General Election – Housing Market – what does history tell us?

Polling by the market researchers, YouGov is pointing to a large Labour majority at
the forthcoming General Election.

If we had a crystal ball, what will be the impact on the housing market?

A good place to start is to look at the last time Labour came to power in similar
circumstances. In 1997, Tony Blair’s Labour Party, christened at the time as ‘New
Labour’ took over No. 10. This was seen as a progressive Labour Party who ended
18 years of Conservative rule by running on the ticket of being socially and
economically progressive.

Between 1997 and 2007, while Blair was in Number 10, house prices, on average,
rose a staggering 21% per year. We are not suggesting this will happen for a
moment, but it’s important to consider the context of this period and the
ingredients that enabled such large rises over a sustained period, leading to the
‘Credit Crunch’ of 2008, the year after Gordon Brown took over as Labour leader.

One of the biggest reasons for the house price growth was the relaxing of
mortgage criteria at the same time, more and more households were becoming
dual income. This meant that wage multiples of sometimes as much a 4x were set
against a dual income, having come from an era of a single household income
being set at 1.5 to 3 x income.

In addition, prior to the Labour Government in 1997, the Housing Act 1996
(amending the 1988 Act) made gaining possession back of rental properties
easier, making it an attractive sector for private investor. Banks, given they
now had greater security over their loan, could also offer for the first time on a
commercial scale, ‘buy to let mortgages’. Accordingly, the private rental market
soared in popularity: an estimated 1.3 million homes entered the private rental
sector between 2007 and 2012, with around 420,000 of them purchased with a
mortgage (research from the Intermediary Mortgage Lenders Association).

The other reason why prices ignited under a Labour Government so much was
that the Conservatives, after the previous boom days of Margaret Thatcher’s
tenure went through a sustained period of civil war culminating in ‘Black
Wednesday’ – where attempts to tie Sterling with the German ‘Mark’ through the
European Exchange Rate Mechanism failed miserably, and the country was put
into a sustained recession.

Come the 1997 election; it was clear to many at the time that a ‘New Labour’
party, with its eyes on economic growth and appealing to upwardly mobile voters,
were always going to light a fire under the economy.

Looking ahead to this year’s election, from a macroeconomic viewpoint, 121
prominent business leaders have signed a letter to The Times stating that the July
4 th election represents a ‘time for change’, and Rachel Reeves, the would-be
Chancellor has said she will lead the most “pro-growth Treasury in our country’s
history”.

With this promised growth agenda and the country’s seemingly desired need for
change given the level of polling; there could be parallels drawn from 1997 to this
year’s election, with this optimism for the future giving another ignition to the
housing market.

To temper this, don’t expect major increases like we saw in the late 90s, given we are
now in a very different place on social progression, with many family units having
been dual income for decades.

Also, despite increased lending restrictions on income/affordability, the link between
house prices and earnings are more stretched than at any point – although worth
noting that the overall mortgage pile is estimated to be only around one-fifth of the
country’s total housing value.

A Labour win – the local impact

Locally in west London, the result of a Labour Government could be even more
new build towers springing up across key transport ‘nodes’ or ‘emerging clusters’,
planning terms used to describe areas that can sustain a high density of new build
housing.

While the Mayoral’s office wants to increase new build housing in London, the
financial reality is that the private developers (and the lenders financing them)
will want to build those units in the valuable corridors of West London as opposed

to the periphery of London or other areas within the Capital that are economically
inaccessible for many purchasing the end product (prime central London) or less
attractive to live in than west London.

Keir Starmer was quoted last week, in an interview with the Evening Standard, as saying:

“One of the important things if there is an incoming Labour government is that
we will have a London mayor and a Labour government working hand in
glove…instead of what you have had in recent years which is the national
government picking a fight with the mayor of London.”