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Political heat intensifies on the property market

By Tom Bill, head of UK residential research at Knight Frank

An uneasy relationship exists between UK politicians and the residential property market, as we explored last week. Emotions have been running particularly high over the last seven days.

More details were published last week by the government setting out its vision for the private rented sector. Meanwhile, both main political parties are involved in an increasingly heated battle over boosting the delivery of new housing.

Building 300,000 new homes per year (last done in 1969) is put forward as a way of bringing down house prices. Never mind the questionable economics of that claim in a country of 25 million homes, the debate itself feels lopsided.

Over the last week, the discussion has focussed on building on the country’s green belt, which has received Labour’s caveated endorsement. Meanwhile, the Conservatives have said they will protect green space amid rows over nimbyism.

All valid topics of discussion but they ignore the fact that the delivery of new homes is overwhelmingly governed by demand. Demand is regulated by the prices set by housebuilders, which are linked to the second-hand market. These, in turn, depend on the state of the economy and the lending market. It’s nothing an Economics A-Level student couldn’t tell you.

Yet the debate has overwhelmingly focussed on more marginal supply-side initiatives.

Building more truly affordable homes of the right type in the right place is a tremendously complex issue. Which admittedly is not a great soundbite for the evening news.

Buying land at existing use value is one possible facet of the response. Such an approach for affordable housing is the subject of an amendment to the Levelling Up and Regeneration Bill, which is currently going through Parliament. Buying land at “no scheme value” was good enough for the last wave of new towns, including Milton Keynes, that were built under the 1946 New Towns Act in the 1960s.

Renters Reform

The Renters Reform Bill is designed to tip the balance of power back towards tenants.

After nearly doubling in size since the early 2000’s, the private rented sector has accounted for about one fifth of households in England since 2013-14, according to the latest English Housing Survey. So, it seems inherently fair that legislation should reflect the fact there are a growing number of renters in the country.

However, before the publication of the Bill last week, landlords were understandably concerned that a proposal to scrap no-fault evictions increased the risk of them not being able to get their property back. Examining the fine print, that’s not quite the reality.

“Getting a property back to live in or sell would still be a landlord’s right,” said Beverley Kennard, head of lettings operations at Knight Frank. “There are many reasons why a landlord would want possession back of their property and this would now happen under a re-worked system. We are also pleased to see the Bill will look to introduce new grounds for getting a property back, including rent arrears and anti-social behaviour, which should give landlords even more comfort.”

One issue of concern is that tenants may be able to serve a two-month notice at any time. “There is still a long way to go with this Bill and the industry will challenge the government on how practical such an approach would be,” said Beverley, who estimates it could take 18 months for the legislation to apply to new tenancies and a further 12 months for all existing tenancies.

One thing the government will be acutely aware of is how fast rents have been rising over the last two years due to a lack of rental properties. Landlords have left the sector after a series of tax changes in recent years means it has become more financially punitive for them, and the pain has been felt by tenants. They won’t want more landlords to follow suit as a result of these latest proposals.