The Property Sector with a Conservative Government

UK Housing Market

At the turn of the decade, property investors have some reasons to be optimistic about the property sector with a Conservative Government.

Issues that have plagued the industry in recent years appears to have light at the end of the tunnel. This is reinforced by recent news by the Royal Institute of Charted Surveyors (RICS) that released data highlighting sales agreed have increased for the first time since May 2019.

What is particularly exciting here is that the notable increase has been in the capital, an area that has otherwise seen disappointing growth. Price expectations have also improved for property.

The rebound is largely due to the certainty achieved in the recent election by the Conservative Government. The clarity that it has provided buyers and homeowners looking to sell has been a notable boost in the market.

However, this boost may only be temporary. This rebound must be built upon to achieve any real success in the market, by this we mean providing sustainable growth in both the property sector and importantly the construction sector.

There are a host of issues that are persisting in the main areas of the housing market. To clarify here, this is buyers, renters, sellers, investors and importantly developers. All of these respective areas need to be addressed by the Government over the next 12 months and beyond.

A focus on supply and demand

A theme that has followed the UK housing market for a decade now, we begin another new year with a shortage of housing stock. Notably, the lack of affordable housing is becoming an increasing problem in the market for first time buyers, resulting in a serious supply and demand problem that must be addressed by the Conservative Government.

The obvious answer here is to create more affordable housing, and perhaps unsurprisingly, the Government have been quick to address this.

The Conservative Party have pledged to build 300,000 new homes every year until the mid 2020’s, and this is aiming to increase the countries housing supply by a minimum of one million additional new build properties by the end of the current parliament, this being 2025.

However, promises are often broken, especially when it comes to promises made by parliament. Not only are the Government already falling short of this target, but consumers also do not have faith that this will be met. In fact, having asked more than 750 verified UK investors, the majority (61%) felt that the Government would fail to meet this target.

Thinking optimistically however, on the turn of the Spring budget in early March, we are hoping that the Chancellor backs the parties promises. Spending is needed in the development of new property to support developers across the UK, with a particular focus on areas that are currently experiencing high levels of demand for housing, and this needs to be in suitable areas of said locations.

Developers need support

The Government pledging to create more housing is just the first step in the process of increasing housing supply, however. More must be done to actually support developers. Not just large construction firms but also smaller, local builders also.

There are a number of avenues in which this support can come from. An obvious one being a contribution of capital towards development projects, giving developers the funding needed to kickstart construction projects.

Tax cuts for residential property developers would also be a relatively stress-free way of incentivising private sector investment into residential developments. Development finance could prove to be the option of finance here.

Freeing up derelict land and property for development use is another example of how we can encourage greater supply of property.

Buy-to-let controls

The Governments approach to creating a better balance between supply and demand has been to reduce the latter. By taking control of the buy-to-let market, the Government can ensure that investors have less influence in the market. This is something that has been evident by the Conservative party over the past decade.

Landlords have had to pay more tax and fall within stricter regulations since reforms were introduced in 2015. This has reduced demand for property from investors, with many overseas investors looking elsewhere.

To support this, recent findings have shown landlords are looking to sell property at the greatest rate in a decade, with over a quarter (26%) planning to sell in the coming year. With 82% turned off of buying property, tax increases and stricter legislation were cited as the main cause. This is combined with the relative uncertainty we are still facing regarding the political situation in the country.

Most would agree that this is not the most productive route to take to tackle the housing crisis, with many labelling it as counterproductive and ‘lazy’. This route does not give first time buyers the help that is very much needed and it also doesn’t help tackle the affordability issue surrounding housing available across the country.

Stamp duty reforms

The property sector will be reactive to the potential stamp duty reforms to hopefully be announced in 2020. The Conservative Government have pledged a stamp duty surcharge of 3% for non-UK residents buying UK property assets. This is something that is likely to be introduced and could aid first time buyers in the country.

Whilst not a huge deterrent, with this stamp duty rate still remaining lower than other global property investment hotspots, it should be enough to deter enough to help British homebuyers. Investors are likely to explore other routes over buy-to-let, such as debt investment, that will also aid the housing crisis we are currently facing. This being something of a win-win.

It was also touted that stamp duty could be removed for all properties up to £500,000 and scrapped altogether for first time buyers. The Government have gone quiet on this however, so we do not expect this to come to fruition.

With further rumours that stamp duty could be radically changed to the extent it will be made payable by the seller rather than the buyer, it will be very interesting to see what is announced at the spring budget.

The Conservative Government need to get creative

If there was a single thing that could be implemented going forward to help the housing market, it would be a more creative, flexible approach.

With many of the proposed changes being simple tweaks to existing policies, we are unlikely to see any major beneficial changes in the market. In fact, it is likely to leave us in a largely similar position than we are at now.

Prime Minister Boris Johnson, Chancellor Sajid Javid and Housing Secretary Robert Jenrick need to think outside the box here, beyond minor tweaks and tax reforms. To realise a significant uptake in the number of suitable, affordable homes being built, developers will need to receive suitable support to facilitate this.

This needs to happen to allow people greater ease in getting on the property ladder. Brave, new ideas are required to see this come to light.

On the turn of the Brexit deadline, the Government needs to begin focussing on the current crisis we are facing in the property sector. The property sector has been the UK’s most consistent market for decades, a hugely attractive market for both UK and overseas investors.

We cannot allow this staple market, something that is needed desperately by many across the country, to fall. The market must be nurtured with a creative approach to get the market to where we all need it to be.