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'Dramatic political action' on UK housing needed if election pledges hold true

Promises to tackle the U.K.'s longstanding housing shortage made by the country's two main political parties in their election manifestos will require "dramatic political action" if they are to be kept, the head of the British Property Federation told S&P Global Market Intelligence.

Melanie Leech, CEO of the membership organization for the country's real estate industry, said promises made by the ruling Conservative party and opposition Labour party to build 1 million new homes in the coming years would require "real commitment and energy to get to those kind of numbers."

"In terms of what's most politically interesting around real estate and what's clearly a critical issue for the country, it's quite hard to look beyond housing," Leech said. "Both the main parties have incredibly ambitious targets for housing so I guess in either case we're working to a very big number and we would need to see real political commitment to get anywhere near close to that target."

Between 225,000 and 275,000 new homes are needed in England every year to keep pace with population growth, but only an average of 160,000 have been delivered annually since the 1970s, according to a U.K. government white paper — or policy document — titled "Fixing our broken housing market," released in February. The government is in the process of consulting with the country's real estate sector on the proposals in the document, upon which the Conservative Party's manifesto pledges on housing are based.

The Conservative manifesto for the June 8 election promises to "meet our 2015 commitment to deliver a million homes by the end of 2020 and we will deliver half a million more by the end of 2022." A pledge to "deliver the reforms proposed in our Housing White Paper" should see the build-to-rent sector, which featured prominently in the document, take on a greater role in delivering the homes needed.

"If the Conservatives are re-elected then we would hope to build on that very quickly, to turn that into action. I think that's really encouraging and we know that there's up to £50 billion ready to invest, so the sooner we can unlock that investment into housing the better," said Leech.

Any such move to promote the build-to-rent sector is likely to see international capital flow into U.K. housing as well, said David Hutchings, head of investment strategy for Europe, Middle East and Africa at global real estate services firm Cushman & Wakefield. "That would be taken very favorably. Globally, we see increased interest from big investors moving into residential and rental accommodation of different standards, different niches."

Investors from the U.S., Asia and the Middle East, including the likes of Mitsui Fudosan Co. Ltd., Pimco, Lincoln Property Co. and Korean Investment Corp., are already committing large sums to the sector, Property Week reported, citing unnamed sources.

The Labour Party's manifesto pledges to establish a Department for Housing to tackle the crisis and "to ensure housing is about homes for the many, not investment opportunities for the few." It promises investment to build over a million new homes, without setting a date by which the homes will be delivered. However, it has committed to "building at least 100,000 council and housing association homes a year for genuinely affordable rent or sale" by the end of the next Parliament, according to the manifesto. Parliament terms in the U.K. typically run for five years unless an election is called under special circumstances.

Labour's approach to the rental market will see an introduction of "control on rent rises, more secure tenancies, landlord licensing and new consumer rights for renters," according to the manifesto. The party's "recognition that all tenures are important" should help address the housing shortage, Leech said, but any attempt to regulate the rental market is likely to be counterproductive.

"Rent controls and so on, which evidence to date suggests don't work in terms of stimulating the rental market — quite the reverse — are very likely to scare off investors and they're very likely to not lead to the desired outcome of an increase in quality and security for tenants," said Leech.

The Labour party trailed the Conservatives by 11 percentage points in an ICM poll published in The Guardian June 5. A June 3 Survation poll had Labour at just one point behind the Conservatives. Both polls showed the party gaining ground and continuing its recovery from a YouGov poll that placed it 23 points behind shortly after the election was called April 19.

Both of the major parties are also promising action on business rates — taxes on nondomestic property, charged in proportion to its value — which have been the source of considerable upset among some business owners in the U.K. in recent months. Tax increases — usually every five years but postponed in 2012 by the Conservative government by two years to 2017 — took effect in April, with areas that enjoyed strong economic performance in previous years, such as London and the South-East, mainly affected.

The two-year postponement meant the increase was much higher than a five-year rise would have been, angering many of the business owners affected. Both major parties are now promising a full review of business rate legislation.

"The system is broken," said Leech. "It's not fit for purpose in the 21st century and the operating environment we're in now," she said, noting the retail sector's shift away from traditional stores and towards e-commerce, as well as the challenge faced by businesses getting "taxed whether or not they have the ability to pay."

"[The Conservatives] have been in power for some time; they have simply made the system more complicated rather than less," said Leech. "So while the commitment is welcome, what that would mean in practice remains to be seen."