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Richard St John Williams, housing and regeneration partner at Cobbetts LLP, comments: “The £500m housing plan announced by Alistair Darling in the Budget contains a number of initiatives to help deliver the Government’s housing programme by, potentially, removing a number of the barriers within the construction industry.

“The Housing Green paper, “Homes for the future: more affordable, more sustainable”, published in July 2007, outlined the Government’s strategy to tackle affordability and supply issues within the housing markets. The paper set out its aspirations for three million new homes to be built by 2020 (with two million of those homes to be built by 2016) or, expressed another way, for 240,000 new homes to be built each year to meet those targets.

“The collapse in the housing market has led to many planned schemes to be either abandoned or mothballed by developers and registered housing providers. Compared to the target of 240,000 new homes each year, only around 80,000 new homes were built last year and current projections for this year stand at between 50,000 and 70,000 new homes.

“The Budget proposals reinforce the strategy within the Housing Green paper (either by itself or through the newly created Homes and Communities Agency): to invest in housing projects and encourage local authorities to develop more affordable housing. It isn’t clear though how much of the £500m financial support is new money (rather than previously committed money for affordable housing).

The key housing-related elements within the Budget are:

- £400m to be made available for housing projects where work has currently stalled. It is anticipated that as part of the Government’s scheme, the Government will be able to take equity stakes in new housing developments or used to provide finance for gap funding and/or infrastructure costs.  Importantly, this commitment appears to be linked to leveraging in private development finance.

- £100m to be made available to councils to build new energy efficient social housing. In addition to the measures to help invigorate the construction of new housing, the budget also commits:

- A further £80m to be provided to the Government’s HomeBuy Direct shared equity mortgage scheme. 

- Extending stamp duty holiday on properties up to £175,000 until the year-end.

“With regard to building new council houses, the devil here will be in the detail and on the outcome of the consultation exercise undertaken by the department for Communities and Local Government, which closed last week. The consultation exercise covered the Government’s proposals to exempt specified new properties from the redistributive effects of the Housing Revenue Account subsidy regime, and from the pooling of capital receipts. The outcome is expected to be published in late spring or early summer, but unless new properties are to be exempted from the current regime, corporate structures such as local housing companies, or collaborative working arrangements between local authorities, housing providers and developers, will need to be used.

“It is hoped that banks and financiers will view any kick start funding (such as the government taking equity stakes in stalled housing project) as reducing some of the risks associated with new build schemes and, as such, allow banks and financiers the opportunity to provide funding at more competitive margins. However, if the Government takes a stake in a project, care will be needed to ensure that the project is structured in a way to avoid offending the regulations governing State Aid and that the appropriate clearances have been obtained. Where State Aid is improperly applied, the European Commission has strong enforcement powers, of which housing providers - and particularly those planning to participate in large scale regeneration projects - should be aware.”