After Years Of Instability, New Government And Rate Cuts Bring Fresh Hope For UK Property

With 48 hours to go until the general election, the great and the good of UK real estate gathered in Mayfair at the British Property Federation’s annual conference.

A Labour government all but certain, the mood was one of cautious optimism that a new party in power combined with a more general market uptick could offer a fresh start after an unruly eight years for UK property. 

“There’s a feeling that Labour could get quite lucky,” BPF CEO Melanie Leech told Bisnow. “The market is starting to move again — interest rates are coming down, construction costs have stabilised and are starting to come down, and valuations are becoming clearer. If the new government can layer over that their promised early action on planning and economic growth, then they’ll have a fair wind behind them.”

With Labour now confirmed as the party of power and the new government, with a huge majority of 170 MPs, and Keir Starmer in place as prime minister, the hope is this moment marks a turning point for the property industry, which can, in turn, do more to help the economy and the country more broadly. 

Chancellor Rachel Reeves, Prime Minister Keir Starmer and Secretary of State for Levelling Up, Housing and Communities Angela Rayner

While there have been some highs in the last 10 years, including the record investment volume of 2021, it has been a difficult decade for UK real estate overall. Some of the problems the sector has grappled with are unique to a country facing political instability brought on by an existential crisis. 

Brexit hasn’t hollowed out the City of London office market, as many feared, but it did artificially suppress real estate investment in 2016 and 2017. And UK growth lags that of other major economies, with Brexit a contributing factor. 

That was followed by the pandemic, which devastated every country in the world.

But the UK followed the depths of the pandemic with the self-inflicted wound of a prime minister and chancellor whose economic policy caused interest rates to rise more sharply than at any point in history. That caused commercial property volumes and prices to plummet and saddled homeowners with much higher mortgage payments, which slowed economic growth. 

“After the challenges of the last decade — all the changes of prime minister, Brexit, higher interest rates — I think business and the person on the street wants some stability post the election,” Clearbell Senior Partner Manish Chande said. “I think, in general, there’s a feeling that the new government will bring that.”

Chande said that the economy and the real estate market were likely to benefit from the “new manager” bounce that a new government would bring, a reference to how a football team’s results often improve when they bring in a new leader. 

In the medium to long term, however, Labour faces the issue of all new governments. Chande and Leech agreed that many of the party’s policies seem highly positive for the real estate sector and the country, at least on their face. But whether they succeed depends on how quickly and effectively they can be implemented. 

“People are positive about what Labour is saying, but they want to see how long it takes and how easily the government can translate their vision into reality,” Leech said. 

A huge part of this for the property industry is the planning regime, an area on which both Starmer and new chancellor Rachel Reeves focused in the two weeks before the election. 

Courtesy of the British Property Federation

British Property Federation CEO Melanie Leech

In 2023, 133,213 new homes were built in the UK, according to the National House-Building Council, down 12% from the previous year, against a stated Conservative government target of 300,000 new homes being built annually. 

Labour has put in place the same target despite the fact housebuilding consistently falls shy of this mark, and a sluggish housing market doesn’t encourage the building of new homes by private developers. In an interview with The Times, Starmer and Reeves said changes to the planning system would stimulate housebuilding, adding that some of their first major policy moves would be in that area. 

This is likely to include the reimposition of individual housing targets for local authorities, a policy scrapped by the Conservatives after pushback from MPs, planning decisions for large national infrastructure projects being returned to state level and greater resources for the planning sector generally.

A new National Planning Policy Framework to deliver on these goals has been signalled, possibly before the end of the year. This year could also see the introduction of policy that would review the greenbelt to allow greater development in the areas around London and an initiative to develop large-scale “new towns.”

“Planning can be a key enabler for the government to create economic and social impact for local communities, but right now, it is blocking that impact,” Leech said. 

“The built environment is vital in delivering those impacts that government wants, but that mindset hasn’t been prevalent in government for the past few years. If that mindset shifts, the government can work out what the built environment can achieve and how it can work with the property sector to deliver that.”

Leech added that while climate change has not been a major part of the election campaign, she expects Labour to put in place strong policies committing the UK to its net-zero target. For real estate, clarity over policies such as milestones to improve the energy efficiency of buildings and the timeline to which owners will need to conform will be key.

“It’s not been the top priority when talking to the electorate, but [Shadow Secretary of State of Climate Change and Net Zero] Ed Miliband has been bullish, and we think they’re committed to green growth,” she said. 

Inventa Partners Chairman Lorraine Baldry was president of the BPF in 1997, the last time there was an incoming Labour government. She pointed to the creation of urban development corporations such as the London Thames Gateway Development Corp., which she chaired, as a mechanism for creating the homes, commercial real estate and infrastructure the country needs to boost economic growth. 

The London Olympic Park is an example of the kind of large-scale regeneration project that joined-up thinking can achieve, Inventa Partners Chairman Lorraine Baldry said.

“There are the same issues today as there were then, albeit the NHS wasn’t so much of a worry and we were building more houses then,” she said. “Maybe some of the solutions are the same as well.”

Baldry said it was unclear precisely how Labour would enact some of its key policies relating to infrastructure and large housing projects, including the building of new towns, because they were focused on gaining power and said as little as possible with a big lead in the polls. 

But development corporations, one of which was responsible for the delivery of the Olympic Park in east London, were a good mechanism for encouraging local authorities, the private sector and central government to work together for the benefit of local communities, she said. 

There is still much to learn about the new government, Chande said. The property industry is instinctively wary about Labour governments, with some of the traditional beliefs of a left-leaning party difficult to assimilate for a sector that is capitalist, red in tooth and claw. 

The central Labour party has consistently pushed back on the idea, but the fact that the Labour mayor of London, Sadiq Khan, is a loud proponent of rent control for private sector residential property worries real estate, Chande said. Build-to-rent is one of the sectors performing best in rental growth, and rent control would likely inhibit investment in the sector, as it has done in Scotland and the Republic of Ireland. 

While Labour has committed to not increasing income tax or national insurance in the medium term, there has been no such promise on capital gains tax, one of the key taxes impacting property investment deals, Chande said. 

There is a historic wariness, though Reeves and Starmer have made strong overtures to the business sector and outlined that they are fully in favour of wealth creation.

“The unions still carry a lot of influence,” Chande said. “Are they a wolf in sheep’s clothing?”

But more broadly, there is a feeling that after a period of nearly constant uncertainty and upheaval, the UK and its property sector have a chance to change the narrative. 

“Since 2016, it’s been a challenge to promote the UK,” Chande said. “But we’ve had more inquiries from overseas investors about putting money in the UK in the last few months than we’ve had for some time. We think maybe this is an opportunity for the UK.”