How could a General Election affect the Housing Sector?   Tom Hedges April 4, 2024

How could a General Election affect the Housing Sector?  

The next general election may happen this autumn or even sooner, and it has to happen by January 2025 at the latest. So, what are the possible implications for the housing sector? What is each party claiming to do about the housing crisis? Will they take heed of the requests of organisations like Shelter, for new social homes, affordable renting, improved standards in rented homes and stronger housing rights?  

In this article, we’ll review what the main parties are saying so far and how their promises – if kept – may impact the industry.  

The Conservatives  

Reducing Deposits for First Time Buyers   

The Conservatives have promised to reduce the cost of home ownership for first time buyers and Michael Gove has said that a new offer will be in place by polling day.  

Allegedly, one option will be a scheme in which the government provides support for longer, fixed-term mortgages, reducing the amount that first-time buyers need towards a deposit. These schemes are seen more often in the US, with mortgage rates being fixed for up to 30 years. In addition, protections against defaults lower the amount required for deposits.  

Reviving the Help to Buy Scheme 

The Tories may also introduce an adaptation of the Help to Buy scheme. Previously, the scheme allowed first time buyers to purchase a property with a 5% deposit, along with a government loan of up to 20% of the property’s value (40% in London). These loans were interest-free for five years. It’s not clear yet what the new scheme might involve if it’s reintroduced.  

Critics state that the scheme caused inflation on new builds; so, while it helped some first time buyers, others were priced out, making it counter-productive on the whole. They also state that it encourages properties to be built for sale rather than rent, even though the diversification of tenures is considered to be a key to solving the housing crisis.  

There were also claims that private developers took advantage of the opportunity and inflated property prices, benefiting from the subsidies themselves.  

With these points in mind, why would the scheme be revived? Why have developers been lobbying for its return?  

Some supporters point out that Help to Buy is nothing new, as similar schemes were in place before (i.e., Home Buy Direct and First Buy). As such, they believe young people should continue to have support in order to get on the property ladder. Otherwise, it would be in the hands of private developers to establish their own schemes.  

Reassessing Stamp Duty  

Potential reforms to stamp duty are also on the horizon, with some supporting its complete abolition. Stamp duty may discourage people from moving; reducing it or getting rid of it completely may make buying more affordable, therefore stimulating the market.  

Tax Cuts 

Sunak is considering lowering income tax and reducing benefits in order to do so (long term disability benefits would not be affected). He’s been quoted saying that these changes would make sure everyone that can work does work, and those that do are rewarded with tax cuts.  

The Current Situation  

The target set in 2021 to build 300,000 new homes per year by the mid-2020s has not gone ahead under the current Conservative government, and Michael Gove changed these targets to ‘advisory’ in 2022. The target to build one million new homes by December 2024 could still be reached.  

In 2019-20, 248,591 net additional dwellings were built. In 2020-21, this figure dropped to 217,754 which was partly caused by the pandemic. In 2021-22 and 2022-23 the total was just below 235,000 per year. Overall, 686,613 new homes have been built under the current government (not including those built between December 2019-March 2020).  

It’s also been announced that the infrastructure levy may be delayed by up to 10 years.  

The Conservatives are not solely focused on purchase. The Renters Reform Bill is still going through parliament, despite delays; when passed, no-fault evictions (Section 21) will be abolished, making things fairer for tenants.  

No-fault evictions have been responsible for many cases of homelessness as rent prices have increased. Currently, landlords can evict tenants without giving a reason but in future, eviction will only be possible under reasonable circumstances.  

Letting agents and landlords are somewhat pessimistic about the changes, but tenants will have more security. Other proposed changes under the bill include:  

  • Strengthening of Section 8 – these measures will ensure that landlords are able to end a tenancy if their reasons for doing so are legal. Landlords will also be able to apply Section 8 if they need to sell the property or have their family members move in (this would only apply after the tenant has lived in the property for at least six month).   
  • New rules about repeated rent arrears –  if a tenant has been in arrears for at least two months, three times within the preceding three years, eviction will be mandatory, no matter what the balance is at the time of the hearing.   
  • Rent increases will only be allowed once per year with at least two months’ notice.  
  • All landlords will be obligated to join a government-approved ombudsman. The ombudsman would ensure landlords take remedial action where required, provide information or apologies, or pay compensation of up to £25,000.  

