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Planned end to stamp duty holiday and furlough scheme will test market’s underlying strength

Nine months into a housing boom, the prospect of a slowdown is growing. Plans to wind up key government coronavirus support measures look set to reveal the true health of a market hit hard at the bottom end by a cladding safety crisis.

The housing market has defied the wider economic downturn since the pandemic began with prices hitting a four-year high in November, driven in large part by a stamp duty holiday introduced in July last year as part of a government stimulus package during the pandemic.

Beneath the headline figures, the latest housing boom has been driven by wealthier homeowners, while many first time buyers and those with their feet on the bottom rung of the property ladder have been excluded.

The planned removal of the stamp duty holiday on March 31, followed by the winding up of the furlough scheme a month later, will test the underlying strength of the market.

The stamp duty holiday was introduced in July and exempts buyers from paying the transaction tax on the first £500,000 of residential property purchases, saving them up to £15,000

Despite pressure from the industry to extend the holiday to prevent thousands of people currently in the process of buying a home from missing out, the Treasury has signalled it intends to end the tax break as planned.

“There are an enormous numbers of deals under way and stories of deals collapsing are not going to be hard to find . . . Particularly at the moment when the furlough scheme is unwinding this friction is not what’s needed,” said Tom Bill, head of UK residential research at estate agency Knight Frank.

The last time a stamp duty holiday was withdrawn, after the financial crisis in 2008, the surge in sales it prompted fell away sharply.

“There’s an expectation of a lull in the market post-stamp duty holiday, and the risk of some house price falls in the market, not least because unemployment will rise when furlough ends,” said Lucian Cook, head of residential research at Savills.

Price growth is already slowing from the runaway levels seen last year, according to various indices. Average prices fell 0.3 per cent between December and January, according to Nationwide Building Society’s house price index, published on Tuesday. Individual monthly indices can be volatile, but the trend line clearly shows the momentum from the summer dissipating.

According to property data company TwentyCi, the biggest spike in demand over recent months has been for larger homes outside of London worth between £450,000 and £800,000, reflecting the pandemic trend of richer city dwellers moving to more rural locations.

Mr Cook said the UK’s housing market was likely to remain divided “between the haves and have nots”, as it was in the latter half of 2020.

For those at the bottom of the property ladder, there are few signs of the market getting any easier. Not only are they more likely to lose their jobs when the furlough scheme ends, but also mortgage lenders have pulled many of the high loan to value mortgages on which they typically rely. 

The most alarming drag on the market is the growing crisis around building safety, which according to estimates by the opposition Labour party has left as many as 4.6m properties in England unsellable — largely flats bought by first-time buyers.

The government is under pressure to come to the help of owners unable to sell their homes because of concerns about the safety of cladding used on the exterior of thousands of apartment blocks, which were exposed by the fire at Grenfell tower in London in 2017, in which 72 people died. Lenders have refused to offer mortgages on these properties, in effect meaning they are unsellable.

“The cladding issue is a nightmare. People are locked in their properties and can’t move on and sell them, while service charges and insurance mean vastly increased costs . . . It’s also far from helpful for the health of the whole property market,” said Dominic Agace, chief executive of Winkworth, the estate agent. 

But analysts remain optimistic that despite all the headwinds the housing market will not fall off a cliff.

The average property transaction takes 22 weeks to complete, according to TwentyCi, which should mean any would-be buyer who has committed to a deal in the past two months would have done so knowing they would likely miss out on the stamp duty holiday.

And in December, demand was 50 per cent higher than the previous year, according to TwentyCi’s data. Moreover, Knight Frank and Winkworth recorded more buyers entering into contracts in January than during the same month last year, suggesting a willingness to buy even without the advantage of the tax break. 

The number of sales already in train mean that average prices — which are recorded once a sale completes — are unlikely to fall meaningfully, at least for the first few months of the year, said Stuart Ducker, a director at TwentyCi.

Wealthier buyers moving for lifestyle reasons, who have accounted for a growing share of sales over the past year, are also unlikely to be deterred by the loss of the stamp duty break, analysts said.

Mr Ducker said prices could even rise, because — with the exception of London — the supply of homes hitting the market for sale has dipped below the level of buyer demand in the past two months.

But the prospects of a buoyant market could be undermined by the cladding crisis. If that situation persists or worsens, it could threaten the stability of the wider market, Mr Ducker warned. Without first time buyers, those further up the ladder can’t sell and the “chain collapses”, he said.

Toyota, GM and others had sided with the Trump administration in a legal push to revoke California’s authority to limit tailpipe emissions

Toyota Motor Corp. TM 1.20% , Stellantis STLA +1.14% NV and other auto makers that had joined the Trump administration in challenging California’s authority on auto-emissions have abandoned the effort, saying they want to work with President Biden on new rules.

