What On Earth Is A Hung Parliament, And Other Key U.K. Election And Property Questions Answered
So the U.K. General Election did not go quite as predicted. What happened?
Against the expectations of opinion polls, which predicted a big Conservative majority, the U.K. woke up to a hung parliament.
A hung parliament?
That means that no party has an overall majority, and could not be sure of passing any bills it puts forward even if all its MPs voted for it.
Sounds tricky. How do you get around that?
By forming coalitions or alliances or trying to govern as a minority government. It happened in 2010, and in this case, the Conservative party has formed an alliance that could combine its 318 seats with the 10 seats of the Democratic Unionist Party (DUP) from Northern Ireland to give it 328 seats, with 323 needed to have a majority.
Who are the DUP?
A party in Northern Ireland who draw their support overwhelmingly from the Unionist, Protestant community of the country. Like the Conservatives they are a right-wing party, and very much share their views on most topics.
So they have a majority?
Er, not quite. There is one key issue they might not see eye-to-eye on, and it is a vital one: immigration. As part of her policy on Brexit, Theresa May was willing to forgo access to the EU Single Market and Customs Union to halt free movement of labour from the EU and reduce immigration. But the DUP has a much softer stance on immigration because the border between Northern Ireland and the Republic of Ireland has virtually disappeared under EU membership, and that is seen as vital to the health of the Northern Irish economy.
So that could throw the entire Brexit strategy into doubt?
Yes, and even with a coalition or alliance the government would only have a tiny majority, smaller than the one Theresa May had before. As Knight Frank Chief Economist James Roberts said, “The government will probably need the support of several other parties, not just the DUP, to get any future Brexit deal through Parliament, in order to off-set any Tory backbench rebellions. Consequently, the pendulum has swung against Hard Brexit, as a compromise deal will have the best chance of commanding broad support in the House of Commons.”
Why did we even have this election again?
So that Theresa May could get a bigger majority and strengthen her hand in Brexit negotiations.
So that’s gone well then. What impact will this have on Brexit and property?
"This is not the outcome the country needed going in to the Brexit negotiations or in terms of setting a clear direction for the U.K.’s future,” British Property Federation Chief Executive Melanie Leech said. “Businesses don’t like uncertainty and there will clearly now be a further period of uncertainty, which will be unhelpful.”
For instance, a bank trying to work out how many of its staff it might need to move out of the U.K. was starting to get an idea of the size of its space requirements in London and also, say, Paris, but now has no clue as it does not know how much access the City will have to the Single Market.
Retailers and consumer-focused tech companies now have less certainty about how the economy will play out and therefore how much they might want to expand or invest. The same goes for manufacturers. Exports will be boosted by the continuing weak pound, but retailers get hit because U.K. retailers are net importers, and the U.K. consumers are seeing price inflation but no wage inflation, so feel like they have less money in their pocket.
As far as investment is concerned, institutional investors already taking a wait-and-see approach due to Brexit are now even less likely to put their money in the U.K., for the next few months at least. One global investor told Bisnow, “This has made us even more nervous than we already were. London offices were a sector we were already less focused on while Brexit plays out. It adds to the overall certainty we were already feeling.”
Is there any good news for U.K. real estate?
Of course, real estate is a fundamentally optimistic community, even if today was notable for the downbeat nature of the prepared quotes press officers were sending out.
“Even since the vote investors have still liked London,” said Steven Norris, a former Conservative Transport Minister and now chairman of BNP Paribas Real Estate and property company Soho Estates. “It’s a legally and financially stable centre that has become much cheaper due to the fall in Sterling.”
The value of the pound has dropped more than 20% against the dollar in the past 12 months, and so the price of real estate here has mirrored that, with Asian high-net-worth investors in particular keen to buy office buildings of £50M or more, bold where their institutional counterparts are wary.
“The result suggests that the hard Brexit that many were assuming would now definitely occur looks somewhat less likely,” according to JLL U.K. CEO Chris Ireland. That could be a longer-term positive for the U.K. market.”
What about housing?
Good question, housing has been somewhat forgotten among the noise surrounding the result itself and Brexit. Housing Minister Gavin Barwell lost his seat, meaning a new Minister will have to be found, which is inconvenient to say the least, and could delay the implementation of new policies.
But in reality, housing was at the centre of the election result. A significant factor in the increase in the Labour vote was the higher turnout from younger voters, who typically favour Labour. According to polls, turnout among 18-24s was 72%, compared to below 60% in other recent elections.
One factor driving this is the sense among young people of a growing inequality gap between them and previous generations — real incomes are falling, pensions nonexistent, and they cannot afford houses because of rampant residential prices. That has denied almost an entire generation a type of stability and a form of saving that was taken as a given by previous generations.
With that in mind, the housing crisis in Britain becomes an even more acute issue for the Conservative government, and indeed any future government.
What’s good and bad about the policies of the main parties on housing?
Luckily we've got an article on just that right here. In a nutshell, parties are calling for more build-to-rent and more modular construction, and Labour wants more affordable housing.
And do the DUP have any specific policies on housing that chime with the Tories or disagree with them?
I don’t know, the site that hosts the DUP manifesto has crashed, probably because the entire country is trying to get online and read it and find out what they are all about.
So all in all?
Stagnation for the U.K. property market for the next few months at the very least, and let’s see how it goes if this coalition government can last. If not, we do the same thing again in the autumn.