A general election in the United Kingdom can result in consequences for every sector of the economy, including the property market. As the political landscape shifts, so too do policies and regulations that directly impact how property is bought, sold, and rented. It is further complicated due to devolution and the differing legal framework of the devolved nations that make up the UK.
This article delves into the effects of a general election on the UK property market, with a particular focus on the rental sector.
Political Uncertainty and Market Instability
General elections inherently bring a period of political uncertainty. This uncertainty can lead to market instability as investors and consumers perhaps adopt a ‘wait and see’ approach. In the property market, this can result in a temporary slowdown in transactions. Buyers may delay purchasing decisions, and landlords might hold off on new investments until the political dust settles.
However, taking a look at Rightmove data for buyer demand around the 2015 and 2019 general elections reveals some interesting trends. Rather than a negative impact in the two months leading up to the May 2015 election, buyer demand increased by 5% year-on-year in March and by 6% in April. Furthermore, during the actual election month, there was a 9% increase in demand year-on-year, with an impressive 18% increase in June, benefiting from a post-election boost.
It is affordability that is currently the most crucial factor affecting the mainstream housing market. The speed and extent of interest rate cuts are expected to have a more significant influence on the market than the timing or outcome of the general election.
The politicians would also have us believe that there are significant differences between the two main parties, but the reality there isn’t a huge divide in policy. The result is we don’t expect there to be a large impact on the market. Most buyers well into the home buying process close to agreeing a sale will ideally want to push through and agree sales now. There may be a slowdown in the pace at which new sales are being agreed over the coming weeks but once the election is over, we would expect things to return to normality pretty quickly.
Impact on Rental Demand
During periods of uncertainty, the rental market often becomes more attractive. Potential homebuyers might opt to rent rather than purchase property, fearing potential changes in mortgage rates, taxation, or housing policies post-election. This increased demand can drive up rental prices in the short term, benefiting landlords but putting additional pressure on tenants.
Policy Changes Affecting the Rental Market
The outcome of a general election can significantly alter the regulatory environment for the rental market. This is likely to be felt more keenly in England due to the proposed legal changes that were part of the Renters Reform Bill which failed to get through parliament before the election was called. If, as expected, labour wins the election it is likely they will launch their own set of rental reforms which would include the scrapping of section 21 evictions.
But as housing policy in Scotland and Wales is devolved then the outcome of a general election will have limited impact on the legal framework in the devolved nations. We will look at this in a little more detail below.
Taxation Policies
There are elements of taxation which are devolved and others that aren’t that might affect landlords. For instance, prior elections have seen changes to mortgage interest relief. Such changes can affect landlords’ profitability and their decision to expand or reduce their rental portfolios.
Investment Incentives
Elections can also introduce new incentives for property investment. Governments may offer tax breaks, grants, or subsidies to encourage the development of rental properties, particularly in areas facing housing shortages. These incentives can stimulate investment in the rental market, potentially increasing supply and stabilising rental prices over time.
Regional Variations
As we have already mentioned the effects of a general election on the Private Rented Sector (PRS) can vary significantly across different regions of the UK due to legislative differences amongst the devolved nations. The sector in Scotland is now the most heavily regulated and most landlords have embraced the changes as positive and continue to work towards increasing the professionalisation of the industry and standards for tenants. The result is landlords in Scotland are used to change and have had to accept it as part of the landscape. The market has not collapsed as many had predicted and still offers well-advised investors the opportunity to generate income and strong returns whilst providing much-needed quality homes.
In addition, urban areas can experience more pronounced shifts due to higher population densities and greater economic activity. In contrast, rural areas may see more muted effects as the rental market is less active.
Local Policy Changes
Local governments can also influence the rental market through their policies. For example, some cities might introduce rent control measures or zoning laws that impact the availability and affordability of rental properties. The alignment of local governance with national policies post-election can thus shape regional rental markets uniquely. This is certainly something that landlords in Scotland will understand.
Investor and Landlord Sentiment
Investor sentiment is a critical factor in the rental market’s response to a general election. Positive outcomes that promise economic stability and favourable housing policies can boost confidence among landlords and investors, leading to increased activity in the market. Conversely, unfavourable outcomes can lead to a contraction in investment and a more cautious approach from landlords. This will affect the supply of new stock into the market which is currently suffering from a significant supply-demand imbalance which is ultimately driving high rental inflation.
Foreign Investment
The UK’s rental market also attracts significant foreign investment. Political stability and clear, investor-friendly policies can enhance the attractiveness of the UK as a destination for foreign capital. General elections act as a barometer for political and economic climate, influencing the flow of international investment into the rental market.
Conclusion
While general elections will have some influence on the property market, their impact is more subtle than it first appears. Elections can cause some short-term fluctuations, but the long-term fundamentals of affordability, supply and demand remain the primary drivers in the property sector. As buyers and sellers plan their next moves, understanding past election patterns and seizing timely opportunities will be beneficial for those looking to capitalize on market momentum.
