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The Election Effect on Property: What to expect after Thursday’s vote
June 2, 2017Article by Ray Withers
In April, I praised the announcement of this general election as the beginning of the end of investor uncertainty in the UK. Rollercoaster polling figures and manifesto mini-dramas have delivered a few surprises since then, but nothing that is not part and parcel of any lively democratic process.
I am still confident that whatever the outcome, a firm result on Thursday will clarify the Brexit negotiations as well as provide the unity and stability the country needs to get on with business as usual.
Happily, business as usual for the property market means an ever-increasing proportion of privately renting households, fast-rising yields in secondary cities, and double-digit annual price growth in many areas.
Only the last of these has changed since the referendum last year, with slower growth in the national average as people put off making purchasing decisions. Yet even this is disproportionately affected by a slowdown in central London, with regional bright spots losing little of their shine for investors so far. It is also a testament to the resilience of the market that 5.3% average annual growth in British cities is considered underwhelming (Hometrack).
In short, we are optimistic about the future, irrespective of the political intricacies that will become apparent as the winning party gets on with running the country. But this wouldn’t be election week without a bit of punditry, so (without advising you who to vote for or accepting any foregone conclusions) here are my thoughts on the issues at play.
While the completion of the election process will surely be good for the property market, the actual result should have little direct or immediate impact. However, the winning party and the strength of their mandate will affect several factors that may shape it for years to come.
The biggest is housing policy and regulation. The manifesto commitments of the three leading parties can be summarised as follows:
- Conservative: 1.5m homes by 2022; flexibility for council house provision handed to local councils; follow through on loosening of land restrictions as set out in recent white paper
- Labour: 1m homes by 2022 (at least half of which affordable), create a Department for Housing to manage planning and delivery
- Liberal Democrats: 1.5m homes by 2022 (one third of which affordable); more funding and borrowing through a housing and infrastructure bank; strict taxes on empty foreign-owned properties
- In addition, all three promise to protect renters and extend tenancies in similar ways, and acknowledge the importance of the rented sector
This year’s housing white paper was something of a disappointment (see our blog post here), but it is difficult to know whether having begun a formal process the Conservatives are better placed to deliver new stock, or whether another party having a fresh and more radical stab will be more effective in the long-run. One thing all parties agree on is a fundamental undersupply of new homes, and the need to relax planning and regulatory constraints to get it done. Housing provision is a national priority for which Brexit should not be a distraction, so with a full term ahead of them, any government is likely to press ahead and facilitate new projects.
A major source of interest (and frustration) for investors is the government’s recent attitude to landlords. The leading parties have not clashed or even meaningfully addressed the debate around taxation of investment properties through stamp duty and mortgage interest payments, so it would be optimistic to expect any of them to scrap George Osbourne’s raft of punitive measures.
That said, no one is talking about building upon them either. In our experience, whilst we have seen a dip in demand from UK-based investors expanding their buy-to-let portfolio, we have seen a surge of overseas buyers, particularly from the Middle and Far East. Overall though, landlords have normalised the new climate and are moving forward. Our guide to the options is available to read here.
Perhaps the most immediate response to the election result will be felt in the currency markets, which appear to favour a strong Conservative majority going forward. Sterling has weakened slightly each time the polls tighten in Labour’s favour, though they have also reacted negatively to the Conservative standpoint on Brexit and business, so the long-term trend is hard to predict.
Whilst the weak pound is propping up property prices in some areas by attracting foreign investment, the declining purchasing power of Brits would mean that a further drop in the value of sterling beyond October levels is unwelcome. Expect a rally (and foreign investors should buy soon) if the Conservatives extend their majority.
Brexit and the economy are of course the main issues of the day. They are closely intertwined, and in our opinion represent the most important factor affecting the property market in the years to come. This election will be critical for giving both a running start.
The choice again boils down to continuity, and therefore greater certainty, along our current path under Theresa May – and the likelihood of what has been characterised as a ‘hard Brexit’. Or a disruptive change of government mid-process and greater uncertainty under a different party – but one that is probably inclined towards a ‘softer’ Brexit, which might be better for the economy. There is also the outlying possibility of a win for the Liberal Democrats or Greens that halts Brexit altogether.
Owing to the complexities and timeframes involved, the economic impacts of Brexit and their knock-on effects on housing are difficult to foresee. But there are reasons to be cheerful about the economy’s post-referendum performance and future prospects. For instance, business investment (including property) has grown by 0.8% in the first three months of the year already – roughly on par with 2015 (FT). Barclays has also just released a forecast of average house price growth of 6.1% to 2021 across the UK, which is solid if not stellar under the circumstances. In my opinion, this can only strengthen when coupled with more certainty and confidence following Thursday’s result – whichever way the vote goes.
The referendum and now the snap election have persuaded many buyers and investors to wait and see for the time being, though a mercifully short election period has mitigated the usual brake on transaction volumes. Chronic undersupply has underpinned prices in the meantime, and will continue to do so going forward.
After the 8 June, we expect the market to be reignited by clarity, stability, and a little excitement. We will be commenting further after Thursday… it will be interesting to see what the country decides either way.
In my opinion, this is what we all need to bring back some stability, a clear plan for Brexit, and get the economy back on track!
As always, I’m keen to hear your opinions and thoughts.