A Reaction to The General Election

The fact the Sir Kier Starmer has been given the keys to 10 Downing St on the back of a historic landslide for The Labour Party shouldn’t come as much of a surprise.?

The State Opening of Parliament and the King’s Speech will be on the morning of Wednesday July 17, where the incoming government will outline its plans for its first year.

Sir Kier Starmer said the UK was waking up this morning to

“the sunlight of hope”, which was “shining once again on a country with the opportunity after 14 years to get its future back”.

Whether you believe him will depend on a person’s political persuasion but let’s look beyond the spin and examine in more detail what this could mean for the UK housing market and then focus on Scotland where the political landscape has also shifted.

UK Market?

Labour has pledged to develop 1.5m homes, reform planning rules, prioritise development on brownfield and what it calls “grey belt” land. It wants to extend an existing scheme, which helps people get a mortgage with a smaller deposit and is backing more rights for renters.

There has been some initial cautious industry reaction, Nathan Emerson, CEO of Propertymark, commented:

“Propertymark welcomes wide-ranging engagement with the new Labour Government to help steer an objective pathway forward for the housing sector. We have seen a chronic undersupply of affordable new housing for many years. Sustainable housing is the foundation for any strong economy and there must be clear and well thought out plans that inspire investment and improve supply moving forwards. We want to see long-term cross-party cooperation that delivers the right kind of homes in areas they are desperately needed.”

Rightmove says a new government must build 120,000 homes to help return rents to what it believes are normal levels, rising around 2% annually. The ongoing imbalance between supply and demand from tenants enquiring about homes is one of the key drivers behind high rental inflation rates seen since the pandemic, with nowhere near enough homes to satisfy the number of tenants looking to move.

This demand comes as the portal’s latest lettings index shows that average advertised rents for tenants outside of London have reached a new record of ￡1,316 per calendar month 7% higher than this time last year.

Scotland is has continued to be the hardest hit by supply and demand imbalances, while London is the least affected.

London has seen improvements in the supply of available properties for rent reducing competition which has resulted in a slowing of rental inflation. There has been an increase of 16% in the number of available properties for let while tenant demand has dropped by 15%. This is an example of how a sustainable market can occur when the supply of stock is increased. ?

Tim Bannister, Rightmove’s property expert, commented:

“We’ve been talking about the imbalance between supply and demand in the rental market for a long time now, so it’s easy to forget that there was a time before the pandemic where rental price growth was more stable.”

Lack of definitive Labour Policies

In terms of other policies and the potential impact on UK Housing it is actually hard to make comment as Labours campaign, although highly successful, was rather light on detailed policy statements. Nothing in the way of definite promises on spending despite Labour diagnosing deep-seated problems across child poverty, homelessness, higher education funding, adult social care, local government finances, pensions and much more besides.

Because of all of this there seems little doubt that revenue from other sources will be required given the current spending plans already pencilled in from next year which have been described by the Institute for Government as "implausibly tight". Especially when the fiscal rules that Labour have signed up to are applied.

Taxation

As the independent Institute of Fiscal Studies has stated both?major parties ruled out changes to some of the big revenue-raisers, national insurance, VAT and corporation tax. Interestingly the wording of Labours income tax pledge does leave some room for measures that would increase income tax revenues, or for reform to parts of income tax, if desired.

During the election there was a great deal of speculation on Capital Gains tax (CGT). The Financial Times has reported that "some rich individuals are selling assets such as shares and property in preparation for an incoming Labour government that they fear will increase capital gains tax", citing comments from wealth managers.

This raises issues for Landlords as the Times article highlights buy to let owners among those considering selling. If landlords do end up selling in significant numbers, panicked about the potential of increased capital gains tax this could lead to an influx of ex-rental properties to the market. This in turn could lead to a fall in house prices. But for this to have material impact it would need landlords to sell in large numbers. This will, of course, also reduce rental stock which so many first-time buyers rely on while saving for a deposit so demand for existing rental stock would grow.

One area of taxation that Labour have been clear on is the introduction of VAT on private school fees. This could have impacts on local housing markets as good schooling has long been a key driver of demand across the housing markets. The plans to introduce VAT on fees could see more demand filtering into the state and grammar school systems which may in turn increase the house price premiums that are already evident around high performing state schools. This is likely to be most keenly felt in places with both a high proportion of pupils currently attending an independent school and the fiercest competition for state school places. Edinburgh is one such location as 1 in 4 children in the city are in private education.

We will watch with interest data on house prices and rental inflation over the coming months once the dust from the election has settled which will show in detail what the impact has been.?

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