

“Additional costs of housing delivery are not passed onto homebuyers unless driven by the wider local housing market. This is the case…where extra costs create additional value for the homeowner”

As a result, at least a portion of any additional costs are often absorbed by the home builders, their position being described as that of a ‘price taker’ as opposed to a ‘price maker’. Therefore, additional costs imposed on the building of new homes are often taken on by the home builder which may result in less homes being built.

New Taxes and Regulations

The Report identifies 12 new taxes and regulations resulting in the increased cost of new home delivery. The Report states that the HBF supports many of these measures and that its Report is not meant to dispute any of the initiatives discussed.

It also details the Government department responsible for the measure, the year in which the measure has or will take effect and gives an estimate of the resulting additional total annual cost of new home delivery.

Of these, the largest in terms of cost is the Future Homes Standard. Envisaged to begin in 2025, and as of yet not precisely specified, the Future Homes Standard will see amendments to the Building Regulations which are estimated to increase the overall cost of home builders by £1.9 billion.

Additional measures, such as the requirement that all new homes from June 2022 must have an elective vehicle charging connection installed, increased accessibility requirements and the cost of credits to mitigate the release of phosphorous and nitrogen from developments into waterways, will all add to the cost of home building.

Ultimately, these measures may result in the viability of housing developments being reduced. The knock on effect is less investment and less home building.

Property Prices

The backdrop of these increasing costs is fluctuating property prices. The Halifax House Price Index, released on 6 January 2023, states that average house price fell by 1.5% in December 2022.

The Bank of England’s most recent monthly “Money and Credit” statistical release noted that mortgage approvals fell to 46,100 in November 2022, down from 57,900 in October 2022. This represents the lowest level since June 2020.

As prices fluctuate and credit is lessened the outlook may not be positive. The additional costs envisaged by the HBF in the Report would represent a significant portion of the price of an average home. It is not possible for these costs to be fully absorbed by developers and so prospective purchasers may find themselves chasing fewer and more expensive new build homes.  Although, it would be hoped that the new regulations may mean that the homes are built to better standards, with a lower carbon footprint with lower maintenance and energy costs.

Jack Feehan, corporate associate at Forsters