The UK turned from blue to red on the 4th July, with Labour sweeping aside the Tories with a record-breaking swing. The final result gave Labour a majority of 174. Whilst Labour only polled 34% of votes cast, compared to a total of 38% for the Tories and Reform combined, the UK’s ‘first past the post’ system ensured a wipe out of Tory seats.
It all started so well for the Conservative party following its coalition government in 2010 and an outright victory in 2015. But Brexit tore the party in half and although it achieved a strong result in 2019, the Covid years (and their legacy) ensured that no prime minister was able to keep control of the party. Labour’s resounding win is seen by many commentators as a rejection of the ruling parties in England, Scotland and Northern Ireland, rather than a strong endorsement of Sir Keir Starmer and his manifesto – support for Labour was broad but not deep.
After 10 years of political turmoil, the prospect of Government, backed, at least initially, by a united party, has calmed markets which had already priced in a strong Labour victory. The London stock markets barely registered a change, while yields on 10-year government remained stable.
So, what does this all mean for UK real estate values and investment?
Now that the new Cabinet has been appointed, we are seeing a raft of new policy announcements across government on a daily basis, but here I focus on those that impact real estate most:
Housing
Labour has reintroduced annual housebuilding targets, with 1.5 million expected to be built in the next five years – 300,000 per annum, compared to an average of just 170,000 under the last government. To meet this target, Chancellor Rachel Reeves said an overhaul of planning rules would see councils in England expected to prioritise building on brownfield sites and poor-quality areas in the green belt – the so-called ‘grey belt’.
As the grey belt will be a new category, there is no official data on how much of it exists. However, estate agent Knight Frank has previously carried out its own research. It has identified 11,000 previously developed sites, making up less than 1% of the existing green belt. The sites are mainly concentrated in the south of England with just over 40% within the London green belt area. In total, 100,000-200,000 new family homes could be built on the sites according to Knight Frank.
If achieved, such a dramatic increase could have unforeseen consequences. It might lead to a new burst of inflation in construction and building material costs, impacting all development, not just residential.
Labour’s biggest and most eye-catching manifesto policy on housing was the Freedom to Buy scheme – this proposes to make the current mortgage guarantee scheme, which was due to expire in June 2025, permanent.
As far as rented accommodation goes, Labour’s main proposal was to scrap section 21 notices, sometimes called “no-fault” evictions, which allow landlords to evict tenants without having to give a reason.
Planning
The new government sees planning delays as a major drag on investment into new, particularly green, infrastructure. On its third day in office, Labour removed the ban on on-shore wind farms – a move that is likely to see the development of tens, if not hundreds, of wind farms over the next five years.
In addition, the government has made clear its support for large-scale solar farms and new battery storage facilities as well as plans to upgrade the national grid.
To speed up a planning system, Labour has promised the appointment of 300 new local authority planning officers. Planning applications are rarely reviewed within the statutory period of eight weeks – and a delay of over a year is not uncommon. In its manifesto, Labour promised that this would be funded by £20 million of revenue generated from increasing Stamp Duty Land Tax (SDLT) on purchases of non-residential property by non-UK residents by 1 per cent.
Taxation
During the election campaign, Labour promised to not increase income tax, national insurance and VAT. Instead, Labour will:
- End tax breaks for private schools, which exempt them from VAT and business rates.
- Close the loopholes which allow some ‘non-dom’ people who live in the UK to avoid paying tax.
- Introduce a windfall tax on the profits made by energy companies.
This, of course, leaves many other taxes open to increases. In particular, Capital Gains Tax might be increased to the marginal rate of income tax, corporation tax might be increased and Inheritance Tax relief could be reduced or eliminated.
There has been speculation that the capital gains tax regime will be tightened to hurt second homeowners, including buy-to-let landlords, but the truth is we genuinely don’t know what Labour plan in this regard.
So, to summarise, the real estate industry is looking forward to a sustained period of political stability and a government keen to reduce friction that has delayed large building projects and capital investment. We accept that the trade-off may be stronger tenant rights and (slightly) higher taxation. The economic fundamentals remain unchanged – easing inflation will lead to gradually reducing interest rates, bolstering demand for both commercial and residential assets. We hope that an economy slowly returning to growth will boost tenant interest in new accommodation and support the battered consumer sector. After nine years of turmoil, we look forward positively to the future.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute a recommendation or solicitation to proceed with any type of investment or investment decision
whatsoever. Readers are advised to conduct their own research and consult with a qualified financial advisor before making any investment decisions based on the content provided herein. While Consulco strives to ensure the accuracy and completeness of the information presented it cannot guarantee the reliability of any information contained in this article and shall not be held liable for any errors, omissions or losses arising from its use.