Given that 67% of adults in the UK admit they don’t read manifestos and a shocking 1 in 10 don’t actually know what one is, we thought we’d do our bit to unpack the main policy promises affecting the real estate sector that are now coming in thick and fast from Labour, the Liberal Democrats and the Conservatives ahead of the General Election in December.
Development - who wins the housing race?
Labour has stated that it would embark on a massive housebuilding programme, creating more than a million homes in a decade. Labour is also promising the biggest affordable housebuilding programme since the 1960s, including 100,000 new council houses per year by 2024 and the ending of the right to buy. Labour is further promising 50,000 "genuinely affordable homes" a year to be offered through Housing Associations and propose to scrap the current definition of affordable and replacing it with one linked to local incomes, which is likely to prove challenging for house builders where they are required to build a proportion of affordable housing as part of a wider development.
Separately, Labour have also pledged a £1 billion Fire Safety Fund to fit sprinklers and other fire safety measures in all high rise council and housing association tower blocks and to “enforce the replacement of dangerous Grenfell-style cladding on all high-rise homes and buildings”. There is no guidance yet as to what that “enforcement” would look like in practice or what types of cladding Labour would consider to be dangerous but the implications for residential developers could be far-reaching.
Labour have also announced that developers will face new “use it or lose it “ taxes on stalled housing developments and that they intend to set up a new English Sovereign Land Trust with powers to buy land more cheaply for low-cost housing. Further policies affecting developers include Labour’s commitment to “stop social cleansing” by ensuring that regeneration only goes ahead when it has the consent of residents and that all residents are offered a new property on the same site and terms.
The Liberal Democrats have set themselves a lower but equally challenging target of building 300,000 homes a year by 2024, including 100,000 homes for social rent each year. The Liberal Democrats are taking the opposite approach to Labour on building new council houses by proposing to devolve full control of Right to Buy to local councils, which presumably would widen access to the purchase of council houses into private ownership.
The Conservative Manifesto is still yet to have its official launch but key policies have already been released including an ambitious commitment to match Labour’s one million homes but over the next five years rather than Labour’s aim to meet the target within a decade. The Conservatives have further promised to introduce the First Home pledge, a 30% discount to first-time buyers of New Homes – apparently modelled on David Cameron’s ‘Starter Homes’ pledge from 2015. The First Home pledge would be delivered through a change to the National Planning Policy Framework and would be delivered through developers’ Section 106 contributions, which are currently a major route for the supply of affordable housing. The Conservatives believe the discount could apply to up to 19,000 homes by the mid-2020s and would be “locked into the property”. An income threshold would apply although this has not yet been revealed. Further security for home buyers is offered through the Conservative commitment to the creation of a new market for “lifetime” fixed-rate mortgages, which will come with 5% deposits.
The Rental Market
Turning to the rental market, the parties are each vying to create a more secure rental market for those not yet able to get onto the property ladder.
Of particular interest to the Build to Rent Sector, Labour have announced that cities would get the power to impose inflation linked rent caps and other controls. This has already been mooted by Mayor of London Sadiq Khan in advance of his re-election run in 2020 but this would now extend out across the UK to other cities. Labour would introduce new “open-ended tenancies” and fund new renters’ unions throughout the UK to allow renters to organise and “defend their rights”.
The Conservatives have indicated a continued commitment to Theresa May’s promise to end “no-fault” evictions and proposed new “lifetime” deposits for the private rented sector which would allow renters to move the same deposit to a new tenancy when moving home.
The Liberal Democrats have similarly proposed policies to reform the private rental sector by promoting longer tenancies of more than 3 years with an inflation-linked annual rent increase built in, to give tenants security and limit rent increases and to help younger people into the rental market by establishing a new Help to Rent scheme to provide a government backed tenancy deposit loan for any first time renter under the age of 30. To protect long term renters, the Liberal Democrats are suggesting the introduction of a new Rent to Own model for social housing where rent payments give tenants an increasing stake in the property, owning it outright after 30 years.
While Labour is promising to prioritise brownfield sites for development and protect the green belt, as well as reviewing planning guidance for developments in flood risk areas and requiring the climate and environmental emergency to be factored into all planning decisions, the Conservatives have said that they would pledge to issue an “accelerated” green paper on planning, aimed at speeding up the planning process.
Developers and retailers will be watching with interest the Liberal Democrats plans to finance the transformation of town centres by expanding the Future High Streets Fund and their commitment to scrapping the rule permitting developers to convert offices and shops in to residential properties without planning permission. Labour has also focussed on the battle to save high street, saying it will give local government new powers to put empty shops to “good use”.
How is it all going to be paid for? The bigger picture…
Some of Labour’s most radical proposals that would impact on the real estate sector come from their wider economic pledges. Under Labour corporation tax cuts made since 2010 would be reversed and all salaries over £80,000 will be subject to an increased rate of income tax with a potential further higher tax rate being mooted but not yet confirmed. However they have offered a guarantee that VAT will not be increased.
Labour’s controversial proposed windfall tax of £11 billion on the oil & gas sector is just one weapon in their armoury to fight climate change and fund public services. While many real estate funds and companies are already ahead of the game in terms of prioritising sustainability in their investments, Labour’s pledge that companies that fail to deal with their carbon emissions could be forcibly delisted from the London Stock Exchange will no doubt also raise some eyebrows across the City.
The Liberal Democrats would also restore Corporation Tax back to 20% and replace business rates with a commercial landowner levy. This would be calculated on the land value of commercial sites rather than their entire capital value and would shift the burden of taxation from tenants to landlords. Labour have similarly committed to review the option of a land value tax on commercial landlords as an alternative to business rates however criticism has already been levelled against parties to highlight that the cost would likely still be passed down to tenants either through increased rents or through other provisions in leases.
Turning to the Conservatives, Boris Johnson used a speech at the CBI conference earlier this week to confirm that previously promised corporation tax cuts will not be in this year’s Conservative manifesto, and the rate would remain at 19%. We await the remainder of the Conservatives tax pledges but Johnson’s rhetoric on the campaign trail has implied that any tax cuts that might be forthcoming would be aimed at those on lower incomes.
Finally after much discussion by all parties on the need to reform SDLT payable on residential properties, Labour has said that it will make no change to existing stamp duty thresholds, but there will be a second homes tax to apply to all additional homes which will be the equivalent of double the rate of council tax and will bring in an estimated £560m a year. They will also introduce an Offshore Company Property Levy, more details are expected in the coming days but 15% tax on the purchase of UK real estate by offshore entities was touted in Labour’s Land For the Many report.
The Liberal Democrats have expressed a desire to link stamp duty to the energy rating of a property and to introduce a stamp duty surcharge on overseas residents purchasing second homes.
The Conservatives have similarly come out and pledged a 3% stamp duty surcharge for non-UK tax residents which would apply to companies as well as individuals. This would also apply to expats wanting to move back home.
There are plenty of potential policy shake-ups for real estate investors, funders and developers to digest from all three main parties. Despite the current poll projections, many analysts still consider that with 3 weeks to go, this election is set against a back-drop of continued political uncertainty and it is far from certain who will walk into Number 10 on Friday 13th. Given that uncertainty, and given the radical nature of some of these policies, maybe this is the year to take a long, hard look at what these manifestos are offering the real estate sector?