Forecasts can often say more about the time in which they are made rather than actual future outcomes but, at their best, they contain vital thinking and information reflecting current and likely near-future market risks.

It is telling therefore that politics feature centre stage in this forecast issue. As we have said before, housing has rarely been higher on the political agenda than it is now. While practical measures for the increase of housing supply have broad cross-party support (as exemplified by the Lyons review) other areas - particularly those relating to taxation - don’t.

The threat posed to prime property values, particularly in London, by Labour’s proposed mansion tax is thoroughly examined by Sophie Chick here. The Opposition’s mansion tax proposals are impacting the market even now but may only be the first rumblings of a much bigger debate centring around the broader issues of land value taxation - the like of which we haven’t heard since the early 20th century.

The uneven burden of the current council tax system, the complex and stepped nature of stamp duty and other real estate taxes points to the need for change. Even the London Mayor, Boris Johnson, is calling for London’s stamp duty revenue to be hypothecated for the use of the city.

So calls for a single, progressive and more comprehensive single real estate tax, possibly locally set and gathered, are increasingly heard not just from the followers of Henry George but also from mainstream economists. Even professional bodies like the RICS are examining the issue.

The way that all these political and tax issues, and so many ‘unknown unknowns’ play out over the next five years cannot be foretold so our forecasts are made very much from the point of view of ‘now’.

The housing market is not without its risks and, as the fascinating statistics here show, may not be nearly so affected by the colour of political parties as some might think. For example, it may surprise you to know both that annual house price inflation was never higher than under Blair’s Labour government and public sector housebuilding after 1979 was at its highest during the Thatcher years.

The problems of decreasing affordability in the UK, and particularly in London, persist. Alongside this are the growing problems presented by the rapid rise in market renting and increasing exclusion of the Millennial generation from owner occupation. Set this against a recurring inability 
of successive regimes to successfully raise the rate of housebuilding above its long run average of the last 35 years and you see a sector beset by significant challenges.

The fundamental drivers of supply and demand in the housing market go way beyond five year political cycles and are rooted in long-run socio-demographic and economic trends coupled with very deep-rooted land supply issues.

The real challenge in housing is still to find genuinely new, imaginative and additional ways of delivering good homes in great neighbourhoods, for prices most people can afford. Without such a step-change in supply, we can expect house prices to rise in excess of general inflation for more years to come – regardless of political or tax changes.

Taken from
Residential Property Focus Q4 2014