The property sector should prepare for a Labour government
Time is running out to decide who you want to see as our next prime minister. Our latest long read features Ritchie Clapson, a veteran property developer, who explores how the sector would be impacted if Labour is victorious next month.
We are just a short time from the General Election, and, whether you’re studying the polls, the punditry, or the odds in your location betting shop/app, it’s not looking good for the Conservatives. There are of course many variables—the Reform effect, stay-at-home-Tory-voters, right-leaning press front pages, misinformation and deep-fakes on social media—that will play a part in influencing the workload of at least one high end removal company on July 4th. But it does seem likely there will be a return to Downing Street for the Labour party very soon.
With this in mind, I ask, what would this mean for the property sector?
Landlords shouldn’t get too excited
I don’t expect a sea change in how property investors are treated. The current government has belatedly worked out that pushing 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. And then we have the now shelved Renters (Reform) Bill, the mere threat of which was enough to scare thousands of landlords out of the sector. I’m afraid I can only see any new iteration 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.
A big rental myth
The rental market is not short of stereotypes, with one of the biggest misconceptions being that all landlords are wealthy.
Granted, the man generally accepted as the UK’s richest landlord. 33-year-old Hugh Grosvenor, 7th Duke of Westminster, is worth in the region of £10bn, 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 two and four 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.
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. And 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. How much more regulation and taxation are these types of landlord likely to accept before chucking in the towel?
If Labour forms the next government, they need to think through plans that impact the ‘regular’ landlord; if new policies further take the shine off renting out properties, many houses and flats could be sold, depleting rental stock even more.
Better prospects for property development?
As 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, this begs the question, 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 England?
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 objectors across the land and start building lots of new houses.
Late last year, Keir Starmer declared himself a YIMBY and insisted he would take a dim view of any Labour MPs opposing new housing in their constituencies. It would be refreshing to hear yes, in my back yard, but, as governments of all hues have discovered, when there’s the suggestion of construction work at the bottom of our own gardens, few of us can contain our inner NIMBYs, and they are force to be reckoned with.
We need to build around four million new homes (the equivalent of around 15 Oxfordshires) which means we’re not going to be able to avoid the Green Belt or stick them all somewhere out of the way where no one will notice.
Green, brown and grey
Labour reckons it could build some new towns—around 1.5million 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 want 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 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.
Final thoughts
Whoever forms the next government, it would be good to see the office used by the Minister of State for Housing, Planning and Building Safety lose its revolving door; since 2010, there have been sixteen Ministers of State for Housing. Over the last 14 years the housing portfolio has been to politicians what a role on The Bill used to be for the acting profession – everyone gets a go eventually. The property sector deserves better.
Images: Ritchie Clapson, Clay Banks and Avel Chuklanov
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