First Home scheme could cost British housebuilders £2bn a year

The latest research by new home specialists, Stone Real Estate, has revealed that the latest Government initiative, the First Home Scheme, could cost British housebuilders £2bn a year.

On the 7th of 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 housebuilders 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, commented:

“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 housebuilders 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 housebuilders 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.”

Info on data tables
Average new build house prices and transactions in the last 12 months (Oct 18-Sept 19) sourced from the Land Registry New Build House Price Index
First Home Discount per sale based on 30% of average new build house price
Total annual new build value sold = average new build house price x annual new build transactions. Total value of 20% sold = average new build house price x 20% of annual new build transactions
Housebuilder loss based on First Home discount x by 20% of total annual transactions
Impact of First Home discounts nationally
Location
Average New Build House Price
First Home Discount
Annual New Build Sales Volume
Total Annual Sold Value
20% of Sales
Total value of 20% sold (£)
Housebuilder Loss (30% of 20% Sold)
England
£304,946
£91,484
101406
£30,923,305,934
20281
£6,184,661,187
£1,855,398,356
Wales
£215,560
£64,668
3575
£770,625,222
715
£154,125,044
£46,237,513
Scotland
£208,132
£62,439
11768
£2,449,292,577
2354
£489,858,515
£146,957,555
Great Britain
£295,295
£88,588
117256
£34,625,079,880
23451
£6,925,015,976
£2,077,504,793
Impact of First Home discounts regionally
Location
Average New Build House Price
First Home Discount
Annual New Build Sales Volume
Total Annual Sold Value
20% of Sales
Total value of 20% sold (£)
Housebuilder Loss (30% of 20% Sold)
East Midlands
£260,856
£78,257
10179
£2,655,256,557
2036
£531,051,311
£159,315,393
East of England
£362,408
£108,722
12523
£4,538,430,983
2505
£907,686,197
£272,305,859
London
£486,301
£145,890
12217
£5,941,144,604
2443
£1,188,228,921
£356,468,676
North East
£186,946
£56,084
5750
£1,074,939,318
1150
£214,987,864
£64,496,359
North West
£220,498
£66,149
13006
£2,867,796,077
2601
£573,559,215
£172,067,765
South East
£375,693
£112,708
17281
£6,492,356,680
3456
£1,298,471,336
£389,541,401
South West
£301,730
£90,519
10729
£3,237,266,288
2146
£647,453,258
£194,235,977
West Midlands Region
£267,394
£80,218
10415
£2,784,909,601
2083
£556,981,920
£167,094,576
Yorkshire and The Humber
£205,877
£61,763
9306
£1,915,891,273
1861
£383,178,255
£114,953,476
Impact of First Home discounts by city
Location
Average New Build House Price
First Home Discount
Annual New Build Sales Volume
Total Annual Sold Value
20% of Sales
Total value of 20% sold (£)
Housebuilder Loss (30% of 20% Sold)
London
£486,301
£145,890
12217
£5,941,144,604
2443
£1,188,228,921
£356,468,676
Edinburgh
£300,209
£90,063
1285
£385,768,309
257
£77,153,662
£23,146,099
Birmingham
£245,730
£73,719
1130
£277,674,370
226
£55,534,874
£16,660,462
Leeds
£237,370
£71,211
964
£228,824,643
193
£45,764,929
£13,729,479
Liverpool
£190,201
£57,060
1176
£223,676,527
235
£44,735,305
£13,420,592
Glasgow
£178,053
£53,416
911
£162,206,177
182
£32,441,235
£9,732,371
Bristol
£289,096
£86,729
514
£148,595,288
103
£29,719,058
£8,915,717
Aberdeen
£251,876
£75,563
579
£145,836,141
116
£29,167,228
£8,750,168
Cardiff
£254,957
£76,487
540
£137,676,892
108
£27,535,378
£8,260,614
Sheffield
£186,009
£55,803
615
£114,395,638
123
£22,879,128
£6,863,738
Cambridge
£577,604
£173,281
195
£112,632,748
39
£22,526,550
£6,757,965
Newcastle
£230,780
£69,234
425
£98,081,622
85
£19,616,324
£5,884,897
Plymouth
£221,135
£66,340
443
£97,962,706
89
£19,592,541
£5,877,762
Manchester
£206,830
£62,049
461
£95,348,556
92
£19,069,711
£5,720,913
Newport
£244,109
£73,233
256
£62,492,027
51
£12,498,405
£3,749,522
Nottingham
£183,875
£55,163
305
£56,081,888
61
£11,216,378
£3,364,913
Leicester
£241,017
£72,305
208
£50,131,516
42
£10,026,303
£3,007,891
Southampton
£223,832
£67,150
141
£31,560,366
28
£6,312,073
£1,893,622
Bournemouth
£220,330
£66,099
104
£22,914,316
21
£4,582,863
£1,374,859
Swansea
£179,448
£53,834
119
£21,354,334
24
£4,270,867
£1,281,260
Oxford
£347,484
£104,245
43
£14,941,826
9
£2,988,365
£896,510
Portsmouth
£243,826
£73,148
54
£13,166,613
11
£2,633,323
£789,997

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