A New Face at 10 Downing Street: What Does a Labor Victory Look Like for the UK’s Real Estate Market?
There has been a significant and sudden change in British political dynamics. This month, Britons all across the United Kingdom emphatically voted to put an end to fourteen years of Tory (conservative) rule. With nearly all of the 650 seats declared, Keir Starmer is going to be the new British PM as the Labor Party secured the largest majority government in 25 years, winning 33.8% of the majority vote amongst its constituencies.
The end of the former PM’s reign (Sunak’s Conservative Party) occurred as a growing sentiment of distrust, disgust, and distress spurred across the nation. Rising poverty, a lagging economy, disintegrating infrastructure, and a severely under-capacitated-over-stretched National Health Service (NHS) contributed to extremely widespread dissatisfaction about a “broken Britain.” The defeat that resulted in early July was the worst the Conservatives have witnessed. Without a doubt, Sunak was dealt an incredibly tough hand. Team Sunak’s original plan was to under-promise and over-deliver. Lee Cain, a former Downing Street director of communications under Boris Johnson, claimed “[Sunak] played it poorly. He had the wrong strategy from the start, in an environment where people were crying out for change.”
Now, Britons pin fresh hopes on Keir Starmer, who promises to “give Britain its future back,” setting out five missions for his government: securing the highest sustained growth in the G7, building an NHS fit for the future, making Britain’s streets safe, breaking down the barriers to opportunity, and making Britain a clean energy superpower. The Labor Party’s manifesto commits to not increase VAT, income, or National Insurance tax for working people. Instead, Starmer aims to raise £8.6 billion in new spending by adding VAT on private school fees, clamping down on tax avoidance (including scrapping non-dom status) and increasing the windfall tax on oil and gas companies. Moreover, the Labor Party pledges to keep taxes low albeit contingent on a booming economy. A reform of the planning system, a new industrial strategy, and a national wealth fund are all aimed at securing the highest sustained growth in the G7.
What does this all mean for the UK’s real estate market?
High property prices, rising rents, and sluggish rates of construction point to a UK housing crisis. England has become “the most difficult place to find a home in the developed world,” a coalition of housebuilders have claimed in a research study on the UK’s housing market. It also found that a greater proportion of Britons live in substandard housing than the EU average. The Home Builders Federation (HBF) found that the UK has the lowest percentage of vacant homes per capita in the OECD. About a quarter of private renters in the UK are also classified as “overburdened,” spending more than 40% of their income, whereas the French spend 9% and the Germans only 5%.
The UK is hoping for a slow in inflation, encouraging the Bank of England to reduce interest rates and help lower the cost of borrowing in the coming months. The Labor party believed the crisis itself can not be solved by lower rates and lower rates alone. The truth may look slightly different, however. Labor has promised to “get Britain building again” calling the current planning permission system a “major brake on economic growth.” Starmer proposes to fund the recruitment of 300 planning officers, as well as to extend compulsory purchase compensation rules to “improve land assembly, speed up site delivery, and deliver housing [and] infrastructure benefits” to the public, ultimately resulting in the construction of 1.5 million homes across the UK. Other assurances include strengthening planning obligations to provide affordable housing, as well as supporting councils and associations to build more and make a greater contribution to low-income housing supply.
We’ve covered the policies, but what should the property market actually expect? What will foreign investors look out for in the residential market?
Labor claims the nil band rate for stamp duties will revert to £300,000 from the current £425,000 in April of 2025. Stamp duties refer to the taxes paid upon the purchase of residential property. The Tories had planned to make the tax break permanent, so Starmer’s new policy is definitely not what first-time buyers wanted to hear. Labor has said it will make it easier to secure a deposit under a “Freedom to Buy” scheme. But, in all honesty, it is merely a rebrand of a plan started under the Conservatives without substantial modification, which will make it “unlikely to boost demand in a meaningful way.”
Researchers at Knight Frank have made it very clear: What happens next to mortgage rates will “have a bigger impact on the UK housing market in 2024 than Labour’s previously announced changes to stamp duty or a rebadged mortgage guarantee scheme.” Their general conclusion was that a lack of experience and general caution will mean the new government is unlikely to make big decisions quickly, regardless of their manifesto’s promises.
Others, such as CBRE, the world's largest commercial real estate services and investment firm, have shared similar views, claiming that the direction of the economy will have far greater impact than the mandates and policies Labor wishes to instate.
The largest contributor to the growth in the real estate market is the fact that the election is now over.
“We are no longer living under the specter of an impending election,” said Jennet Siebrits, Head of UK Research, CBRE, in a statement. “While our more than 50-year analysis has found no tangible difference to the overall performance of the UK real estate market, regardless of what political party is in power, we have seen that consumer confidence increases following an election over 70% of the time. Such a boost will provide a fillip to the economy."
With regards to the commercial sector, the general view is that real estate transaction activity will increase, but (again) only due to the improving outlook for interest rates. This will release a large proportion of the pent-up demand following an 18-month slump. More positively, sentiment is largely improving in debt markets, with both primary and secondary mortgage markets looking to increase loan originations in late 2024 and to follow through in 2025. Diving more into the UK’s office market, research has shown the 9.1 million square feet of development could complete before 2025, 60% of it being in central London, which, if occurring, will exceed average levels. With regards to the retail market, investor sentiment was relatively positive and researchers––such as CBRE––expect this to continue. We can expect vacancy rates and rental growth of major cities to outperform, with some now at pre-COVID levels.
In conclusion, not much will change. At least if we draw parallels between policy and the real estate market. A Labor party victory will see cautionary change. What investors in UK markets should look forward to is the expected interest rate cut in early August, easing lending and pushing up demand. Tax predictions are hard to make. Despite suggestions to reduce the burden on working class Britons by levying greater duties on higher-income individuals, corporations, and even potentially ratifying the non-dom tax exemption, it is difficult to predict whether this will actually occur. British home-buyers will have to pin their hopes on adequate economic management and improved efficiencies in the building market to reduce the burden on the housing market, and investors will need to tread carefully starting April 2025, when the majority of decisions on taxes will occur in Parliament.