The politics of property

This year's Real Estate Symposium Dinner was on September 18th. As always, it was an opportunity for the key providers of home buying and selling services to look to the future and discuss how upcoming events and developments will affect our marketplace.

Probably the most significant upcoming event for our industry is the General Election next May - who is going to win (or will there be a coalition) Now party conference season is upon us we will begin to see what will they retain, discard and bring in. There is much to consider. One thing is for sure - housing supply and affordability will be a key election issue.

In the Budget earlier this year, George Osborne pledged to extend part of the Help to Buy scheme to 2020 - this was a party political decision designed to increase the chances that the property recovery (the London boom aside) is still underway next May.

However, this extension only applies to the part of the scheme that applies to new builds. The second part applies to all homes under £600,000 so doesn't particularly encourage house building. What it does do is increase demand at prices the buyer would not otherwise be able to afford. I don't like this part of the scheme since, in my view, it artificially stokes the already recovering market and thus risks overheating.

Osborne should scrap this but he probably won't until after May - if the Conservatives win. What would Labour do Ed Balls (everyone's favourite politician) appears to be critical the tax payer should not be guaranteeing mortgages on homes worth as much as £600,000. All in all, my business planning is assuming that this second part of Help to Buy will be phased out soon after the election - and good riddance to artificial inflation of demand.

I sense that politicians will move the rhetoric to increasing the supply of new homes if they are elected. Of course, any measure to achieve this will only work if the consequence is that the pent up demand can afford the price of these new homes. This would entail a downward movement on house prices.

And therein lies the rub for the politicians - the policy that delivers adequate volumes of new homes will finally satisfy pent up demand but, crucially reduce the value of a voter's main financial asset.

Interestingly, official estimates calculate that 290,500 new homes are needed every year until 2030, well above the 128,000 estimated for this year (2014/15) by the Department for Communities and Local Government (DCLG). This is also a 4% annual drop on 2013/14. This statistic is all the more striking when you consider that there was a dramatic upwards spike in Q4 2013/14 - 36,450 more new homes started - 33% up on Q4, 2012/13.

I know I said I would leave the London boom out of this but there is one measure that Osborne has announced that could end up being a tipping point. Next April, non-resident owners of property will no longer be exempt from capital gains tax (CGT). Up until now this incentive coupled with the many crises around the globe has triggered an influx of foreign money as London property is seen as a safe haven. This should materially reduce demand for London property.

All in all, the political rhetoric seems to be indicating measures that will reduce prices which is interesting - will the electorate think more widely about the need to make property more affordable by increasing supply (and reducing foreign investment) Or will they think selfishly about the value of their main asset Or will their cuckoo thirty-something children swing the debate for both politicians and parents Politicians will ponder on this long and hard - and their political conclusions may well leave a gap between rhetoric and measures.

And so to interest rates. I don't think that you will find too many people who would disagree with the prediction that interest rates will begin to rise soon. This will of course affect affordability as increased monthly repayments weigh on the borrowers cash flow. This will inevitably put a brake on the recovery particularly as this comes at a time when real wages have been falling for the last five years.

To maximise their chances of winning the election, the Conservatives need the property market recovery to be sustained beyond May with a healthy volume in transactions and increasing property values. What they may get is a weakening market as interest rates bite amid uncertainty over what will happen as a result of the election. Add to that the difficulties in delivering coherent rhetoric given the conflicts between housing supply, affordability and voters' assets - particularly given the dismal figures for new builds under their watch - and what you have is a vulnerable flank for the Labour attack dogs.

*Mark Riddick is founder of Searchflow, chair of Search Acumen and an investor and entrepreneur for over thirty years.