What does a Conservative party majority in the UK mean for property?

What are the implications of a Conservative government for infrastructure spending in the UK? What are the implications for London of a push towards UK-wide devolution and of an EU referendum?

15th June 2015

Continue to the other two articles in this edition of the Global Outlook...

Liquidity growth still supporting markets.

The prospect of US tightening and a Greek default has unsettled markets but global monetary conditions will remain supportive for some time to come. Click here to read more.

Spain - not the end of the fiesta!

The outlook for the Spanish economy has continued to strengten but Spain will face headwinds following the latest regional elections that saw anti-austerity parties make material gains across the board. What are the risks and real estate implications. Click here to read more.

What are the implications of a Conservative government for infrastructure spending in the UK?
The Conservatives have pledged to invest over £100 billion on infrastructure over the next Parliament and push forward with plans for rail projects like Crossrail 2 (connecting Surrey and Hertfordshire). This, in addition to Crossrail 1 (due in 2018), will ease the pressure on London’s overburdened transport network. The impacts within the capital will be far reaching, not only improving connectivity and capacity, but also repositioning real estate markets, leading to a step-change in property values and rents. The Conservatives also support plans to develop High Speed 2 (HS2), and probably HS3, to join up the North with London. There is broad consensus for addressing Britain’s infrastructure needs from the main parties, which provides some confidence these projects will progress.

Two larger points of contention concern the decision on new airport capacity for London and the housing crisis. While during the campaign Labour pledged to make a swift decision on expanding airport capacity following the Davies Commission, the Conservatives were more evasive. Finally, the Conservative manifesto set out a number of aspirations to increase the number of houses being built over the next five years, but it remains unclear how they can help solve the current supply crisis.

The Conservatives promised to push for UK-wide devolution. What are the implications for London?
Regional devolution within England has so far only extended to London. However, it remains limited with London retaining barely seven percent of all tax paid by its residents and businesses.  The London Finance Commission has recommended that property taxes like stamp duty, council tax, capital gains tax and all business rate income should be raised and spent in London.  The London government would then have responsibility for setting tax rates and authority over all matters including revaluation, banding and discounts.

London is an enclave of Labour support, and the General Election results have shown that this support has increased suggesting the likelihood of a Labour Mayor following the 2016 mayoral elections is higher. Potentially, more devolution for London as described above could thus still result in a Mansion Tax, or alternatively the introduction of additional council tax bands. This would particularly affect the Prime Central London residential market. So far, however, the government proposal for further devolution looks fairly modest: it would only allow the London government to determine and keep a 12% share of taxation raised in the capital – still a far cry from New York’s 50% share.

What are the potential implications of an EU referendum on London?
The EU referendum promises a period of uncertainty that may weigh on foreign and domestic investment via a drop in investor confidence. This could lead to a period of stasis in the market, with slower capital volume growth affecting pricing negatively - but also creating opportunities for domestic investors. The impact of heightened political uncertainty on the occupational market will depend on the Prime Minister’s ability to ‘sell’ a ‘Yes’ vote.

The UK has grown increasingly integrated into the EU over the past 40 years, nowhere more so than in London. The long-term implications of a ‘No’ vote could be significant in terms of the UK’s relationship with its biggest trading partner, the future growth of the City as a Pan-European financial hub and the ability of people to move freely within Europe. 

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