Hungover: what does a hung Parliament mean for the London property market?
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With a hung Parliament, a Conservative-DUP minority government on the cards and a Labour win in Hamsptead and Kilburn, how will yesterday’s election impact the property market?
In an unexpected turn of events, last night the votes were counted and Theresa May’s mandate-winning election turned into a chaotic hung parliament. The pound dipped and the markets will surely take a dive as Britain flings itself headlong into at worst a new electoral battle and at best prolonged market uncertainty.
It can be in no doubt that it was in no small part a lack of attention given to the housing crisis that lost Housing Minister Gavin Barwell his seat in Croydon Central having formerly written a book entitled ‘How to Win a Marginal Seat’, and a property-owning minority making up the wings of a seemingly out of touch Tory backbench. The Guardian revealed that while two per cent of the population are landlords, a staggering 39 per cent of Conservatives in the Commons were landlords in 2015. With the Housing Minister shunned and Westminster reeling to try to form a government in the wake of the shock election result, thoughts can now turn to what impact of the election result might have on the property market.
Wait and see
On Wednesday, the Royal Institution of Chartered Surveyors (RICS) reported that demand had slipped and new instructions from sellers had declined even more in May to top off what has been a sluggish first two quarters of 2017 amidst political trepidation in the run up to the General Election.
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25 per cent more respondents noted a decline in fresh listings as opposed to those reporting a rise. The report reveals that new instructions to agents have fallen for the fifteenth successive time in the series. Agreed sales have fallen 8 per cent and national price growth has eased as a result. Price growth has slipped to +17 per cent this month from +22 per cent, the lowest reading since last August.
The RICS UK Residential Market Survey argued that despite that the market has performed poorly in the last two years, anecdotal evidence given in response to the survey suggests buyers are taking a “wait and see” approach to housing.
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As far as lettings go, marginal tenant demand paints a picture of a lethargic market, with new landlord instructions remaining stagnant. 17 per cent expect rents to rise in the next three months and respondents expect 2 per cent rental growth over the next year.
Simon Rubinsohn, RICS chief economist said: “The latest survey suggests that uncertainty related to the General Election may have contributed to what appears to have been a disappointing level of transactions in the housing market over the spring.
“Perhaps the most ominous signal emanating from the data released today is that contributors still expect house prices to increase at a faster pace than wages over the medium term despite the difficulty many first-time buyers are clearly having in taking their first steps onto the property ladder.”
What they promised
In Hampstead and Kilburn, Labour candidate Tulip Siddiq was re-elected, increasing her majority to 34,464 votes, far outnumbering Conservative candidate Claire-Louise Leyland’s 18,904. The Labour Party pledged to build 100,000 homes every year by the end of the next Parliament and guarantee Help to Buy until 2027. Right to Buy would be suspended until homes were being replaced like for like, an inflation cap on rent rises would be implemented, landlords were to be mandatorily licensed and letting fees banned. Labour promised to scrap cuts to housing benefit for 18 to 21 year olds, the bedroom tax, and routine use of leasehold tenures.
That said, at the time of writing we are facing a Conservative-DUP minority government, and it’s the Tory manifesto that will rule housing policy for the next five years.
The Party promised to “fix the broken housing market,” pledging a million homes by 2020 with 500,000 more by 2022. The Conservatives have assured that they will reform compulsory purchase rules to enable councils to build more readily on derelict sites.
Right to Buy will continue with council homes to be sold after ten to fifteen years, the first offers going to tenants and the profits used to build more homes. Housing for elderly people will be supported with a drive for more private capital and help for housing associations. The Conservatives will implement a Homelessness Reduction Act with a new taskforce to eliminate rough sleeping by 2027.
RICS suggests that price growth will slow further in the next three months whatever the result, with positive implications for those looking to buy, but dampening expectations for sellers. 26 per cent of respondents to the survey expect an increase in activity over the next year, with estimates of 3.5 per cent price inflation per annum across the UK over the next five years.
Londoners are more pessimistic than elsewhere in the country, with the UK as a whole anticipating price expectations of -1 per cent from +5 per cent in April.
Fionnuala Earley, residential research director at Hamptons International disagreed that the election had been until now the first and foremost the influence on the market.
“The election in a way is a bit of a sideshow,” she said, arguing on election day that a Conservative win would provide for the status quo. “The likelihood is that business will be more confident if it’s a Conservative majority,” she said.
Yet with a Conservative minority government on the cards, market uncertainty is now a reality, and it’s Brexit that’s the biggest determinant of market stability. “The real crux will come with the Brexit negotiations and what that will mean for the stability of the UK economy in general,” she argues, since the economy is the chief determinant of the value of property.
It appears then that buyers might have to wait and see a little longer if they are in the market to buy or sell. Ms Earley is optimistic however that London as a global city will remain a stronghold for property investment.
“London property tends to have been over time a good asset to invest in…it’s not going to necessarily drop its value hugely unless something awful happens to the economy. And we can’t predict that at the moment,” she says.
“It comes down to how they manage the economy and how they would manage Brexit, and we don’t know how any of them would manage that; we haven’t got a crystal ball.”