How Would A Labour Government Affect Property Investing?
For many, a weekend of sunny weather in May marked the start of summer. Yet, in characteristic style, the miserably grey and rainy week that followed prompted one to suspect that that was it, and we’d somehow fast-forwarded straight through to autumn. Back in the day, you could more or less hang your hat on having a long hot summer, but these days, we have to take our luck where we find it. Based on Mother Nature’s recent track record, August will almost certainly be a washout, yet you can virtually guarantee that November will be balmy. Global warming, it seems, has a lot to answer for.
Politically, things are also starting to warm up now that we have a confirmed election date of 4th July. The first question, then, is, ‘Are we likely to get a change of government?’. For many months now, this hasn’t really been a serious question. The Tories are not only miles behind in the polls, but the Reform Party is also splitting their vote. So, does this make it a shoo-in for Starmer and Co.?
The answer remains ‘probably’, but it’s not yet a done deal in my book. If a day is a long time in politics, then six weeks is a relative age, and a lot can happen in that time, particularly when election fever hits town. Labour’s problem is that the closer we get to election day, the more scrutiny their policies will come under. The public appears understandably miffed with the Tories’ uninspired performance in office, and Labour politicians have so far been able to see their popularity soar by doing nothing much other than watch the ‘own goal of the month’ contenders line up on the opposite benches.
Unfortunately, to borrow a metaphor from the world of entertainment, booing off one comedy act doesn’t guarantee that the next bunch of jokers will be any funnier. And so, now we’ve reached the sharp end of an election, reality bites, and, for a change, the audience starts listening a little more to their heads than their hearts. What exactly will a Labour government be bringing to the table? And how will it affect the man or woman on the Clapham Omnibus? This is where things get trickier for Labour. They don’t have a great track record recently in either setting out their policies robustly or even keeping to the few commitments they’ve publicised. Also, there’s been some concern about the quality of their line-up. They have a few recognisable figures but lack the heavyweights that adorn the blue benches. We’ve already seen the Tories tear into Labour’s spending plans, stating that the maths doesn’t add up. You’d expect nothing less, of course, but the economy and cost of living crisis is at the top of many people’s worry list, and we can expect the blue team to make the most of recent good news in fiscal quarters, particularly now that inflation looks like it’s back under control.
So, for me, the jury is out. But what would likely happen in the property world if Labour got in? My first observation is that I don’t generally see a sea change in how property investors are treated. The current government has belatedly worked out that encouraging landlords to sell up through increased taxation or regulation doesn’t actually help anybody. This means there are now more properties for sale, but unfortunately, tenants can’t afford to buy them. Consequently, there are now fewer rental units on the market, which means that rents have gone up, thus making it more difficult for tenants to afford to rent anywhere.
If only someone could have told the government in advance that this would happen (if I had an ‘irony’ emoji, it would go here). And then we have the Renters (Reform) Bill, the mere threat of which has been enough to scare thousands of landlords out of the sector. I’m afraid I can only see the impact of the Bill being more draconian for landlords under a Labour regime. Labour has also started mentioning rent caps, yet another policy guaranteed to scare the horses.
One of Labour’s challenges is that the heady whiff of the ‘politics of envy’ permeates a number of their policies. ‘Tax the rich because they can afford it’ may be an acceptable mantra in certain quarters, but the stark reality of these headline policies is often somewhat different. For example, Labour’s ambition to apply VAT to private school fees won’t affect rich people because they can afford to absorb it. The only thing it achieves is making private education unaffordable for the subset of people who can only just afford it, many of whom sacrificed other things like nicer cars and holidays because they prioritised their kids’ education instead. Their children will now have to be educated by the state, which will cost the state lots of money, and those kids will now get a poorer education as a result. Plus, the parents won’t now be paying the 20% additional VAT because their kids are no longer privately educated, so the government won’t get all the extra revenue it hoped for. How this benefits anybody is unclear, albeit it should ensure smaller class sizes for privately educated children with very wealthy parents, which probably wasn’t exactly what Labour had in mind.
