The Politics of Property
This year’s Real Estate Symposium Dinner is on September 18th. As always, this event is an opportunity for the key providers of home buying and selling services to look to the future and discuss how upcoming events and developments will affect our marketplace. Probably the most significant upcoming event for our industry is the General Election next May — who is going to win (or will there be a coalition)? And what will they retain, discard and bring in? There is much to consider. One thing is for sure — housing supply and affordability will be a key election issue. Here are some of the ingredients for what promises to be a lively debate:
– prospects for a continuation of the economic recovery;
– “Help to Buy” and the Affordable Homes Policy;
– the London “boom”;
– interest rates;
– the number of New Builds;
– CGT incentives for foreign investors etc.
I will comment on a few of these ingredients below — as I suppose this blog is just an appetizer for the main event!
In the Budget earlier this year, George Osborne pledged to extend part of the “Help to Buy” scheme to 2020 — this was a party political decision designed to increase the chances that the property recovery (the London “boom” aside) is still underway next May.
However, this extension only applies to that part of the scheme that applies to new builds. The second part applies to all homes under £600,000 so doesn’t particularly encourage house building. What it does do is increase demand at prices the buyer would not otherwise be able to afford. I don’t like this part of the scheme since in my view it artificially stokes the already recovering market and thus risks overheating. Osborne should scrap this but he probably won’t until after May — if the Conservatives win. What would Labour do? Ed Balls (everyone’s favourite politician) appears to be critical “the tax payer should not be guaranteeing mortgages on homes worth as much as £600,000”. All in all, my business planning is assuming that this second part of “Help to Buy” will be phased out soon after the election. And good riddance to artificial inflation of demand.
I sense that politicians will move the rhetoric to increasing the supply of new homes if they are elected. Of course, any measure to achieve this will only work if the consequence is that the pent up demand can afford the price of these new homes. This would entail a downward movement on house prices.
And therein lies the rub for the politicians — the policy that delivers adequate volumes of new homes will finally satisfy pent up demand but, crucially reduce the value of a voter’s main financial asset.
Interestingly, official estimates calculate that 290,500 new homes are needed every year until 2030, well above the 128,000 estimated for this year (2014/15) by the Department for Communities and Local Government (DCLG). This is also a 4% annual drop on 2013/14. This statistic is all the more striking when you consider that there was a dramatic upwards spike in Q4 2013/14 — 36,450 more new homes started — 33% up on Q4, 2012/13)
I know I said I would leave the London “boom” out of this but there is one measure that Osborne has announced that could end up being a tipping point. Next April, non-resident owners of property will no longer be exempt from capital gains tax (CGT). Up until now this incentive coupled with the many crises around the globe has triggered an influx of foreign money as London property is seen as a “safe haven”. This should materially reduce demand for London property.
All in all, the political rhetoric seems to be indicating measures that will reduce prices which is interesting — will the electorate think more widely about the need to make property more affordable by increasing supply (and reducing foreign investment)? Or will they think selfishly about the value of their main asset? Or will their cuckoo thirty-something children swing the debate for both politicians and parents? Politicians will ponder on this long and hard — and their political conclusions may well leave a gap between rhetoric and measures.
Some surprising and welcome statistics on affordability indicate that, contrary to expectations, the new rules under the Mortgage Market Review have not dampened demand. First-time buyer loans grew significantly in June over May. According to the Council of Mortgage Lenders (“CML”), the number of loans to first-time buyers was up 19 per cent in June on the previous year and 7.1 per cent on the previous month. More recent data from the British Bankers’ Association (“BBA”) — revealed approvals were up 0.8 per cent year-on-year in July and 1.5 per cent up on the month before — providing further weight to this indication. The CML’s finding are also supported more generally by data from the Bank of England that showed mortgage approvals rebounded in June after falling for four consecutive months. Moreover, according to the BBA, the six major high-street banking groups approved a total of 69,489 loans in July, up from 68,906 in July 2013 and 68,440 in June. And the value of approvals reached £10.5bn, up 11 per cent from £9.5bn at the same point a year earlier.
All the indications are that lending to first time buyers (and others) will continue to grow as the disruption caused by the introduction of (the Mortgage Market Review) abates.
And so to interest rates. I don’t think that you will find too many people who would disagree with the prediction that interest rates will begin to rise soon. This will of course affect affordability as increased monthly repayments weigh on the borrowers cash flow. This will inevitably put a brake on the recovery particularly as this comes at a time when real wages have been falling for the last five years.
To maximise their chances of winning the election the Conservatives need the property market recovery to be sustained beyond May with a healthy volume in transactions and increasing property values. What they may get is a weakening market as interest rates bite amid uncertainty over what will happen as a result of the election. Add to that the difficulties in delivering coherent rhetoric given the conflicts between housing supply, affordability and voters assets — particularly given the dismal figures for new builds under their watch — and what you have is a vulnerable flank for the Labour attack dogs.
So who will win the next election? The only current consensus is that it will be close and that another coalition is very possible. Here are three points that indicate that it will be a Labour government (or a Labour led coalition).
Firstly, the significance of the Conservatives opposition to AV electoral reform is that the Liberal Democrats reacted by blocking the proposed boundary changes. The received wisdom is that these changes would have given the Conservatives another 20 seats. How David Cameron must be regretting that opposition to AV now.
Secondly, dear old Nigel Farage. While he never set out to be anything more than an EU nay-sayer his “beer and fags” image has compared very favourably with the two-dimensional, career politicians leading the other parties and won him more support than he could initially have hoped for. While all parties are nervous about how many votes UKIP will steal from them at the next election — the Conservatives have by far the most to worry about.
Thirdly, the Conservatives need a 3 to 4% lead in the polls to come out of the election as the largest party (see above point on constituency boundaries). This seems unlikely given the low and largely stagnant levels of support enjoyed by the main parties. The rise in UKIP is only part of the story behind this. It is also to do with Milliband’s image, the Liberal Democrat’s betrayal, the Conservative brand being damaged by incompetence and general disillusionment with politics.
The above points suggest that Ed Milliband will be the next prime minister — despite all the mockery. Of course, if Scotland votes “Yes” at the Referendum on September 18th (the same day as the Real Estate Symposium Dinner) he will have won by virtues of votes from a foreign country.
The dinner promises to be lively and informative with our speakers Kevin Hollinrake — MD of Hunters Estate Agents and conservative candidate for Thirsk and Malton — and Michael Cross — freelance journalist with interests in public policy, the law, information technology and open data who is also News Editor of the Law Gazette – well qualified to stimulate the “open mike” session!