What does a hung parliament mean for the property market?
When we were looking to the general election of June 2017, it is safe to say most people were anticipating a comfortable win for Theresa May. Instead in a shocking twist of fate, the Conservatives lost their majority, and had to seek out a coalition with the Democratic Unionist Party – a Northern Irish political party.
Obviously being in coalition, the Democratic Unionist Party will wield greater influence on new policies. The DUP is the Conservative’s common ally, as both parties share a similar political outlook. The DUP however, represents a different section of society – mainly the protestant Northern Irish working class. It will be interesting to see what policies they will promote, especially in terms of house building as the DUP had previously pledged to build 8000 social and affordable houses by 2020. The Conservatives had pledged to build 1 million homes by the end of 2020, suggesting that this will be high on the agenda for both parties as they work out a coalition.
Many investors and landlords seem to have backed a Conservative win, although no political party has been especially kind to the buy to let industry. They had proposed certain policies that would benefit buy to let investors, such as cutting corporation tax to 17% by 2020 – useful to those operating buy-to-lets through a limited company.
Former housing minister Gavin Barwell lost his seat and has been replaced with Alok Sharma, a chartered accountant with no background in housing. Several bodies within the property industry have expressed concerns over Sharma’s lack of experience, but what policies he will instigate and their success remains to be seen. Regardless, there have been 14 housing ministers since 1997, suggesting that they have barely had time to get to grips the housing market and implement real change before being replaced.
The most pressing issue about the outcome of this election is that it has not provided the population with a definitive government. There was high confidence that Theresa May would secure a majority, but instead we are facing further uncertainty. This affects the property market in that people are not willing to make large financial decisions like moving home or purchasing another property.
“Over the next few months we can expect opportunities for those who are willing to take advantage of the short-term lack of demand. Those who have taken advantage of the uncertainty and have made a purchase could certainly see a medium-term uplift in their investment.” Says investment director at One Touch Property Arran Kerkvliet. “Investors and homebuyers will be bracing themselves for new policies and the effect this will have on the housing market. Once policies have been announced we will see the market start to stabilise. Although perhaps not great news for those looking to sell their properties, it could be an ideal time for those looking to buy or invest, as with less demand properties will be selling for more competitive prices”.
A constant in the housing market is that demand is still outweighing supply, and that is not expected to change any time soon. There are always some types of property investments that fare better over political uncertainty. The facts remain that the medium-term fundamentals of the UK residential buy to let market remain strong because there is a lack of new development. Where developers are uncertain of sales, they will be reluctant to build more properties. Since the 1970s there has been a decline in house building in the UK, and this coupled with an increase in net migration has resulted in a housing crisis. An economist named Kate Barker concluded that 250,000 new houses should be constructed each year to accommodate the growing population, but between 2012 – 2015 house building hovered around 150,000 – far below what is required.
There are properties that are in constant demand such as care home investments. By 2040 nearly one in 7 people in the UK are expected to be over the age of 75, and with an ageing population comes an increase in the instances of degenerative diseases such as dementia. Underfunding of the NHS and local government means that the UK is increasingly reliant upon private investors to make up the shortfall. Something such as a demographic change is unstoppable, which provides individuals with a robust investment option which also gives back to the community. Investments such as this luxury care home in Cornwall offer some of the highest yields, and CBRE has cited retirement living as being a revolution, offering an interesting new option for long income buyers.
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