Election fuss and the rates revaluation timetable

It is perhaps controversial to suggest that June’s UK general election is a lot of fuss about nothing. The issues at stake are serious. But the evidence shows that property markets are very unlikely to be affected over the coming weeks, writes Miles Gibson. Here at CBRE we have just updated some research we first carried out in 2015 to challenge the idea that property markets slow down in advance of general elections. Theresa May’s general election announcement led to much commentary in the property press about it being an additional generator of uncertainty. And, in theory, it is. But when you look at how property markets actually behaved before and after recent general elections, it turns out to be very difficult indeed to detect much of an effect. Our new report, Uncertainty Unscrambled, looks at how indicators such as central London leasing, UK mortgage approvals and English planning decision timescales change either side of a general election – and the clear conclusion is that in general they don’t. In some cases, we look as far back as the 1980s without finding any significant effects. Economic indicators such as GDP turn out to have much more to do with property market outcomes than movements in the political sphere. I suspect that this is because policies expressed in political manifestos tend to be so general as to not cause alarm to any particular type of investor, except maybe at the margin. It is accept that politics is not impotent, but also that politics takes time to act on the real economy and property markets in any meaningful way – through, for example, cumulative tax or regulatory changes. Some argue that the forthcoming general election is among the more certain we’ve had in the UK recently, with the Conservatives tipped to increase their majority. The likelihood of that outcome led markets to respond positively with a slight recovery in sterling against other currencies. However, it was only slight. Much more important will be the specific policies that the new government seeks to pursue – in particular, on Brexit. I am not saying that the government’s policy on Brexit is so clear that property markets are taking it in its stride. Brexit is, of course, a generator of substantial uncertainty, which is likely to persist for some years. And however much the prime minister would prefer it otherwise, Brexit is pretty much the only issue in this election – which admittedly makes it quite an unusual vote. Even so, we continue to advise investors to treat claims of big uncertainty impacts arising from the election itself with scepticism. However, there is one area specific to property markets where CBRE foresees an impact purely from the fact that the general election has been called, and that is business rates. As many landlords and occupiers have just found out, the 2017 revaluation has made some major changes to business rates bills across the UK. The 2017 revaluation happened in 2017 partly to avoid it falling in a general election year (2015), and to avoid the unattractive prospect of bills changing weeks before an election. Officials had spotted that, if revaluations happened every five years and elections happened every five years (under the 2011 Fixed Term Parliament Act), then the two would be marching in step forever unless they took action. So they did. It is important to emphasise that this is not the only reason why the revaluation date was moved, but it is undeniably part of the story. Unfortunately for those same officials, the 2011 Act now requires that the next election will be in May 2022, thus bringing five yearly revaluations and general elections back into the same year. So I predict that the next revaluation will not, in fact, be in 2022 at all – because the government will try to move it. Meanwhile, the Treasury is known to be thinking about the potential to undertake revaluations every three years, and possibly more frequently. The problem that the prime minister has created for the 2022 revaluation might give added impetus to those proposals. For example, we can’t rule out the possibility that Philip Hammond might – as early as this autumn – announce a further revaluation on 1 April 2020, and then another one conveniently after the next election in April 2023, and so on. So, although in general, elections don’t have much impact on property markets, this year’s election has thrown off an unexpected side effect which almost certainly will. ■ Miles Gibson is head of UK research, CBRE