Property investing under the new government

The polls have been famously unreliable of late, and the same proved true last week as a new coalition government is soon expected to enter Parliament. So what does this mean for property investors?

A potential partnership between the Tories and the DUP has thrown the country back into uncertainty. This isn’t positive news for the financial markets, though they have held up relatively well so far. Nevertheless, any negative effects of an uncertain outlook cannot be so readily applied to residential property, which doesn’t experience the volatility associated with the stock market or currency. UK house prices continue to be driven, in principal, by demand from owner occupiers for a home, which remains stable irrespective of financial market conditions. First and foremost, the value of a home is as a dwelling, which makes residential an excellent hedge to other investments.

The Conservatives have pledged to build a million homes between April 2015 and the end of 2020, and a further half a million new homes in the following two years to the end of 2022. While the housing minister, Gavin Barwell, has lost his seat, we expect that the coalition, and the new housing minister will reaffirm the commitments made in the recent Housing White paper, and in the 2016 Autumn statement. (Click the links to read our appraisal of these.) One may also expect additional emphasis to support affordable homes in Northern Ireland, and perhaps some new support of co-ownership, according to the DUP manifesto.

The Conservative’s pledge will result in 175,000 new homes being built each year until 2020. According to our research, at this rate the housing surplus in England will have shrunk by 87,767 homes by 2022, and the London housing shortfall will rise from 3.8% to 7.3% by the end of the next Parliament. This pledge does not go far enough to address the acute shortage in housing supply, and as such we would expect to see continued upward pressure on house prices. Property, in the long term, is widely projected to continue increase in value, beyond the rate of inflation, economic growth and wages in spite of the political events which have caused uncertainty in the past 12 months.

At present, many in the property market will have adopted a ‘wait and see’ policy. Uncertainty around the election has been cited by the RICS as causing an early start to the usual summer slowdown. This is typically followed by a positive bounce in the Autumn.

Residential has repeatedly proven its strength to investors as an asset class, delivering strong returns and a stable income in the medium to long term, irrespective of wider political and market conditions. For investors looking for steady growth in the mid to long term, residential property remains an essential asset class in these uncertain times.