Politics, market forces and property prices

Even though there is often a strong link made between politics and property prices, how much influence do politicians really have in the longer term? Is the UK property market driven by basic market forces or do politicians influence market forces to such an extent they are effectively dictating the direction of property prices? Reading the headlines over the last few years you would be forgiven for thinking that politicians are the be all and end all when it comes up property prices. However, maybe not?

Political trends

In the UK we have, in theory, left, right and centre parties across the political spectrum. While sometimes the Liberal parties will fare well in the polls, the UK electorate tends to go for left or right leaning governments. As the property market is very important to everyone in the UK, politicians have to be mindful of how their policies will impact property prices in the longer term.

Very often the headlines will suggest significant left-wing and right-wing policies for the UK property market. State funding and increased taxation is heavily linked with left-wing parties while capitalism, tax cuts and self-funding businesses tend to be a common thread amongst right-wing parties. However, due to the fact that the UK government of the day will change on a regular basis very often short-term concerns for property markets are overlooked.

Tinkering around the edges

Interestingly, over the last few years we have seen the Tory government increasing taxes for buy to let investors while the Labour Party is promising much stricter regulations if asked to form the next government. Tax changes do have a short-term impact on property prices although very often this can be seen as “tinkering around the edges”. The UK property market is a very capable beast and one which has adapted and reinvented itself on numerous occasions in the past. Have politicians perhaps learned that market forces have a greater say in the medium to long term?

Market forces

We could talk about market forces for ever and a day but ultimately it is down to supply and demand. If the government of the day was to increase taxes for property investors then there would be a point at which investment would drop off. This would then prompt either a change in government or a change in government policy. Squeezing investment in the UK property market has already seen capital values move out of the reach of many people. Markets are crying out for more new affordable property but no government is willing to actually go that extra mile and supply this. In simple terms, the more houses, the less competition for property already available resulting in reduced real house price growth.

On the flipside of the coin, limited regulations for buy to let landlords could create a serious backlash amongst tenants (as well as a house price bubble). Coincidentally, this is where the Labour Party has made great mileage in recent weeks, coming out on the side of the tenant. In all likelihood many of the headline grabbing policy suggestions will be watered-down – “kicked into the long grass” – but they have done the job, given the impression that the Labour Party is all about the tenant.

Biting the investment hand that feeds you

The bottom line is that left-wing, right-wing or centre party governments are not in a position to build new properties themselves. While they continue to attack the buy to let landlord, as one example, all politicians know deep down that social housing in the UK is in a mess and private rental property has saved many families from homelessness. So, as we saw the Tony Blair era, politicians will say what they think the general public wish to hear when behind-the-scenes they are happy to shake hands and do deals with property investors the length and breadth of the land. What they say to the masses is not always what they say behind-the-scenes……

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