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UK election promises offer little hope of solving housing problem

The U.K.'s third general election in less than five years is unusual for a number of reasons. It is the first winter election since 1974. It is largely defined by a single issue: Brexit. And it is set to see deeply ingrained party loyalties tested for the first time in a generation.

But one constant remains. Both main parties say they want to address the U.K.'s housing shortage, which has fueled soaring home prices and rents across the country over the last 30 years. The election manifestos of the ruling Conservative Party and the opposition Labour Party once again assure the public that, if they are in government, tackling the country's housing shortage will be a key priority.

The right-wing Conservatives' manifesto commits to building at least 1 million more homes of all tenures during the next parliament, which would mean about 200,000 homes per year given that a parliamentary term lasts a maximum of five years. The party will "continue its progress towards our target of 300,000 homes a year by the mid-2020s," it added. Meanwhile, the leftist Labour Party's manifesto pledges to build over 1 million social homes in the next decade, without offering a target for overall housing delivery.

Walter Boettcher, director of research and forecasting at Colliers International UK, said in an interview that neither of the parties' plans are sufficient to tackle the U.K. housing shortage. "The supply-demand imbalance is so great that it's going to take a good few years of building before it makes any sort of noticeable impact on prices and rents," he said.

The U.K. has built on average 170,000 new homes per year since the 1970s, according to a 2017 government housing report aimed at addressing the supply shortage. The country needs to build between 225,000 and 275,000 homes per year to "keep up with population growth and start to tackle years of undersupply," it said.

Labor needed

Melanie Leech, CEO of the British Property Federation, or BPF, an industry body representing companies involved in property ownership and investment, said the country's ability to deliver on homebuilding targets depends on a future government's approach to immigration. The Conservative Party, which polls suggest is likely to form the next government, is proposing an "Australian-style points-based" immigration system that will prioritize highly skilled workers and aims to reduce the number of lower-skilled migrants coming to the U.K.

A 2018 report on migrant labor in the U.K. construction industry by the Office for National Statistics found that 10% of the sector’s workforce between 2014 and 2016 came from outside the U.K. "It's all very well having aspirational plans to build infrastructure and homes, but if you don't have the people to actually deliver it, then you're not going to get terribly far," said Leech.

Neither manifesto commits to reform of planning laws to hasten delivery of new homes, and "talk" among both parties about doing so will almost certainly come to nothing, said Boettcher. "It's not going to happen," he said. "Why? Because this country is too democratic. Everybody underestimates the strength of local democracy here."

Any failure by a new government to meet housing demand should be good news for the country's build-to-rent sector, which has grown rapidly in recent years with the backing of institutional capital. It had about 150,000 units by the end of the third quarter of 2019, an increase of 31% from the same period in 2018, according to the latest figures available from the BPF.

Those unable to afford, or who are saving to buy, a home of their own account for a large portion of the sector's tenants, said Leech. "As long as there is an overall shortage of the amount of housing compared to the need, then someone coming to the market with a competitively priced, really good-quality rental product is going to do well," she said.

Rent control?

But the sector faces some uncertainty from Labour's pledge to "protect private renters through rent controls, open-ended tenancies, and new, binding minimum standards." Leech warned against the implementation of any rent control regime in the U.K. "We don't support politicians arbitrarily deciding where rents are going to be set," said Leech. "Historically, the last time rent controls were in this country, that's what sent institutional investors flying."

Residential rent controls operate in a variety of European jurisdictions. Germany has a federal rent control law, while some of Europe's largest cities including Berlin, Paris and Barcelona have introduced their own local regimes. Several U.S. states including New York and California also operate rent control systems.

If a Labour government takes power Dec. 13, Leech welcomed the prospect of working with the party to ensure the build-to-rent sector can support their objective of making rents more affordable. "What we want to avoid is a clumsy attempt to implement the objective in a particular way without a conversation with us about how you can use the market to work with you, and the market providers to work with you to achieve that objective," Leech said.