Just over a month on from the Conservative Party's election victory and all eyes are firmly fixed on Boris Johnson and his cabinet to see if they will come good on their election promises.
The Tories only increased their overall share of the votes by 1.2% to 43.6% between the 2017 and 2019 elections, yet the party secured 48 mores seats in the House of Commons.
It means Johnson succeeded where his predecessor Theresa May had failed two years earlier – he has given the Conservatives a significant majority in government. Now, though, the UK requires action; the agenda set out by the new government is facing scrutiny and, more than anything, progress is required to instil confidence in the economy.
The property market in particular, which has undoubtedly been blighted by hesitancy and uncertainty over recent years, is crying out for reform and investment in 2020.
Removing Brexit uncertainty
The UK economy arrived into 2020 a little shaken; after all, it had to withstand a turbulent past decade, with the aftermath of the global financial crisis then followed by four elections since 2010, not to mention the fallout from the EU referendum in June 2016.
Consumers, businesses and investors need a period of relative calm. This is certainly true in the property sector, where political and economic uncertainty has made conditions less favourable to those who are trying to build, buy or sell properties.
Such was the emphatic nature of the December 2019 election result; we can at least now be confident that there will not be another ballot for the foreseeable future. What’s more, Johnson’s majority has significantly strengthened his hand as he bids to “get Brexit done”.
This was the promise that was uttered countless times during the election campaign. And in the opening weeks of January progress has already been seen, with MPs voting 330 to 231 in favour of his Withdrawal Agreement Bill on 9 January.
Whatever one’s stance on Brexit, from an economic perspective the limbo in which the UK has found itself in over the past three and a half years can only be regarded as damaging. So, the fact that Johnson is now in a position to move ahead with his Brexit agenda comes as a relief – and it ought to inject impetus back into the property market, giving people the confidence to move ahead with their plans to buy or sell.
It is worth noting, that despite the aforementioned turbulence of the past decade, house prices resolutely defied these difficult conditions and rose steadily over the last 10 years. At the start of 2010 the average UK house was worth a little over £167,000; by the end of last year this figure had risen to £233,000.
This is great news for those who already owned a property – or multiple properties – as well as those who were able to get onto the property ladder along the way. But for those hoping to purchase their first house or flat, the inflation of prices has made the leap more difficult.
One of the critical factors underpinning house price growth has been a lack of supply, with the competitiveness of the property market ensuring prices remain high.
There are two obvious ways in which this issue can be addressed: you either reduce the amount of demand or increase supply. In 2020, the government looks set to attempt both.
In tackling demand, successive governments have now had a keen focus on increase the financial burden on property investors. Buy-to-let (BTL) landlords have had to pay more tax and abide by more regulation, which has dampened appetite for this type of property investment – a recent survey of landlords found that 26% are planning to sell at least one property this year, while 82% said they are not planning on buying any more properties. The top reasons landlords gave for wanting to sell are tax increases and government reform.
A continuation of the trend over recent years to target landlords with more taxes would, it seems, reduce BTL demand.
Simultaneously, the new government also seems likely to go after international property buyers. In fact, it is proposing a stamp duty surcharge of 3% for non-UK residents who are buying a UK property.
While this reform may not act as a huge deterrent – UK stamp duty rates would still rank below many other global property investment hotspots – it still underlines the Government’s attempts to curtail demand to ensure more first-time buyers can access available properties. The investors, meanwhile, may turn their attention to other methods of investing in the real estate sector, such as development finance and debt investment.
Building more houses
The second half of the equation is to build more homes, and it seems highly likely that an increase in new-build construction will be a key priority of Johnson’s government. In fact, it has been a touted priority of virtually every Prime Minister and Chancellor of the past 50 years.
The new Conservative government has said it is committed to building 300,000 new homes every year by the mid-2020s. Moreover, it has set a target of adding one million new-builds to the country’s housing stock by the end of the current parliament (2025).
Onlookers will take such promises with a rather hefty pinch of salt, given the frequency with which we have seen targets like these set and missed by successive previous governments.
What is required, therefore, is formative action. Spending commitments and planning regulation reform to make it easier for developers to successfully complete residential projects. And for that reason, the upcoming Spring Budget on 11 March takes on great importance.
The Chancellor’s announcements in a couple of months will offer a clearer indication of whether the Government is willing and able to back up its new-build targets with public investment and creative reforms.
Jamie Johnson is the CEO and co-founder of FJP Investment.