For decades, a chronic shortage of affordable housing in the U.K. has been driving up the value of residential property and putting pressure on policymakers to do something about it. The most recent effort came on Feb. 7 with the publication of a government White Paper entitled “Fixing Our Broken Housing Market.”
The report has widely been regarded as symbolizing a major shift in Tory housing policy from a focus on halting the freefall in home ownership to improving opportunities and conditions for renters. In the context of an obstinate increase in housing prices, albeit modest at an annual rate of 2.3%, policies catering to tenants seem to be the new “flavor of the month.”
This is reflected not only in the White Paper but in tax reform, including a 3% increase in stamp duty on additional properties as of April 2016 and a restriction on tax relief for financing costs such as mortgage interest for individual landlords, planned to enter into effect in April 2017.
The White Paper’s proposals are less threatening to investor interest than it would seem. Following its publication, share prices of all major homebuilders jumped. Major homebuilders Persimmon (LSE:PSN, Financial), Barratt Developments (LSE:BDEV, Financial) and Taylor Wimpey (LSE:TW, Financial) were among the top 10 highest risers on the London Stock Exchange as Communities Secretary Sajid Javid made his statement. In addition, the Confederation of British Industry (CBI) applauded the White Paper for, among other things, its clear support of institutional investors.
The latter could be a potential game changer for the post-Brexit housing landscape, which has seen private overseas players rush to fill the gap in institutional investments left by sterling devaluation. This dramatic rise in foreign private investor interest means the main change in investment, in London housing and office space at least, was a source of investor interest rather than overall volume of capital.
Indeed, companies on the London Stock Exchange with an interest in the U.K. property market ended the fiscal year breathing a sigh of relief. David Atkins, chief executive of shopping center developer Hammerson (LSE:HMSO, Financial), said he was “reassured” by the levels of leasing and investment activity in the property sector since Brexit, while Taylor Wimpey posted rising full-year profits as housing activity held firm following the Brexit vote.
By fourth-quarter 2016, investment demand in commercial property had already begun to pick up following the volatility around the referendum, although sluggish occupier demand meant slipping rents in central London by 0.2% despite the nationwide rent average rising by 2.3%. London also feels last year’s 3% increase in stamp duty more acutely due to higher average housing prices and higher proportion of stock made up of buy-to-let properties.
Ultimately, however, the city’s attraction of global capital, labor and for ultra-high-net-worth individuals has proven itself relatively resilient to shocks, and investments and occupational markets in London have exhibited a “cautious return of confidence” as they recognize Brexit as more of a process than an event.
Against a backdrop of the Bank of England’s growth forecasts of 2%, up from just 0.8% last August, London’s magnet status will help the U.K. property market to weather the further Brexit-related uncertainties that 2017 has in store.
Disclosure: I have no position in any stock mentioned in this article.
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