The Labour Party has won a landslide victory in the UK general election, sweeping into power after 14 years of Conservative leadership. This article discusses the potential impact Labour will have on the property market over the next few years.
Before diving into the impact, let’s review the housing policies featured in the Labour manifesto:
Reform the planning system and reinstate local targets to build 1.5 million new homes over the next five years.
Build a new generation of new towns and fast track the approval of several brownfield sites, whilst also releasing some ‘low quality’ green belt space for housing.
Prioritise the building of social rented housing and give first-time buyers the opportunity to buy in these schemes before investors.
Introduce a new mortgage guarantee scheme designed for first-time buyers.
Make it easier and more affordable for leaseholders to extend their leases. Ban new leasehold flats and tackle unregulated ground rent charges.
Ban ‘no-fault’ evictions and empower renters to challenge any rent increases throughout a tenancy.
Increase the stamp duty surcharge on purchases by non-UK residents by 1%. This measure is intended to raise funds to hire more planning officers and expedite the approval process for new housing developments.
Labour's determination to solve the UK’s chronic low affordable residential property supply problem is clear. Their policies aim to ease the housing affordability crisis and provide more opportunities for first-time buyers to get on the property ladder.
Labour also plans several significant tax changes aimed at increasing revenue and addressing economic disparities, which will indirectly affect the property market:
Labour plans to abolish the current non-domiciled tax status, which is expected to raise substantial revenue by ensuring that residents pay taxes on their global income and capital gains.
Labour intends to end the use of offshore trusts to avoid inheritance tax, ensuring that individuals who make the UK their home pay taxes on their global assets.
The manifesto includes plans to add VAT to private school fees, increase and extend the energy profits levy, and close the carried interest loophole by taxing carried interest as income rather than capital gains.
If Labour achieves these ambitious goals, the issue of low supply that has plagued the UK for nearly two decades could be resolved, and demand among first-time domestic buyers will increase. However, stricter tax regulations targeting foreigners and a higher stamp duty surcharge on purchases by non-UK residents are expected to reduce the number of overseas individual investors. Overall, the average residential property price is likely to decrease slightly, making housing more affordable over the next few years.
No doubt, the policies are beneficial for first-time buyers and vulnerable groups needing affordable housing the most. But, some concerns exist about profitability in certain sectors. For example, the Labour mayor of London, Sadiq Khan, supports rent control for private sector residential property. Rent control could inhibit investment in the sector, as seen in Scotland and the Republic of Ireland. Build-to-rent is one of the sectors performing best in rental growth, and rent control would likely inhibit investment in the sector, as it has done in Scotland and the Republic of Ireland. Although Labour has committed not to increase income tax or national insurance in the medium term, there has been no such promise regarding capital gains tax, which could suppress property transactions.
For affordable housing developers, with Labour's commitment to building a large number of affordable homes, there will be increased demand for developers specializing in affordable housing. This creates opportunities for developers to participate in large-scale projects backed by government support. Also, Labour's housing policy includes better use of grant funding to support affordable housing projects. Developers will have access to these funds, which can help reduce project costs and improve financial viability. The planned reforms to the planning system, including faster approvals and more efficient land assembly, will benefit developers by reducing bureaucratic delays and uncertainties associated with obtaining planning permissions.
There is still much to learn about the new government. I will keep a close eye on policy changes, transaction activities, and development pipelines to analyse how these changes will affect the real estate subsectors.
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