The fact the Sir Kier Starmer has been given the keys to 10 Downing St on the back of a historic landslide for The Labour Party shouldn’t come as much of a surprise.
The State Opening of Parliament and the King’s Speech will be on the morning of Wednesday July 17, where the incoming government will outline its plans for its first year.
Sir Kier Starmer said the UK was waking up this morning to:
“the sunlight of hope”, which was “shining once again on a country with the opportunity after 14 years to get its future back”.
Whether you believe him will depend on a person’s political persuasion but let’s look beyond the spin and examine in more detail what this could mean for the UK housing market and then focus on Scotland where the political landscape has also shifted.
UK Market
Labour has pledged to develop 1.5m homes, reform planning rules, prioritise development on brownfield and what it calls “grey belt” land. It wants to extend an existing scheme, which helps people get a mortgage with a smaller deposit and is backing more rights for renters.
There has been some initial cautious industry reaction, Nathan Emerson, CEO of Propertymark, commented:
“Propertymark welcomes wide-ranging engagement with the new Labour Government to help steer an objective pathway forward for the housing sector. We have seen a chronic undersupply of affordable new housing for many years. Sustainable housing is the foundation for any strong economy and there must be clear and well thought out plans that inspire investment and improve supply moving forwards. We want to see long-term cross-party cooperation that delivers the right kind of homes in areas they are desperately needed.”
Rightmove says a new government must build 120,000 homes to help return rents to what it believes are normal levels, rising around 2% annually. The ongoing imbalance between supply and demand from tenants enquiring about homes is one of the key drivers behind high rental inflation rates seen since the pandemic, with nowhere near enough homes to satisfy the number of tenants looking to move.
This demand comes as the portal’s latest lettings index shows that average advertised rents for tenants outside of London have reached a new record of £1,316 per calendar month 7% higher than this time last year. Scotland is has continued to be the hardest hit by supply and demand imbalances, while London is the least affected.
London has seen improvements in the supply of available properties for rent reducing competition which has resulted in a slowing of rental inflation. There has been an increase of 16% in the number of available properties for let while tenant demand has dropped by 15%. This is an example of how a sustainable market can occur when the supply of stock is increased.
Tim Bannister, Rightmove’s property expert, commented:
“We’ve been talking about the imbalance between supply and demand in the rental market for a long time now, so it’s easy to forget that there was a time before the pandemic where rental price growth was more stable.”
Lack of definitive Labour Policies
In terms of other policies and the potential impact on UK Housing it is actually hard to make comment as Labours campaign, although highly successful, was rather light on detailed policy statements. Nothing in the way of definite promises on spending despite Labour diagnosing deep-seated problems across child poverty, homelessness, higher education funding, adult social care, local government finances, pensions and much more besides.
Because of all of this there seems little doubt that revenue from other sources will be required given the current spending plans already penciled in from next year which have been described by the Institute for Government as “implausibly tight”. Especially when the fiscal rules that Labour have signed up to are applied.
Taxation
As the independent Institute of Fiscal Studies has stated both major parties ruled out changes to some of the big revenue-raisers, national insurance, VAT and corporation tax. Interestingly the wording of Labours income tax pledge does leave some room for measures that would increase income tax revenues, or for reform to parts of income tax, if desired.
During the election there was a great deal of speculation on Capital Gains tax (CGT). The Financial Times has reported that “some rich individuals are selling assets such as shares and property in preparation for an incoming Labour government that they fear will increase capital gains tax”, citing comments from wealth managers.
This raises issues for Landlords as the Times article highlights buy to let owners among those considering selling. If landlords do end up selling in significant numbers, panicked about the potential of increased capital gains tax this could lead to an influx of ex-rental properties to the market. This in turn could lead to a fall in house prices. But for this to have material impact it would need landlords to sell in large numbers. This will, of course, also reduce rental stock which so many first-time buyers rely on while saving for a deposit so demand for existing rental stock would grow.
One area of taxation that Labour have been clear on is the introduction of VAT on private school fees. This could have impacts on local housing markets as good schooling has long been a key driver of demand across the housing markets. The plans to introduce VAT on fees could see more demand filtering into the state and grammar school systems which may in turn increase the house price premiums that are already evident around high performing state schools. This is likely to be most keenly felt in places with both a high proportion of pupils currently attending an independent school and the fiercest competition for state school places. Edinburgh is one such location as 1 in 4 children in the city are in private education.
PRS Reform (England)
Landlords south of the border will face a Labour government keen to reform the Private Rented Sector (PRS). A Labour-commissioned review of the private rented sector has set out recommendations including the creation of a National Landlords Register to enforce standards, abolishing no-fault evictions and the use of “rent stabilisation” measures.
Ms Rayner signalled that abolishing Section 21 would be a priority for labour they planned to start the process as soon as they take office. Labour also wants to slash fuel poverty and cut energy bills for tenants by requiring all landlords to meet EPC C in their properties by 2030.
Scotland.
Since housing is devolved Landlords in Scotland already operate in the most heavily regulated PRS in the UK and tend to look at what is happening down south with some cynicism. All the potential regulatory and legislative changes to the PRS labour have pledged to instigate in England we have already experienced in Scotland. The result is landlords in Scotland are used to change and have had to accept it as part of the landscape. The market hasn’t died and in fact the basic fundamentals of supply and demand remain robust with professionally advised landlords still generating strong returns from their investments. Perhaps the doomsayers and commentators prophesising the demise of the PRS south of the border should take a look at what has happened in Scotland before jumping to any conclusions!
In terms of the election in Scotland Labour have made sweeping gains largely at the expense of the SNP. First Minister John Swinney has described the result, the SNP’s worst since 2010, as “very, very difficult and damaging”.
The impact will be negligible in terms of direct policy affecting the housing market in Scotland due to devolution. But it may have wider impact on the direction of travel of the current incumbents at Holyrood in the run up to the Scottish Elections in 2026. Before the election Swinny had said that winning the most seats in Scotland would give him a mandate to seek talks with the new government in Westminster for another independence referendum. A large Labour majority has undoubtedly hurt the nationalist cause though the party is not going to give up on its bid for another referendum, it seems unlikely it can shift the dial any time soon.
The balance of power in the Scottish Parliament has already shifted due to the very public divorce between the Greens and SNP. This is likely to have a more immediate impact on the debate around housing policy especially with the recent publication of the new Housing Bill and its progress through Holyrood.
We will watch with interest data on house prices and rental inflation over the coming months once the dust from the election has settled which will show in detail what the impact has been.
