No matter what your personal political affiliations may be, it cannot be denied that generally the property industry resides in the right. It was also clear in the build up to 7th May that all those aligned to the moderate and traditional ‘right-wing’ or ‘left-wing’ parties hoped to avoid a coalition. David Cameron was subsequently rewarded with a chance to assemble a majority Conservative Government - the industry breathed a sigh of relief and such ‘decisiveness’ saw confidence bolster the markets.
A slender advantage it may be, but it has presented the Tories with a small window of opportunity to uphold a business-led approach in the hope to stimulate further growth across the real estate spectrum. There are though, regardless of who is in power, issues that were raised during the campaign that have to be addressed. So, now the dust has settled, what does a majority Conservative Government mean for the property industry?
Many see it as business as usual, with a stabilised and now growing economy, and a commitment to competitive tax rates; this should continue the trend of foreign as well as domestic investment in the UK real estate market. With the threat of a ‘Mansion Tax’ and the removal of the ‘non-dom’ status being averted, the doors remain open for further and long term investment. London will continue to attract foreign investment and migration but increasingly, as the capital’s market ‘tops out’, regional centres and a Northern Powerhouse will be hugely attractive.
The Tories’ commitment to increase investment into infrastructure to over £100bn over the next parliament has an impact. With a focus on roads, rail and broadband investment this will change the landscape in which real estate sits. Therefore, the locations and types of property wanted by the market will change. Where and how people work, shop, travel etc. means the property industry will need to be innovative in its approach and nimble to the changing trends and behaviours of customers and occupiers.
Whoever won the election would have had to address the need to provide affordable key worker homes as well as social housing. This is a national issue, but one that is particularly prevalent in the South East. London has just been ranked the most expensive city in the world to work and live at £76,184 a year (based on the cost of renting residential and commercial space). Housebuilding and residential stocks rose post-election, but there are still potential issues surrounding David Cameron’s plan to re-introduce the right-to-buy scheme. Whilst trying to provide opportunities for first-time buyers to get on the ‘property ladder’ this could have a dramatic effect on the UK’s residential housing market and does very little to address the chronic housing shortage experienced nationwide. The Confederation of British Industry, JLL and a number of housing associations have already warned about the possible repercussions of this short-termist approach. If this is ultimately implemented the Tories need to meet, if not exceed, their promise to build 275,000 more homes over the course of the next parliament.
However, as Property Week called it, there is an ‘elephant in the room’ and one Conservative policy that has the property industry worried - the Tory Government’s pledge to hold an ‘in-out’ referendum on the UK’s membership of the EU. Vince Cable weighed in before the election and asserted that “the uncertainty that comes from the spectre of a referendum is deeply damaging”. In spite of the industry’s favourable view of the Conservatives, there has been an almost unanimous view that an exit from the EU could damage the amount of foreign investment in the UK. In the morning after the General Election, Savills, CBRE and JLL produced statements saying an exit from the EU could prove disastrous for a slowly recovering industry. Despite current indications suggesting that 55% to 60% of people are in favour of remaining in the EU, there will come a time when this will be challenged and the landscape can change dramatically between now and 2017. With the knowledge that large financial institutions are already exploring the possibility of relocating their headquarters and thousands of staff outside of the UK, a ‘No’ vote would have significant repercussions. Property professionals will be hoping for a strong ‘Yes’ campaign, which may in fact prove difficult given David Cameron’s slim majority and pressure from disgruntled back-benchers.
David Cameron’s new government also plans to bring economic prosperity and autonomy to the other major cities in the hope they can create a ‘Northern Powerhouse’. George Osborne has outlined plans to handover more powers in relation to housing, transport and policing in the hope to draw the balance of power away from Whitehall. Local councils in Cambridgeshire, Greater Manchester and parts of Cheshire will be given the ability to retain 100% of growth in business rates, which will come before a full review of business rates by the end of 2015. This devolvement of power has the ability to regenerate some of the most under-invested parts of the UK; but there is a further potential separation of powers that is also a concern for the property market with the surge to prominence of the SNP. Nicola Sturgeon is going to be the voice for further powers to be handed over from Westminster and we are yet to fully comprehend how this will affect the property industry, in particular those businesses that have a strong presence north of the border.
Despite the uncertainty over the UK’s membership of the EU, there appears to be a lot to look forward to for the UK’s property industry. However, the clouds have not yet fully parted and the new administration is still finding its feet. There are a number of issues that have the potential to impact the market for better and for worse, so for now the industry is waiting to see what David Cameron can renegotiate with EU leaders and hopes that a referendum quickly follows.
Ben Ingram is a Principal Consultant in the Real Estate and Property Practice at Berwick Partners