A Historic Analysis of the Impact of Labour Government Policies on UK House Prices
Introduction
Following their victory at the General Election, Labour have regained power for the first time since 2010. This article aims to explore the potential impact this will have on house prices across the UK. Analysis will be undertaken on the history of house price performance throughout The Labour Party’s last tenure, their policies, and how the Conservative Party have left the UK housing market.
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House Price Current Overview
Throughout 2024 house prices across the UK have remained relatively stable despite slight caution during the build-up to the election. Some of the proposed plans by Labour meant there was a slight drop in prices by 0.4% in Q2 of this year, leaving the market 2.7% lower than it had been 12 months ago. However as of September 2024 house prices have increased at the fastest rate in almost 2 years at 0.7% and prices are expected to continue to rise by 1.5% by the end of this year, with the north of England set to see better growth than the South of England which could under-perform compared to the national average. The housing market is still experiencing a large-scale shortage due to the Conservative government consistently missing their ambitious house-building targets. This has created inflationary pressures especially in the rental market with both urban and rural rents on the rise. Despite these pressures, house prices are set to fall by 3% overall by the end of the year before recovering in 2025 with price rises of around 3.5%.
Historic Labour Tenures
The Labour party have been out of government for some time now with their most recent tenure being 1997 to 2010. Prior to this Labour had spells in power from 1964 to 1970 and 1974 to 1979. We will focus on the impact upon the housing market during these previous periods in power.
1964-1979
Labour control began with consecutive years of relatively stable house prices across the UK. Throughout the 1960’s housing developments increased with over half of the supply coming from private enterprises. Labour saw 3% per annum house price (in real terms) growth throughout their tenure and achieved the construction of over 350,000 homes per year. From 1971 to 1973 there was a significant increase in house prices which reflected the strong economic growth and an easing of credit conditions. House prices grew by 42% in nominal terms before the oil crisis in 1973. As this tenure came to an end a first correction of house prices occurred coinciding with a recession causing house to fall by 30% in real terms. The lowering of inflation also aided affordability.
1997 – 2010
In the late 1990’s house prices began to rise steadily after a period of stagnation at the start of the decade. The Economic climate in the UK started to strengthen and confidence in the housing market had returned. At the start of the 2000’s the UK experienced a significant boom in house prices. The lower interest rates and easier access to mortgage credit allowed more people to step onto the property ladder. This, coupled with strong economic performance, saw property prices almost double between 2000 and 2004. The rate of growth slowed through to 2007 when worries about affordability began to emerge, especially for first-time buyers.
2008 saw the ‘Financial Crisis’ have an enormous impact upon global economies and housing markets. House prices plummeted by as much as 20% due to lower lending facilities and uncertainty in global economics. Sellers were struggling to find buyers and saw the value of their homes drop below the value of the mortgages they owed (Negative Equity). The struggle of the global financial crash saw repercussions for years after as house prices continued to fall and only stabilising towards the end of 2010. Only in 2012 did property values start to return to pre-crash levels, although many places in the UK are still yet to fully recover.
Despite this, under Labour the average house price grew from £61,946 to £170,846 as they worked to keep interest rates and inflation low, aiding affordability. However, demand still rose and outstripped supply.
Labour Policies
We will now look at the policies Labour aim to implement throughout their current tenure and analyse their impact upon the UKs housing market.
Housing Construction
The Labour Government aims to build at least 1.5 million houses within the first five years of their tenure, with the focus on reducing the pressures to the housing market and making purchasing a property affordable, especially for first-time buyers. Sir Keir Starmer pledges to get Britain building again and aims to achieve this through several implementations:
– Creating the next generation of new towns across the country with homes, green spaces, transport links and highstreets
– Giving stronger powers to local Mayors allowing them more control over planning and housing investments
– A fast-track approval system involving a ‘planning passport’ for urban brownfield development
– Supporting young people with government backed mortgage schemes
– Increasing the number of council houses being built and increasing planning approvals which have been at the lowest number since records began in 1979.
– Utilising ‘grey’ areas of the green belt to increase space for housing construction.
Many will question whether this aim is achievable. Housing construction is closely aligned to GDP and lower interest rates will see more developers willing to build houses as they are confident people will buy. Previous Conservative governments have also had the target of building 300,000 homes per year and have consistently fallen short.
Protection for Renters
Labour have also announced that they are set to abolish Section 21 of the rental sector reforms to give greater security for renters. Also in favour of renters, Labour aim to protect them from exploitation and significantly improve the quality of rented houses by ensuring all properties have an EPC rating of C or above, driving down energy costs, ending bidding wars, and capping upfront payments.
Support for First Time Buyers
One major policy labour hopes to implement is to support first-time buyers and help them get onto the property ladder through the mortgage guarantee scheme which helps people struggling with large deposits and lower mortgage costs, making home ownership more accessible.
Affordable Housing
Another Labour priority is to create a higher supply of affordable housing. The deputy prime minister Angela Rayner claims they will end the Conservative government’s 13-year neglect of affordable housing and their willingness to let developers avoid their responsibilities. She advises Labour will deliver the biggest boost to the housing market for affordable and social housing. They plan on ensuring this happens through a number of schemes;
– Upskilling local authorities in section 106 negotiations
– Only allow developers to challenge cases where there are genuine barriers to building affordable housing.
– Improving economic modelling to better secure funding
– Allowing Homes England to use greater proportions of their funds and working more collaboratively with local leaders
These schemes aim to bring down the average price of a house in UK, increase affordability, reduce the demand on the rental market and assist first-time buyers. However, throughout Labour’s previous tenures, the number of council houses constructed is relatively low with less than 8,000 built between 1997 and 2010. Labour instead focused on housing associations rather than local authorities. There was criticism to these decisions, and observers believe a rethink is required to update the ‘broken’ council house model we currently operate.
During this same period, construction of affordable housing was at its lowest level of only 36,532 homes annually.
Stamp Duty Changes
The Labour government will implement several changes to UK stamp duty. From March 2025, there will be changes to the nil-rate threshold, currently at £250,000 but returning to £125,000, while the first-time buyers nil rate threshold will return to £300,000 from its current position at £425,000. Labour have also pledged to increase the stamp duty for non-UK residents buying property by 1% taking the total surcharge to 3%.
The government state they will allow the stamp duty threshold to return to £300,000 after it was temporarily raised in 2022 by the Conservatives. The tax-break will not be continued by The Labour Party. These rises in stamp duty, especially for first-time buyers actively opposes their own plans to make housing more affordable and to get more people onto the property ladder by increasing the associated costs. It also contradicts the previous approach to stamp duty when from 1997 to 2005, properties valued under £60,000 were not subject to stamp duty, this had increased to £175,000 at the end of 2009.
Conclusion
Overall, Labour aim to ensure house price affordability by increasing supply to match the increases in demand and by building more council and social housing. However, over the last 50 years reports show house prices have grown 3% more under Labour than Conservative governments. A lot of the policies and their successes will depend upon economic conditions and global events as well as Labour’s implementation of them.
Next steps
If you have any questions or are interested in property investment, speak to one of our expert consultants by calling our UK team on +44 (0)113 3808930 or enquire through our website.
Sources:
Bank of England
This is Money
Knight Frank
BBC
Savills
Office of National Statistics
Property Investment Project
