The snap general election left the UK with a hung parliament on the 8th of June. Despite being the largest party, the Conservatives failed to secure the 356 seats required to hold a majority. Theresa May has been in talks with the DUP (Democratic Unionist Party) to negotiate the terms of a potential coalition. However, at the time of writing (15th June 2017), the deal’s announcement has been put on hold due to the tragedy at Grenfell Tower.
Gavin Barwell, former Housing Minister, lost his seat in the general election to Labour. He has, however, since been appointed as May’s chief-of-staff. Arguably, May’s decision here could suggest a readjustment in her politics, considering Barwell is “on the moderate wing of the party, pro-immigration, and campaigned for Remain.”
Some critics are hoping that his priorities will remain with the UK housing market, though others believe his commitment will be Brexit and May’s “political survival.”
However, it is likely that the reshuffled government will commit to the ambitions outlined in the 2017 Housing White Paper, which confessed that the housing market is broken. Amongst other intentions, the White Paper promised to encourage family-friendly tenancies, provide small builders with a £3bn fund and support older people who wish to downsize to smaller properties.
On the 15th of June, Andrea Leadsom announced that the Queen’s speech and state opening was to take place on Wednesday the 21st of June, two days later than expected.
What does this mean for the property market?
A reminder of the shockwaves in 2016
Not only does uncertainty surround current circumstances, but the longevity of current solutions, too. It is hard to tell how long such a coalition would last.
We believe the news parallels the shockwaves caused by Britain’s vote to leave the EU, which pulled the pound down to a €1.1472 on the 26th of September. Patrick Graham, from Reuters, noted that Brexit had “been a rollercoaster ride for investors.” Indeed, the “FTSE 100 ended down 91.39 points, or 1.32%, with only a few stocks rising” on the 26th of September.
However, as the stock market suffered, the property market boomed. The pound’s plummet attracted a surge of foreign investment, which accounted for 78% of all commercial property purchased between July and September in central London. In addition to this, according to Nationwide’s UK Monthly Indices, July, August and September saw average house prices increase by 0.4%, 0.6% and 0.3% respectively. Indeed, fear within the market existed, though was seemingly too weak to actualise many knee-jerk reactions.
Admittedly, these changes were in speculation of a future reality, and the full effects of leaving the EU are yet to be revealed.
On results day, the pound dropped by 2.34%, marking an eight-week low. However, the same afternoon that May announced a potential coalition with the DUP, the pound recovered some of its losses.
The Conservative manifesto
In the absence of any deal, it is impossible to know. In analysis of these negotiations, an article in the The Times noted,
“Theresa May’s hopes of securing the support of the Democratic Unionist Party for her minority government were faltering last night as the Treasury dug in against the costs of a deal.”
As mentioned, it is unlikely that May will detour away from existing ambitions outlined earlier this year.
In their 2017 manifesto, May announced that the Conservative party will “meet [their] 2015 commitment to deliver a million homes by the end of 2020” and “deliver half a million more by the end of 2022.” In an echo of the party’s Housing White Paper, she also wrote, “We have not built enough homes in this country for generations, and buying or renting a home has become increasingly unaffordable.”
Other ambitions include building better homes which match the quality of older stock by supporting “high-quality, high-density housing like mansion blocks, mews houses and terraced streets.” May also called for the active contribution of social and municipal housing providers, which, if we fail to receive, will never achieve the required number of new homes.
The DUP manifesto
Whilst the DUP manifesto makes little mention of housing, their track record includes attempting to negate the bedroom tax and arguing against the government’s cuts to supported housing. According to Steve Hildtich, “The party’s policy document says the case for investment in social housing is “unarguable” and the DUP is committed to building 8,000 social and affordable homes by 2020.” As a result, (though contrary to popular belief) the party’s influence on housing could be positive.
What does this mean for property investors?
Some experts have argued that the pound’s drop will attract yet another surge of foreign investment into UK property. From this, we can understand that the UK still appears to be a haven for international property investors, maintaining its global appeal. The pound’s value provides an entry point which foreign buyers may race towards - similar to the market behaviour which followed the EU referendum.
In light of these events, we struggle to believe that this short-term noise will have any dramatic implications on long-term property investment in the UK. House prices fluctuate, even in the absence of political change. For investors, focusing on the larger picture may prove to be more useful.
In supporting the resilience of the housing market, sales director at Seven Capital, Andy Foote, argued that “While the London market may be more sensitive to a change in central government, for the short term, growth markets will remain robust and resilient, delivering capital growth for investors…Despite the change in government, the imbalance of supply and demand in the UK property market still persists.”
With a lower level of risk and volatility than the stock market, we believe that property, as an asset class, has the bricks-and-mortar strength needed to withstand such periods of instability.
Disclaimer and Legals
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