While it’s seemed like the inevitable outcome for a while, it’s now official - Labour have experienced a landslide victory and Keir Starmer is our new Prime Minister.
There’s no denying that Labour have a big job on their hands, particularly when it comes to the housing market. They’re entering power at a time when the market is particularly lacklustre, crippled by higher mortgage rates and even higher inflation.
But with plenty of policies around housing, including a huge pledge to build 1.5 million homes during their first term, what does a Labour government potentially mean for UK property?
What housing policies are in the Labour manifesto?
Before we take a deep dive into the potential outcome of a Labour victory, let’s remind ourselves of any housing or housing-adjacent policies that featured in the Labour manifesto. Here’s the headline policies that Labour ran on:
1. Reform the planning system and reinstate local targets to build 1.5 million new homes over the next five years.
2. 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.
3. Prioritise the building of social rented housing and give first-time buyers the opportunity to buy in these schemes before investors.
4. Introduce a new mortgage guarantee scheme designed for first-time buyers.
5. Make it easier and more affordable for leaseholders to extend their leases. Ban new leasehold flats and tackle unregulated ground rent charges.
6. Ban ‘no-fault’ evictions and empower renters to challenge any rent increases throughout a tenancy.
So as we can see, Labour’s policies largely revolved around solving the UK’s chronic supply and demand problem - delivering a wave of new homes, presumably in the hope of easing affordability challenges - on top of providing more opportunities for first-time buyers to jump on the property ladder.
But now that Labour are in power and assuming all of these plans are in motion, what is the potential outcome for the UK housing market at a critical juncture?
How will a Labour government impact the property market?
Based on the current state of the housing market, here’s the expected impact of a Labour government on UK property:
General sentiment and property transactions
If there’s one thing that’s historically true, it’s that decisive action always delivers confidence back into an uncertain market. We only need to look back at Brexit to see a prime example - as soon as we had a degree of certainty, things improved.
There’s no reason why a landslide victory in a General Election wouldn’t restore some confidence in the housing market, encouraging buyers and sellers alike to start actioning their plans.
According to HMRC, data suggests that UK house sales already increased for the 5th consecutive month during May and this is expected to continue amongst renewed confidence.
Halifax echoes the sentiment and believes that property values will modestly rise throughout 2024 - positive momentum that will continue into 2025.
Finally, we’re also still expecting the Bank of England to cut the base rate in the near future - a move that would ease costs for mortgage holders and see lenders drop their rates even further than they already have.
If historical data is to be believed, election years also typically impact transactions in a positive manner. Tim Bannister, property expert at Rightmove, suggests the following:
“We can see in our data that in previous election years there has been a slight bounce in home mover activity after an election has taken place – so the same could happen this year in the short term, particularly against a background of a potential bank rate cut on the horizon and lowering mortgage rates.”
New homes outlook
One of the major pledges for Labour was the creation of 1.5 million new homes over the next five years, delivering both new housing stock and job creation opportunities.
In theory, reaching these ambitious targets would solve the issue of low supply that has been plaguing the UK for nearly two decades.
One way Labour hopes to reach this goal is by supporting local authorities with the necessary manpower - funding additional planning officers and delivering new developments that directly result in more affordable homes.
But how likely is it that Labour achieves this goal?
Fundamentally it requires a significant investment in terms of resources and commitment. It’ll be imperative that the Government efficiently collaborates with local authorities, private developers, housing associations and the local community themselves to ensure that the process is as streamlined as possible.
Short-term bounce in house prices?
Typically, house prices see a boost post-election. It happened with the infamous ‘Boris Bounce’ in 2019 and it’s expected we’ll see a repeat this year.
House prices have steadily increased over the 15 years immediately following the financial crisis, to the point that many experts predicted a crash happening in the not-too-distant future. While this doesn’t seem as likely today, affordability challenges are definitely still a problem. Fortunately, the Labour manifesto appears to be addressing this issue head-on.
Multiple policies that support first-time buyers is a good first step, especially as this demographic is facing the most challenging buyer conditions in 70 years. Critically, it’ll be vital that Labour doesn’t saddle first-time buyers with housing debt and actually delivers long-term, sustainable policies that support home ownership - including ongoing support for schemes such as shared ownership.
A key point within this approach is the policy of giving priority to first-time buyers. By providing opportunities to new buyers over investors - an increasingly large part of the buying market - we may see more people achieve homeownership and thus, reduce pressure on the rental market.
In the long-term then, house prices - and house price growth - will be controlled by interest rates and the supply of properties in the UK. If we see Labour get anywhere close to the housing targets laid out, house price growth will naturally fall in a less competitive market.
According to Andrew Wishart, a senior economist, Labour have the structure to make this a reality:
“In the long run, we think a Labour Government will mean that house prices rise less quickly than we have become accustomed to.
“Over the past 50 years, UK house prices have risen much more quickly than those in the rest of Europe because of insufficient supply.
“Labour is more likely to be able to meet the 300,000 new home target than the current government because it won't face as much opposition to making planning rules more favourable to development from its own MPs”
As always, the overall impact of an incoming government on the property market depends on their ability to deliver actual change. While this is still yet to be seen, one thing we can be sure of is this: renewed certainty in the market means renewed confidence - something that never hurts.
