A shrinking Conservative lead in this week’s election could signal a rocky year for house price growth, more than 60 years of data has shown.
Annual house price growth figures show that, regardless of party, in the year following an election leading to at least a 50-seat majority, average house price growth is 58% higher than in the year preceding the election.
By contrast, in elections where the majority is less than 50 seats, house price growth dips by 27% in the following year.
The latest YouGov poll has given Conservatives a four-point lead over Labour – a lead that has dwindled from more than 20 points when prime minister Theresa May announced the snap election in April.
Simon Durkin, head of research at BNP Paribas Real Estate, said the previous elections have shown that it is consumer confidence more than government housing policy that affects house price growth.
“It is tied up with a boost in general consumer confidence. A majority gives people the confidence to move house on the basis that there is some sort of security of the income that will be supporting their mortgage payments.”
PARTY SCORECARDS
Historically, performance has been split relatively evenly between the parties. Annual growth under Labour governments has been 9.1% on average since 1952, compared to 8% under Conservative governments.
While nine of the of biggest quarters for annual growth since the 1950s were during Conservative governments, the 20 biggest in the past 25 have all been under Labour between 1997 and 2004.
Labour was also in power for the three slowest quarters – during the height of the global financial crisis – although Conservatives followed close behind with the steep house price falls of the early 1990s.
WHAT ABOUT INFLATION?
While political majorities do tend to suggest the coming year is likely to be strong for house prices, over time there is a closer correlation between growth and factors such as inflation. Because rising inflation reflects lower real wages and buying power, the more inflation climbs, the further price growth falls.
Biggest rises and falls in annual house price growth, 1953 onward |
||
|---|---|---|
| Quarter | Party | Annual change |
| Q4 1972 | Conservative | 42.4 |
| Q3 1972 | Conservative | 41 |
| Q1 1973 | Conservative | 39.8 |
| Q2 1973 | Conservative | 34.7 |
| Q2 1972 | Conservative | 33.6 |
| Q1 2009 | Labour | -16.5 |
| Q4 2008 | Labour | -14.7 |
| Q2 2009 | Labour | -11.7 |
| Q4 1990 | Conservative | -10.7 |
| Q3 2008 | Labour | -10.3 |
Durkin said he expects this trend to play a significant role this time because not only is inflation rising – hitting a four-year high of 2.7% in April – household debt is now increasing at historic levels, rising a record £1.6bn in March according the Bank of England.
He said: “The key limiting factor at the moment is affordability. Real wage growth is pretty low anyway so any potential uptick in inflation is going to start eroding very quickly real wages. Almost irrespective of the size of the majority this time round, that will still lead to a very cautious consumer.”
For Lee Layton, associate director of residential research at Cushman & Wakefield, all of these trends highlight a fundamental change in how the housing market behaves. “Pre-07/08 was a bit bonkers. People were making money just putting keys in pockets and selling six months down the line. We can’t expect that to happen again.
“Properties are in the hands of long-holding investors now. These will be passed from generation to generation.”
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