Budget Special - Cuts and the property sector

We will hear a lot about cuts today. Football seems to be the only relief from daily announcements about impending cuts in Government expenditure. Four weeks ago the new Chancellor of the Exchequer announced £6 billion worth of immediate cuts. Today he presents his Emergency Budget, to be followed by the Autumn Spending Review.

We have been warned to brace ourselves for deep and substantial cuts. Britain currently has a budget deficit of £156 billion - 11% of Gross Domestic Product, exceeded in Europe only by Greece and Ireland - the biggest deficit faced by an incoming Government since World War II. It has been funded by huge borrowing but both borrowing and deficit now have to be cut.

How will this affect property developers?

One cut announced on 24 May, was a reduction of £230 billion of funding for the Homes and Communities Agency, which funds development and regeneration by grants to registered providers of social housing. The cuts - described as savings - included £100 million of funding not already allocated to social housing schemes and £50 million of Kickstart funding for developers of social housing and open market housing. In addition, further commitments on the remaining uncommitted funds for other programmes remained on hold pending Government funding decisions announced in the Emergency Budget. These cuts are worrying for social landlords and developers, development schemes are in doubt and there are inevitable concerns about unemployment in the sector.

Cuts have also affected East Midlands Development Agency, which had been expected to support regeneration projects in Leicester such as the business quarter by the railway station and the proposed science park close to the National Space Centre. The extent to which these projects are threatened will become clearer following the Emergency Budget.

A cut which was well received was the Government's announcement that Home Information Packs are no longer required. At least this will reduce costs for social landlords selling shared ownership properties and developers selling open market properties. It is a relief for private sellers as well.

Cuts of another sort have been revealed in relation to planning. First, the Government has cut the classification of brownfield land to exclude gardens. This move to limit "garden grabbing" will restrict opportunities for residential redevelopment and will concern social landlords and developers. The Government has also cut density levels for housing on new developments. Both announcements may result in less land being available to meet the need for new housing and could therefore threaten greenfield sites. The Government is also abolishing regional planning strategies and returning decision making powers on housing and planning to local councils. Whatever the implications of this, the resulting uncertainty for planners and developers will tend to limit much of the new housing development thought necessary for the East Midlands region.

Today's Emergency Budget coincides with the Annual Conference of the Chartered Institute of Housing in Harrogate. On an important day for the building industry, both developers and social landlords wait to hear how cuts will affect their plans. The conference will close on Thursday with the new Housing Minister, Grant Shapps, outlining some of the new Government's housing policy. Before than many delegates will take time off to watch England play Slovenia. They will hope that at least the football brings some cheerful news.

Harvey Ingram will be at Stand 152 at the CIH Conference in Harrogate, until Thursday, (24 June).

For more information, please contact Gordon Arthur on gordon.arthur@harveyingram.com or call 0116 257 4416.