The same issue impacts landlords. Are all landlords wealthy? Well, wealth is relative, but according to the government’s 2021 English Private Landlord Survey (updated in March 2024), 45% of individual landlords own just one buy-to-let property, with a further 40% owning between 2 and 4 properties. The report states that the average earnings for ALL landlords’ (EXCLUDING rental income) is just £24,000 per year and that their median age is 58. So, we’re not talking big earners here. What happens if we add in their rental profit? The median gross rental income was £17,200, from which they would need to deduct mortgage repayments, agency fees and running costs to arrive at a pre-tax profit. Obviously, each landlord’s costs will be different, but we’re clearly not looking at a king’s ransom. So, how much more regulation and taxation are these landlords likely to accept before chucking in their towels? Many such landlords are accidental – perhaps they kept a flat when they married or inherited a house when their parents died. Super-rich? No, just ordinary people. Again, a policy aimed at ‘taxing the rich’ ends up forcing ordinary folk to sell up.
There are many more facets to the private education and rent reform arguments than I’ve mentioned here. But my point is that both political parties would, in my opinion, continue to make life increasingly difficult for landlords post-election, with perhaps Labour being marginally less landlord-friendly if that were imaginable.
But what about property development? As more and more landlords have felt the pipes squeaking on their buy-to-let portfolios, many have moved into small-scale property development to offset the pain. For many, the type of projects they undertake are just one step up from those they’ve done previously, such as creating an HMO or doing a refurbishment. Simply putting flats above a shop or converting a small commercial building can be expected to generate a six-figure profit, so no wonder there’s a healthy appetite. It certainly puts the average landlord’s buy-to-let profits in the shade. So, will Labour’s approach to property development differ from that of the Tories, who have actively encouraged it by creating many new permitted development rights?
In my opinion, there’s unlikely to be too much change. The reason for this is that the housing crisis is an incontrovertible fact, it’s getting worse rather than better, and it’s impossible to fix unless the government of the day is prepared to ignore the squeals of NIMBYs across the land and start building lots of new houses. Which no government will do because almost every homeowner is a NIMBY (to see if you’re a NIMBY, simply ask yourself whether you would like to have a new affordable housing estate built at the bottom of your garden). We need to build around 4 million new homes, which is the equivalent of around 15 Oxfordshires, so we’re not realistically going to be able to avoid the green belt or stick them all somewhere out of the way where no one will notice.
Labour reckons it could build some new towns – around 1.5m homes – using what it calls the ‘grey belt’. This is green belt land that already has something built on it, such as car parks or petrol stations. They’ve stipulated that 50% of grey belt development must be affordable housing, but it’s not clear how the economics of this will stack up for developers who clearly are going to need to make a profit. This focus on the grey belt hasn’t gone down that well with the countryside charity CPRE, who argue that we should instead turn this grey belt back into green belt. Which you might think is rather ignoring the housing crisis until you realise that we could build 1.2 million new homes using existing unused brownfield land. These are existing commercial properties and land not in the green belt, which could be converted to residential use. CPRE, not unreasonably, believes we should be starting with unused brownfield land first instead of targeting the grey belt.
These brownfield sites are a rare political win-win. They positively impact the house-building numbers, plus voters are generally happy for these sites to be converted. It also gets more people living in our town centres, which benefits local economies. On that basis, I can’t see Labour deciding that brownfield conversions are a bad idea. It should also be good news for landlords and investors because larger housebuilders won’t touch small commercial conversion projects since most lack the skills or appetite to do them. This leaves more opportunities for first-time property developers.
So, is Labour onto a sure-fire win come the election, or will the Tories be able to pull something out of the bag? It’s too early to call for my money, but I certainly expect the opinion poll figures to narrow as July approaches. But I won’t be putting any money on it. After all, we all know that nothing can be said to be certain except death and taxes. And possibly rain in August. But either way, we’re in for an interesting few weeks.