The short-term political uncertainty caused by the resignation of the Prime Minister Boris Johnson and the merry-go-round of cabinet ministers – particularly the housing minister – could exacerbate the housing affordability and supply crises in the capital, according to experts.
In reaction to Johnson’s speech yesterday [Thursday] afternoon in which he agreed to stand down after pressure from his own MPs, a chorus of property analysts have said that the upheaval at the highest level could impact housing policy and feed into the slowdown of the housing market.
Halifax reported record house price growth just hours before the PM’s address to the nation of 13.1 per cent nationally over the last 12 months taking the average house price to £294,845 in June. This is the highest rate of growth since 2004.
House prices in London jumped 7.1 per cent to £547,031. However, this new source of instability, against a backdrop of gloomy economic forecasting, rising interest rates, climbing inflation and energy bills, could conspire to dampen consumer sentiment and home sales in the second half of 2022.
“Normally at this time of year we are focused on what is happening in SW19 not SW1,” says Marcus Dixon, director of residential research at JLL, referring to the Wimbledon tennis tournament.
“But recent events in Westminster do have implications for many other areas of the economy, including housing.”
He went on to say that the change of a leader is less disruptive for the housing market than a general election as the country will still have a Conservative government just with different personnel.
“Of greater concern though, is the impact of political resignations and sackings on key issues impacting housing policy... with housing secretary Michael Gove sacked before he could finalise agreements with major housebuilders on cladding remediation.
“We hope that continuity with the civil service means this does not add further delays to the process,” says Dixon.
Mr Gove has now been replaced by Greg Clark, the former business secretary on Johnson’s newly shuffled cabinet.
Although with his imminent withdrawal from leadership it is difficult to know how long Clark will remain in that role under a new Tory leader.
The continued undersupply of more affordable homes in the capital, at a time when interest rates (and therefore mortgage repayments), inflation and energy bill increases will widen the gap between those who can afford to get on the home ownership ladder and those who cannot.
“Another new housing secretary isn’t surprising as we all watch the turmoil in Westminster with more than 50 ministerial resignations... I hope ministers put the nation first at this critical time for the economy and for the housing market,” said Nick Leeming, chairman of Jackson-Stops.
“We need stability for the economy and the housing market to thrive so a quick return to business as usual is welcomed,” he adds.
Will house prices fall?
Lawrence Bowles, analyst at Savills, argued that despite the noise surrounding the Government, the fundamentals of the housing market have not changed.
“It doesn’t really matter who is in Number 10 and even if the Johnson resignation does in the end lead to a general election the Labour leader Keir Starmer is not as much of a threat to the luxury end of the housing market as Jeremy Corbyn or Ed Miliband were, with their talk of mansion tax in 2019 and 2015 respectively.
There is not enough housing stock to meet demand which cushions any significant house price falls, which is why Savills is forecasting 3.5 per cent annual growth in London this year.
The estate agent then foresees an easing due to the cost-of-living crisis and house price falls of one per cent next year.
Over the next five years, Savills predicts that London house prices will rise five per cent, the slowest rate of growth across the country.
London growth five-year forecast
This is cooling effect is echoed by Mr Dixon who said: “For the mainstream market the challenge of reduced spending power (due to rising energy, food and fuel costs) is more likely to put the brakes on growth in the short term, which was already an issue pre-resignation.”
However, help with the cost of living could well be delayed, he continued, due to the “changing of the guard” in Westminster which may mean more households who wanted to move house put it off.
“This would feed into the slowing housing market.”