It’s a promising outlook for the housing market, as our new government kicks off its ambitious plans for growth in a stabilising economic environment.
The June consumer prices index (CPI) from the Office of National Statistics (ONS) showed that the inflation rate held at 2% from the previous month, following a steady decline in the first half of the year. This consistency gives us some hope for a Bank of England interest rate cut in August, which would help further stimulate the property industry and buoy positive market sentiment.
The timing couldn’t be better for Labour, whose key focus as they begin their term is to tackle the longstanding issues of housing supply, affordability, security and quality. Their ambitious target of building 1.5 million new homes within their government tenure is one which the Conservatives failed to do.
Hopefully Labour can see this through, driven by their new planning policies and a fresh approach to infrastructure such as transport networks, and community establishments like schools and healthcare that are required to support significant housing development. However, you’d be a brave person to bet on it, especially given the inevitable time lag to get building.
Nonetheless, this ambition alone is encouraging for the buy-to-let market, particularly for projects like build-to-rent (BTR) blocks, which will benefit greatly from planning reform and support for environmentally-friendly brownfield and greyfield sites.
These types of apartment blocks offer a community style of living with often very plush communal facilities. They answer the Government’s drive for quality homes and long-term stability for renters, plus there is a mandate for a 20% allocation of affordable housing within BTR developments. According to the British Property Federation, the number of homes in the BTR sector grew by 24% over the past year from 93,621 to 115,778, which is a record high.
Behind some of the headline-capturing policies, there are, however, some key areas that the private rental sector is watching like a hawk.
Encouragingly, Keir Starmer has spoken a lot about listening to regional and business voices, and it is critical that the BTL industry has a voice in developing government policy. Analysis from Rightmove indicates that the UK is short of around 120,000 rental properties to bring rent growth back to normal levels of around 2% per year. Government policy must support the increase of rental properties, not dissuade landlords from investing.
Some landlords remain concerned by Labour’s commitment to immediately abolish Section 21 ‘no fault’ evictions within the Renters’ Rights Bill. While this policy may work well in many circumstances – after all, we want our renters to feel secure and enjoy a stable living environment – it could have negative consequences for the rental market, at least in the short-term. With a clogged-up court system and inadequate resources to exit anti-social tenants, some landlords might sell up and invest elsewhere.
Rent controls are another issue that the government must consider carefully. Rent growth must be allowed to align with inflation over the long term to make property investments worthwhile. Any discussions around potential rent caps should be comprehensive, realistic and supportive of the future of the rental market.
Labour’s policies to ensure that private renters are £250 better off each year through enhanced energy efficiency standards is also one to watch. This could prove expensive for landlords. At Molo, we are already seeing an uptick in landlords purchasing new build properties to future-proof their investments, but clearly this does not resolve the fundamental quality concern regarding older housing stock.
Finally, market rumblings around a potential Labour increase in capital gains tax (CGT) would impact landlords, particularly those who adopt a buy-and-sell ‘flip’ strategy. Additional CGT could disincentivise investors – the market has already seen some pre-emptive selling from cautious landlords.
While there are clearly challenges ahead, with a strengthening economy, positive market sentiment and the mutual desire for open dialogue, we can feel optimistic about the future of the BTL market in the hands of our new Labour government.
Mark Michaelides, chief commercial officer, Molo Finance
