Property gets political as UK election fever builds
Political interventions in the UK housing market can have little effect or produce unintended consequences.
3 minutes to read
The UK housing market is once again becoming a political football.
Everything looked so different during Covid, when an extended stamp duty holiday showed the sector had an important economic role to play.
Elections and pandemics clearly elicit different responses from politicians.
Last week’s local contests showed housing will be an emotive battleground ahead of the next general election, which is likely to take place in 2024.
Unfortunately, tackling what are largely economic problems with politically-motivated solutions doesn’t have a great track record.
The approach can produce unintended consequences, which is evident today in the lettings market.
A succession of tax increases in recent years means being a landlord is no longer financially viable for some, particularly as mortgage rates rise. Buy-to-let owners also face more stringent energy performance targets and the abolition of no-fault evictions.
Political capital has been earned by targeting a group blamed for fuelling house price inflation.
Landlords leaving market
The result? Rents have rocketed as more landlords sell up.
The growing number of headlines about how renters are being priced out of towns and cities must make some in Whitehall wonder whether they went too far.
Rent controls have been floated as one way of easing the pressures on tenants.
However, if the example of other countries is any guide, it would exacerbate the supply shortage. The fact rent controls would make a bad situation worse is perhaps why the Labour party appeared to back away from the idea last month.
Reversing some of the recent tax hikes on landlords may be politically unappealing but it would certainly make life easier for tenants.
Housebuilding targets
Housebuilding targets is another area of contention. The adoption of a pledge for 300,000 homes per year has proven particularly divisive.
The truth is that while a number is easily understood by voters, it will only be reached if there is sufficient demand. Which depends on the state of the economy and the mortgage market. Which is why large housebuilders have recently scaled back their plans. It doesn't depend on politicians.
On the supply side of the equation, even if we somehow went from 200,000 to 300,000 homes per year, what branch of mathematics could make that affect the price of the 25 million households in England and Wales? Prices of new homes are tied to second-hand properties and rise and fall with the market.
These iron laws of supply and demand in the open market are an uncomfortable truth but something most politicians understand despite the rhetoric.
The planning system is often blamed for low levels of delivery and is admittedly in a poor state. However, no overhaul will get housebuilders to a magic number. Smaller builders would certainly benefit from a simpler system but streamlining it won’t boost delivery in a meaningful way or bring down house prices. The market will still be demand-led.
That said, more can be done to deliver affordable housing. An amendment to the Levelling Up and Regeneration Bill currently going through Parliament means land could be bought at existing-use value under new compulsory purchase order rules. The aim is to build more affordable homes on land that costs less.
The plan may face legal hurdles, but it highlights the key point that any solution must stack up financially for those delivering it.
Stamp duty increases
Other proposals being floated by the Labour Party include higher stamp duty for overseas buyers and limits on international sales for new UK developments. The latter is a policy followed by London Mayor Sadiq Khan, but one that lives alongside the reality that some schemes are forward-funded by overseas sales.
Overseas home ownership is less than 1% across the UK and in varying degrees of single-digits across London, according to the Centre For London think tank. Will higher stamp duty for international buyers reduce house price inflation across the capital? With an election around the corner, the answer doesn’t really matter.
Subscribe for more
For more market-leading research, expert opinions and forecasts, subscribe below.
Subscribe here