So the results of the UK parliamentary election mean that neither party have a majority of seats in the House of Commons. With Brexit also on the agenda, real estate brokerage Tranio presents its analysis of the parties’ manifestos and how they could affect the UK housing market. Since control over housing is a devolved power for Scotland and Wales (but not Northern Ireland), the nation’s own elected bodies will have the final say on their nation’s housing.
The Conservative Party leading a hung parliament is likely to mean the preservation of the Right to Buy scheme, meaning the housing supply in England will trickle up as more homes become privatised, but it remains to be seen whether this policy will continue in Wales and Northern Ireland. The amount of social housing with the option of privatisation is also set to increase, with the Conservative Party’s manifesto stating that “fixed-term council houses” are set to be constructed and then subsequently sold after a fixed term of 10-15 years. This policy guarantees a medium-term drip-supply of housing which aims to restrain house price growth throughout England, Wales and Northern Ireland. *
Furthermore, the Conservative Party has promised to build one million homes by the end of 2020, with an additional half million to be constructed by the end of 2022. However, according to the Department of Communities and Local Government, under 150,000 homes were built in 2016/2017 (a 6% rise from YOY from March 2016), meaning this target may be one that is destined to fall short. It remains to be seen which planning regulations will be loosened in order to facilitate a curb in rising prices to make ownership more affordable.
In addition, Theresa May has been very coy in terms of specifying which tax cuts or hikes she is set to implement, dithering over her predecessor’s “tax lock”. Any tax changes in the next budget will undoubtedly leave monetary policy work for the Bank of England to be done and, with Brexit on the horizon, it is anyone’s guess which way the base rate could go.
The SNP in Scotland declared in their manifesto that they plan to continue with their current housing policy in Scotland, which has the highest house-building rate per capita in the UK. An additional 41,000 homes above the English average were erected over the past decade in Scotland; 14% higher than that of England and 35% higher than Wales. This fact saw a 2% depression of prices throughout 2016, despite the number of sales increasing by over 3%, meaning the average price of a residential property in 2016 fell to £166k from £169k in 2015. With no change in policy, we can expect much of the same for Scotland, unless we see an overall boost taking place in the UK housing market as a whole.
The Democratic Unionist Party (DUP) will now have weight in Parliament due to its informal coalition with the Conservative Party. This means that it may be able to push through some of its policies in Northern Ireland that run counter to Conservative plans. As for housing policies, the Conservative’s U-turn regarding the construction of social housing falls in line with the promises the DUP made to its electorate of an additional 8,000 social houses by 2020. Whether they will be subject to sale after a certain period of time remains to be seen.
Labour’s victory in Wales could bring an end to the Right to Buy policy in the nation, which, over the long term, could foster price rises on the Welsh housing market due to the supply being constrained as the state retains ownership of housing.
Although this election was billed as a Brexit election, other issues began to dominate the political landscape before votes were finally cast, especially since the stance of the two main parties on Brexit was ultimately the same. The Brexit negotiations are unlikely to have a direct effect on the UK housing market as a whole, with current trends of uncertainty set to persist. If anything, the election results have just compounded the air of ambivalence that exists less than a week before the Brexit negotiations are set to begin. With the housing market tied to the health of the economy, (un)successful negotiations may, for example, affect the value of the pound with direct consequences for prospective buyers from abroad. With neither Labour nor the Conservatives achieving a parliamentary majority, Theresa May is seeking to form a government by pairing up with the pro-Brexit DUP. However, it remains to be seen whether May will remain Prime Minister over even the mid-term. Taking these factors into account, foreign property investors are more likely to take a wait and see approach since it is unclear if and how well a minority government would function. This could see house price growth slow further, with growth already having slowed to levels unseen for the past four years, according to Halifax. In addition, housing market in London may suffer should its status as Europe’s financial centre be relinquished, with high earners moving onto the continent, leaving properties in the capital empty.
In sum, the Conservative Party’s pairing up with the DUP in an informal coalition, along with Labour and the SNP holding onto power in Wales in Scotland respectively, will foster steady but very slight house price growth UK wide. This is in light of prices slowing their growth in the months preceding the election due to market uncertainty, with such apprehension exacerbated by oncoming the Brexit negotiations. With the election come and gone, the market hasn’t even been given chance to take a short breath of air before the negotiations with the EU begin. However, the overall lack of supply will continue to support prices: something unlikely to be remedied despite election promises, with the UK needing to sustain the construction of around 250,000 new homes per year to meet demand - a figure unseen since the 1970s. These promises have been cast even further into doubt due to there being a Hung Parliament; giving all parties another excuse to renege on their promises of 300,000 homes to be built each year to 2020. This lack of supply will continue to facilitate price growth. With the outcome of Brexit yet to be determined, a bad deal for the UK and its economy could see construction rates grind to a halt, thereby placing further pressure on prices.
* It should be noted that the Scottish Parliament voted to abolish the Right to Buy scheme and the policy came to an end for all Scottish housing association tenants in 2012.
Adam Paul, international editor at Tranio.com