The election and the housing market

As usual, I have just read David Smiths article in the Sunday Times. The election is snapping at our heels, we are moments away from potentially having a new government in power, a hung parliament or indeed the ‘same olds’ remaining exactly where they are.

What will the election mean for housing? Inevitably, the big picture matters most: whether we get a hung parliament and what that means for the pound and mortgage rates. Housing policy also matters, but it has so far been the poor relation. The resounding housing pledges of past elections are missing from a campaign in which the only excitement has been Vince Cable’s proposed 1% mansion tax on £2m-plus houses, which will limit the Liberal Democrat surge in Mayfair.

Also missing, according to the industry, are answers to the biggest questions facing housing over the next few years. The Council of Mortgage Lenders (CML) has been through the three main party manifestos and found policies it likes, but its big worry is in an area none of the parties appears to have ideas about: how fill a £300 billion mortgage funding gap during the next parliament.

While the Tories talk about "less reliance on unstable wholesale funding" as a long-term ambition, the shorter-term problem will arise when lenders are weaned off emergency official support and have to roll over their borrowings in the markets. The danger, says the CML, is of a prolonged mortgage famine. Perhaps they will lower their lending criteria on mortgage approvals to pay back their borrowings and begin to take advantage of the inexpensive money that is now available to them on the money markets.

Housing supply, according to the Home Builders Federation, is another problem. The industry body says the shortfall amounts to almost 1m homes and is rising because of very low building levels. At current rates, it warns, every home in the country will have to last for 1,100 years before replacement.

If, as the Office for National Statistics suggests, Britain’s population will hit 70m in the next 20 years, we will require many more houses. Gordon Brown’s pledge, made in 2007, of 3m new homes by 2020 appears to have been quietly ditched and does not appear in Labour’s manifesto.

The Tories’ promised shake-up of planning, meanwhile, giving local people a greater say in permitting new developments, is seen by builders as a "nimbys’ charter", hardened up by a manifesto pledge to allow referendums on local issues if 5% of people sign up. That could include blocking new developments. Even worse, some say, will be the Lib Dems’ proposal to slap Vat on new housing.

So the post-election housing landscape looks to be one with limited supplies of both mortgages and new houses. There is symmetry in that. It does not, however, make for a very healthy housing market.