For readers that have been with us for the past 3 years, you will be familiar with Michael Day. Michael is a well-known property industry figure with 40 years’ experience (he says he started when he was three!). Michael is also a regular contributor to UWM, keeping us up-to-date with all financial matters.
So with the impending General Election, we asked Michael to give us his expert opinion on what effect this will have on housing. What does it mean to our couples, depending on who steers our Government with effect from May. If like me you find the promises and manifestos as easy to understand as the theory of evolution, then grab a coffee and read, as Michael takes us through this and makes it a little easier for us all to comprehend!
It may still be a little way off but it seems as if the campaigns for the General Election on May 7th have actually been running for months.
This General Election will, I believe, see housing and housing issues play a more prominent part than has often been the case previously, as a growing population, affordability and shortage of supply affect everybody.
Successive Governments of all colours have failed to oversee adequate levels of house building and this trend, whilst improving marginally year on year, continues. In addition, a huge proportion of the properties being built are being bought by investors and then let in the private rental sector. Whilst rented accommodation is vital as part of a mixture of tenures, this situation is exasperating the shortfall of property to buy and also closes one of the opportunities to “close chains” and help enable others to transact in the market. This has the effect of helping force prices upwards through the simple laws of supply and demand.
It is this balance (or lack of) in the supply and demand equation that means that house prices, in all but the most economically deprived parts of the UK, are likely to continue to creep upwards, restrained only by the ability of buyers to afford to buy. The Government’s Help 2 Buy scheme has now helped 80,000 people buy their own home and the Tories have just announced plans to build an additional 100,000 starter homes a year (200,000 in total) by 2020 if they are elected.
They have also announced a 20% discount scheme on the purchase of a new home which will apparently be paid for by developers saving costs on planning and administration costs.
These schemes are all very well but do help create an artificial market, are largely a sop to developers and the impact that occurs when the schemes cease operating has not been quantified.
The Government has recently released figures showing that owner occupation has fallen to just 63% of households with the private rental sector at 19% and social housing 18%. It is likely that there will continue to be pressure on social housing and that this will reduce further as the private sector continues to grow over the next few years.
The Buy to Let market has actually grown by 32% per annum for the last two years. In regards election manifestos, Labour and the Lib Dems are proposing the introduction of an annual “Mansion Tax” on properties valued at £2 million or above. This is proposed at 1% (£20,000 at £2m) per annum. This will clearly impact on properties at and above that price and the ability to collect such a tax from potentially asset rich but cash poor owners is another issue.
Labour are also proposing greater regulation of the private rental sector including reintroducing rent controls and limiting the level of rents. They also want to introduce longer tenancies. This would prove to be misguided in my opinion as it would be likely to lead to many landlords pulling out of the sector in search of better investments and potentially reducing the amount of property available to rent.
In addition they propose to remove the ability to charge tenants any fees. This will simply put the cost onus on landlords who will seek to recover through higher rents. Again this is likely to actually hurt the very sectors of the population they supposedly wish to assist.
The Greens, for what it is worth, are even nuttier and would remove tax relief from allowable business expenses such as buy to let mortgages, thus making the cost of owning an investment property much higher. This would definitely result in the simple outcome of seeing many landlord investors withdraw from the market in search of better investments and would reduce the supply of rental property which in turn would see rents increase. Doh!
As always, I believe that the politicians should largely stay out of the market, which, in my opinion, is perfectly capable of adjusting and finding its own levels.
Competition certainly helps ensure choice and, whilst there is a need to ensure a strong and fair legal framework, it is not time to throw the “baby out with the bath water” in the search for an “instant fix” or “vote winning” solution.
Michael S Day MBA FRICS FNAEA
Away from business, Michael is a Parish Councillor, besotted grand-dad to five grandchildren, frustrated rock musician and Watford FC season ticket holder and shareholder. Michael can be contacted on 01753 889287 or 07717 295369, by email at firstname.lastname@example.org or via his website: integra-ps.com