Lucian Cook, residential research director at real estate adviser, Savills, says:
"However, this year’s election could have a greater impact, particularly on the mainstream, than past elections because of where we are in the housing cycle.
Mainstream Markets
“We are already in a very low turnover, partially functioning housing market, where recent price growth has been driven by cash and equity rich buyers chasing low stock levels. With continued constraints on mortgage lending, the market is heavily dependent on sentiment amongst a certain class of buyer, particularly against the background of continued economic uncertainty.
“We expect to see these low transaction levels continue up to the election and through the immediate aftermath as political uncertainty makes buyers and sellers pause for thought. In itself this could cause volatility in price movements, with possibly more short term downward pressure on prices in the mainstream market than we have seen in the past twelve months
“A hung parliament could lead buyers and sellers to remain cautious, which would suppress turnover levels and limit the prospects of price growth for longer.
“Without doubt, and probably regardless of which party wins, an outright majority would be the best outcome for the housing market in 2010, and possibly through to 2012, the year we have pencilled in as the start of a more sustained housing market recovery.”
Prime Markets
In the prime markets the biggest risk will be to transaction levels which, unlike the mainstream market, have recovered relatively strongly in 2009 and the first part of 2010.
“Because of the weakness of sterling and the predominance of overseas buyers we expect pricing in the prime central London to be less exposed than the mainstream, while the more restrained recovery in prime regional values in 2009 insulates those markets from significant election-related price falls.”
The cushion of higher levels of equity means that prime markets will be less sensitive to these factors, though the uncertainties surrounding taxation and future bonus payments will remain a concern for the foreseeable future.
“An uncertain market requires realism - an inflated guide price could result in a property sticking,” says Cook.
“For all but the most exceptional properties, sellers expecting to achieve a real price premium based on a perceived demand and supply imbalance could be disappointed. Buyers may have an opportunity to bid in a less fiercely competitive market but should not expect a rush of stock to the market.”
Key Policy Issues:
Looking further ahead, it will be the extent to which the winning party is able address the key issues facing the property market and housebuilding industry that will determine the health of the mainstream residential market.
The major issues governing the ability of the housing market to become fully functioning during the next parliament include:
- General economic recovery, in particular future interest rate movements and the extent of public spending cuts.
Cook says:
“Swingeing public spending cuts have a clear potential to impact on demand from those employed in the public sector, with across the board cuts expected to exacerbate an emerging North-South divide in the mainstream housing market recovery.
- Finance industry regulation, in particular the availability of mortgage finance, is crucial. “There is a delicate balance to be struck between protecting against the risk of an eventual return of lax lending criteria, which drove the unsustainable house price growth of 2006 and 2007, and not inhibiting the provision of mortgage finance on prudent lending criteria as market conditions allow.”
- Incentives to help expand institutional investment in the private rental sector. This is linked closely to the problems of deposit affordability which are likely to increase rental demand both amongst potential first time buyers and some home movers at the lower end of the housing market.
With buy to let mortgages thin on the ground, a residential investment model that meets the requirements of large scale investors is crucial to providing the rental accommodation to meet that demand.
- Levels of housebuilding, and the inherent undersupply of stock, contributed significantly to periods of unsustainable price growth as buyers bid up to their affordability limit given the.
- Stamp duty and other barriers to entry. Over the period from 2000/01 to 2007/08 stamp duty receipts from residential property increased by 213% as the average rate of stamp duty paid on a residential property in England and Wales increased from 1.3% to 2.2%. This compounded a similar increase of 215% in the previous four year period.
Cook says:
“In a top down recovery, and with a graduated scale of stamp duty, the charge will need to be considered across the board and kept under review if liquidity is to be brought back to the market.”