The overall situation will be clearer in March when the Conservative Manifesto is released.  

Labour  

Building New Towns 

The Labour Party claims that, if elected, 300,000 new homes will be built per year (where have we heard that before?) Some new developments would be built on the so-called grey belt – areas of wasteland within the green belt. Also, Starmer says the planning system will be changed so that it’s easier to override the local concerns regarding prospective developments.  

Opponents to this scheme point out that it may increase the national debt by billions of pounds as well as override local democratic processes. The latter point aligns with the party’s controversial plans stated in 2022 to give first time buyers first refusal on all new builds (this could discourage planning due to the guarantee of lower returns.)  

There’s also opposition among those that would prefer grey belt land to be used to provide natural solutions to the climate crisis.  

Despite these pledges, it’s not clear how Labour would deliver upon them, and some have called for more transparency in this regard.  

We also have to keep in mind that just a few short months ago, Labour were said to have “watered down” their commitment to social housing. The party had previously stated their objective to make social housing the second largest tenure, but it was not mentioned in a key policy document.  

Slashing Right to Buy Discounts  

It’s possible that Labour would reduce Right to Buy Discounts to their pre-2012 levels. By making it more difficult for tenants to buy their properties, less will be sold off each year, leaving more available for social rent.  

Tenants can currently get discounts of up to 70%, depending on how long they’ve lived in the property. In London, this equates to a maximum of £127,900 and throughout the rest of England, £96,000. (The levels set in 2012 were £100,000 and £75,000 respectively, and increased along with inflation.) Pre-2012 discounts were around 25% on average.  

Stamp Duty Increases and Limiting Overseas Investment  

Labour are also talking about increasing stamp duty for overseas buyers. In addition, they want to limit international sales for new developments in the UK.  

However, this gives rise to a chicken and egg scenario; some of these developments are forward-funded by overseas sales, so their viability  may be affected. Also note that overseas home ownership accounts for less than 1% of homes in the UK.   

New Rent Controls 

Labour was considering introducing new rent controls but this was not part of official policy. The idea was scrapped at one point, but there’s still uncertainty over their position on the matter. If it were introduced, it may have undesirable consequences on the build to rent sector.    

Land Value Tax 

Labour are toying with the idea of replacing council tax with land value tax (nicknamed as garden tax). This tax would be based on the potential value of the land, regardless of what is built upon it.  

Urban gardens may be more likely to be sold off due to their higher values and thus, higher taxes for residents; more building work could then be done on those sites. Some object to this idea on environmental grounds as it would reduce the amount of green space in cities.   

Improving the Standard of Properties  

Labour has pledged to ensure that properties are ‘up to scratch’. This would involve setting new minimum standards and harsher consequences for landlords that don’t comply.  

The Lib Dems 

The Lib Dems are also focusing on building new housing. They also support: 

  • Abolishing no-fault evictions 
  • Rent controls  
  • The lengthening of default tenancies 
  • Abolishing leaseholds and reducing ground rents 
  • Additional powers for local authorities in terms of controlling and managing second homes and holiday lets 
  • Reforms to the Land Compensation Act to make the price of land ‘fairer’ 
  • Replacing business rates with the proposed Commercial Landowner Levy. 

Conclusion  

In summary, the Tories intend to provide more security for tenants through the Renters Reform Bill while making it easier for first time buyers to get on the property ladder. Labour’s main focus is on building more housing, which involves using land within the green belt, as well as introducing land value tax.  

Each party’s pledges could significantly reshape the UK’s housing landscape but as always, the real challenge lies in the implementation of these policies. 

Our market leading software and consulting services are helping developers maximise the development, sale and management of affordable and commercial homes. To learn more or book a demo of our solutions, contact us today.   

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