Parliamentary elections in the UK: how will the results affect the real estate market?
According to the results of the parliamentary elections in Great Britain, none of the parties won enough seats in the House of Commons for an absolute majority. The legislature of Scotland and Wales (Northern Ireland – the exception) independently determine the direction of housing policy in these regions. Tranio experts analyzed party manifestos to understand what investors should expect from local property markets.
The leading position of the Conservative Party in the “suspended” parliament means the preservation of the program of privatization of social housing Right to Buy. Most likely, along with the volume of privatization in England, construction volumes will increase (but it is not yet clear whether the program will be preserved in Wales and Northern Ireland). According to the conservatives’ manifesto, the number of social real estate facilities that tenants will be able to buy in 10–15 years will increase. This policy guarantees a gradual increase in the housing stock in the medium term, and this, in turn, will limit the growth in property prices in England, Northern Ireland and Wales *.
The conservatives also promised to build 1 million new residential units by the end of 2020 and another 500 thousand by the end of 2022. However, according to the Department of Communities and Local Government, less than 150 thousand residential units were built in 2016–2017 – there are concerns that the government will not be able to achieve the goals in time. It is not clear which of the planned reforms will have to be sacrificed in order to stop the rise in prices and make the property more affordable.
Until now, Theresa May did not make specific statements about the possible increase or decrease in taxes in the near future. Any changes in tax policy will affect the work of the Bank of England, which, given the upcoming Brexit, will certainly affect the size of the base interest rate.
The Scottish National Party plans to continue the current course of housing policy in the region. In Scotland, the highest housing construction per capita in the UK. Over the past 10 years, 41,000 more houses have been built here than the national average: 14% more than in England and 35% more than in Wales. Property prices in this region decreased by 2% in 2016, while the number of transactions, on the contrary, increased by 3%. The average cost of housing fell from 169 thousand pounds in 2015 to 166 thousand in 2016.
The democratic unionist party will gain weight in parliament through an informal coalition with the conservatives. Now she may be able to implement some of the initiatives in Northern Ireland, even if they go against the plans of the conservatives. As for the construction of social housing, the promises of unionists coincide with the line of conservatives: the party promised the electorate to build 8 thousand social housing units by 2020.
The victory of the Labor Party in Wales may mean the termination of the Right to Buy program, which, in the long run, will push real estate prices up in the region due to a reduction in construction volumes.
Brexit negotiations are unlikely to directly affect the UK property market, so the current situation will continue in the near future. However, the real estate market is directly related to the state of the economy, and (un) successful negotiations may, for example, affect the pound sterling rate, which, in turn, will affect the condition of foreign investors.
Since neither the conservatives nor the Laborists succeeded in attaining an absolute majority, Theresa May tries to form a government by joining with unionists who support Brexit. However, it is unclear whether she will remain as prime minister in the medium term. Under these conditions, foreign real estate investors will probably prefer to wait out for a while and see how the minority government will function. It is possible that the rise in prices will slow even more – according to Halifax, the dynamics have already dropped to a record high since 2013. It is also questionable whether London will be able to preserve the status of the financial center of Europe – otherwise many businessmen can move to the continent, leaving the property in the capital.
As a result, the conservative party in the informal coalition with the unionist party, along with the Labor Party in power in Wales and the Scottish National Party in Scotland, stimulate a gradual rise in property prices in the country. The slow pace is due to the uncertainty associated with the elections and the upcoming Brexit talks. At the same time, housing shortages will support overall price increases. Despite campaign promises, the housing stock issue is unlikely to be resolved soon: the UK needs 250,000 new residential units per year, a record figure since the 1970s. A “suspended” parliament aggravates the situation, since in such a situation, any of the parties can refuse to promise to provide the market with 300 thousand new houses a year.