The move, revealed Tuesday by a group of more than a half dozen car companies, signals an end to the auto industry’s support for former President Donald Trump’s yearslong effort to strip California of its power to set stricter regulations than the federal government on tailpipe emissions.

California has for decades had this authority, giving it outsize influence in setting environmental rules that limit tailpipe pollutants for auto manufacturers. Roughly a dozen other states follow the state’s regulations, giving California immense weight in shaping industry’s production.

‘We are aligned with the Biden administration’s goals.’— The Coalition for Sustainable Automotive Regulation

The auto makers say they are withdrawing from the legal challenge as a gesture of goodwill toward the new Biden administration, which has vowed to include the state in its efforts to implement tougher auto-emissions standards and hasten the industry’s shift to electrification.

The auto industry has been divided in recent years in how to confront the Trump administration’s efforts to roll back Obama-era auto emissions and fuel-economy rules, with some executives saying the stiffer standards are out of sync with buyer preferences.

Auto executives began lobbying Mr. Trump shortly after he took office to revise rules set by his predecessor that would have required them to limit greenhouse-gas emissions and increase fuel economy by roughly 5% annually through mid-decade.

The Trump White House initially proposed eliminating any annual increases, but sharp opposition from California and other states caused fears in the industry that a prolonged legal fight and uncertainty over the targets in the longer term would complicate their product planning, executives have said.

In 2019, Ford Motor Co. , Honda Motor Co. , Volkswagen AG and BMW AG signed a deal with California in which they agreed not to challenge California’s authority, prompting the Trump administration to open an antitrust investigation against the group and hastening moves to revoke the state’s regulatory power.

A separate bloc of car companies that included Toyota, Stellantis and General Motors Co. GM +1.42% , signed on to support the White House against California in a court case on the matter, saying they felt emissions policy should be solely the charge of the federal government.

California railed against those companies, saying it would no longer purchase government vehicles from companies that were challenging its authority.

But with the change in the White House, auto executives have said they realize stricter rules are coming and they would have to compromise with California on new standards.

Weeks after Mr. Biden’s election, GM dropped out of the lawsuit and encouraged other auto makers to follow.

“We are confident that the Biden administration, California, and the U.S. auto industry, which supports 10.3 million jobs, can collaboratively find the pathway that will deliver an all-electric future,” Chief Executive Mary Barra wrote in a letter to parties in the lawsuit.

After the inauguration, Mr. Biden signaled quickly he would begin addressing climate concerns through a series of executive actions, including revisiting the emission targets set by the Trump administration.

The White House has nominated Steve Cliff, one of California’s key negotiators on the state’s deal with Ford and the other companies, as deputy administrator of the National Highway Traffic Safety Administration.

Ann Carlson, an environmental law professor who has sharply criticized Mr. Trump’s efforts to relax standards and the auto makers supporting them, was appointed the agency’s general counsel.

Demand rises for premium napkins and toilet paper, with more people home during the Covid-19 pandemic

Wood-pulp prices are soaring thanks to speculators in China, with help from paper takeout containers, a weaker dollar and people using restrooms at home instead of the office.

Bleached softwood kraft pulp futures have risen 48% on the Shanghai Futures Exchange since Dec. 1, to about $1,037 a ton. Meanwhile, producers around the world are boosting prices for the wood mash at unusually sharp rates. Domtar Corp. UFS 2.90% , based in South Carolina, said it would raise prices this month between $100 and $130 a ton, depending on grade.

“Spot prices are really jumping,” said Brian McClay, a pulp-market consultant and a founder of pricing service Trade Tree Online. “I’ve been in the pulp business since 1978 and have been asking friends: No one has seen this before, no one has seen the scale of this.”

Prices are hottest for softwood pulp, the type that comes from coniferous trees and is used to make products such as premium toilet tissue, paper towels, junk mail and coffee cups. It is made from sawmill scraps as well as from trees too skinny, knotty or crooked to be cut into lumber.

China buys more than one-third of the world’s pulp and churns out paper products and packaging. Shanghai pulp futures, which began trading in 2018, serve as a price guide for an array of varieties and grades, similar to the way that West Texas Intermediate and Brent crude futures are reference points for oil prices.

Demand for virgin pulp, from trees as opposed to recycled cardboard and paper, has been on the rise in China, which has limited scrap imports that it once bought by the boatful to feed its factories. Pulp producers in Europe and North America have been diverting shipments from local spot markets to China to capture the surging prices, analysts say.

Though pulp was a poor performer for most of 2020, the Covid-19 pandemic shook up the market for paper products and set the stage for a rebound in demand.

The big change occurred in bathrooms and kitchens. More time at home during the pandemic meant greater demand for premium toilet tissue, napkins and paper towels made with virgin pulp—and a lot less for the scratchy stuff made from recycled material and found in offices, restaurants and other public places.

