Election Special
Which Party will benefit the UK property market the most?
By Joe McTaggart
April 2010
Election Special
Which Party will benefit the UK property market the most?
With only a day left before one of the most contentiously fought General Elections in living memory, we review the manifestos of the three main parties and identify their key pledges and how they might
affect the UK property market. However before we look at their
proposals, what exactly is the problem they are all trying to fix?
It is universally accepted that the UK has a property shortage. The
2004 government report commonly known as “The Barker Report”
after its author Kate Barker, stated despite building approximately
140,000 new homes there was still a shortfall of 120,000 per annum.
The report laid much of the blame at the door of the UK's planning
authorities. Many who have tried and failed to obtain planning
permission in recent years may echo the report’s findings that the
system is complex and takes an "unacceptably long" time.
A more recent consultation paper from HM Treasury called “Investment in the UK private rented sector” (Feb 2010) goes on to state that it has become clear that the persistent undersupply of housing has been a key contributor to the affordability problems households have faced.
However, the recent housing market downturn has had a significant impact on the rate of new build, with net additional housing starts and completions in 2008-09 down 42% and 20% respectively compared to 2007-08. The lack of supply is definitely one of the key reasons the property market has recovered so quickly, especially London. Whether the recovery is sustainable is another debate.
The paper goes on to acknowledge the critical role that the Private Rented Sector (PRS), Buy to Let to you and I, has played within the housing system. In fact it has played a disproportionate role in funding new-build supply in recent years. As such the government is keen to encourage investment in the PRS from individual and institutional investors in order to continue the growth and development of the housing sector.
So what do the parties have to say for themselves?
If the goal of the parties is to create a stable, liquid and healthy
property market, I’m not sure that there’s an out and out winner.
Overall there has not been a huge amount of manifesto space devoted
to housing, perhaps because ultimately the state of the economy will have a greater influence on the market in the short term.
If however we take a closer look at some of the points the parties have been campaigning on, there are a few policies which might make a difference in the medium to long term.
Firstly stamp duty
Labour has already extended the exemption for first time buyers
purchasing properties below £250,000 for an additional two years. The
Conservatives, who came up with the idea, would make it permanent.
According to Santander there are 3.8 million potential first time
buyers, however the maximum saving of £2,500 would do very little to
counter their biggest challenge – saving the larger deposits now
required by lenders.
The increase in stamp duty for properties over a million seems to be a cynical move by the Government to tax homebuyers who tend not to be their core voters. Additionally the burden will fall overwhelmingly on London where 60% of properties over £1m are located. The same could be said for said for the Liberal’s mansion tax.
I feel an opportunity has been missed in overhauling the entire stamp duty system and introducing a more progressive system, similar to income tax, which would create more liquidity in the market.
Home Information Packs (HIPs)
Both Conservative and Liberal parties will
abolish HIPs. I welcome this move because in
my personal experience most people put their
properties on the market speculatively, testing the
market until they find something they love. The net
effect of HIPs has been to eliminate this important source
of supply, which then reduces liquidity and potentially distorts prices
upwards
Building more homes
What is conspicuous by its absence is Gordon Brown’s 2007 pledge to
build 3 million new homes by 2020. It has been replaced by a pledge to
invest £75 billion over two years to build 110,000 new homes to rent
or buy.
While on the surface this seems achievable, it suddenly becomes a
herculean task when put into context of statistics released by the
Department of Communities and Local Government. The number of
new homes built in 2009 was the lowest since 1946 with just 118,000
homes completed. This is less than half the 240,000 homes
recommended by the Barker Report.
While we’re on the topic of new homes, I’m not entirely sure how the Liberal’s policy of adding VAT to the price of new homes will help buyers, first time or otherwise. What it will do is increase house prices by 17.5% overnight.
One of the biggest issues of supplying new homes is the current planning process. Although this has been acknowledged by several government reports, Labour has not indicated it intends to do anything about it.
The Liberals do make a step in the right direction by abolishing the Infrastructure Planning Commission and return decision making including housing targets to local people. However there is not enough detail to see how this would work and there does not appear to be any motivator to stop locals adopting a NIMBY (Not in My Back Yard) approach.
The Conservative party does appear to grab the problem by the scruff of the neck and get a grip it. Key proposals include removing bureaucracy from the planning process and simplifying and consolidating a national planning frame work.
Involving communities in the planning process and introducing tariffs payable to local authorities by developers, a portion of which will be kept by the neighbourhoods seems like an intelligent way of getting all stakeholders to work together.
Ultimately if neighbourhoods are able to participate and benefit from development in their area, we should see more successful housing projects come on stream.
Conclusion
In the short to medium term, the health
of the property market will be
determined by that of the economy and
not new government policy.
The recovery is in intensive care and it is
unlikely to be taken off life support any
time soon. As such we do not believe
there will be any significant upward
movement in interest rates over the next 12-
18 months. It has even been suggested that
Mervyn King, Governor of the Bank of England,
believes that rates will stay low for longer than markets
expect, perhaps up to 4 years.
The flow of credit into the wider economy and mortgage market appears to be improving, but there is still a potential dark cloud on the horizon in the form of a possible £300 billion mortgage funding gap.
All parties have promised to make “Efficiency Savings” in the Public sector. In plain English the government will be doing what the private sector did at the beginning of the recession and making significant job cuts.
During the last recession the public sector shrunk by approximately 500,000 jobs. It would be foolish to think that the property market would not be affected however the pain is more likely to be felt in locations of high public sector employment.
Despite their differences and campaign promises, whoever ends up at Number 10 will need to perform triage and quickly decide on how to get the UK economy off life support. Unfortunately housing will not be high up on the list, but as a result of saving the economy the housing market could be taken care of - in the short term anyway