A big question lingering over the market is how much of the demand is from Chinese companies needing pulp to make products and how much is being bought by speculators who have bid up futures and need bales in case they get stuck having to deliver pulp to trade counterparties. In the latter scenario, futures prices are effectively pulling up physical, or spot, prices and there is risk of a sharp reversal of prices, Mr. McClay said.

It typically takes only about three days of pulp futures trading to match China’s total annual import volume of about nine million metric tons, he said. Frenzied trading among speculators and individual investors makes it difficult to gauge actual demand, especially because end users in China are known to get in on the action as well, reselling pulp purchases.

“It is unclear whether this is a short-term bubble or the beginning of a cyclical rebound,” said Mark Wilde, who studies forest products for BMO Capital Markets.

Reasons to be bullish include the push toward biodegradable packaging, an important component of many companies’ appeal to ESG funds, which aim to invest with environmental, social and governance issues in mind.

Graphic Packaging Holding Co. GPK 1.72% , an Atlanta-based maker of paper cups and folding cartons, estimates that $5 billion of plastic and plastic-foam cups, food trays, salad bowls, takeout containers, stand-up pouches and six-pack rings could be replaced with paper products each year.

Pulp also has gotten a boost from a weaker U.S. dollar, which makes it cheaper for buyers in China and elsewhere. Like many other commodities, pulp is priced in U.S. dollars. Over the past year the WSJ Dollar Index, which measures the dollar against a group of other currencies, has declined 5.6%.

If high prices are sustained, analysts say slimmer margins are likely among makers of tissues and hygiene products, such as Kimberly Clark Corp. KMB 0.86% and Procter & Gamble Co., along with potentially higher prices for consumers. Winners would be pulp makers, including Domtar, International Paper Co. IP -1.03% and Canadian firms Canfor Pulp Products Inc. CFX 7.07% and West Fraser Timber Co.

Lancet peer review confirms performance of country’s flagship two-shot jab

Russia’s flagship two-shot vaccine Sputnik V has shown 91.6 per cent efficacy against symptomatic Covid-19 in clinical trials, a Lancet peer review has confirmed, bringing the global total of vaccines whose efficacy is confirmed to be higher than 90 per cent to three.

The results from an interim analysis, now confirmed by peer review, also showed the jab provided full protection against moderate or severe cases of Covid-19.

Alexander Gintsburg, director of Russia’s Gamaleya Institute, the state-run virology research centre that developed the jab, said the results were a “monumental achievement” and “a great success in the battle against the global Covid-19 pandemic”.

Analysis of participants older than 60, about 2,000 of whom were in the trial, suggests the vaccine is similarly effective in that cohort. The trial is ongoing and will aim to enrol a total of 40,000 participants overall.

Participants were given two doses of the vaccine 21 days apart.

Because the study dates back a couple of weeks, it does not include efficacy figures on new variants, such as the one first identified in South Africa, that appear to be less susceptible to inoculation. The Gamaleya Institute has said it expects Sputnik V to protect against the new variants.

Concerns over vaccine shortages in Europe have prompted some politicians in the EU to question whether the bloc will need to turn to the Russian vaccine to help it emerge from the pandemic.

Hungary last month became the first EU state to approve Sputnik V, while candidate EU states in the Balkans such as Serbia have pursued vaccines from China and Russia while also negotiating for bloc-approved jabs.

Russian president Vladimir Putin made Sputnik V the world’s first registered vaccine last August before phase 3 trials had even begun, alarming scientists who said Moscow was cutting corners in a rush to beat its western rivals.

Ian Jones, a virology professor at the University of Reading, and Polly Roy, a virology professor at the London School of Hygiene & Tropical Medicine, said Russia now had the scientific data needed to back up Mr Putin’s efficacy claims.

“The outcome reported here is clear and the scientific principle of vaccination is demonstrated, which means another vaccine can now join the fight to reduce the incidence of Covid-19,” they said.

The state-run Russian Direct Investment Fund, which has sponsored research into the jab, says Moscow hopes to produce up to 1.4bn doses of the vaccine this year, including in countries such as China, Brazil, and India.

The European Medicines Agency is in talks over Sputnik, which is already approved in 16 countries, including Russia, Argentina and Iran.

“Russia has done everything right,” RDIF director Kirill Dmitriev said. “We were right to register it early, we were right to share with the world that we have one of the most efficient vaccines, and we were right to start vaccinating our at-risk personnel early. We saved lots of lives.”

Despite the promising results, Russia has struggled to get its population on board. Only 46 per cent of Russians expressed a readiness to take the vaccine in an Ipsos survey last week, results well behind the US (63 per cent), Germany (67 per cent) and the UK (86 per cent).