What Impact could a Labour Government have on Property Investment?

Polls, commentators and betting shops suggest Keir Starmer is heading to Downing Street, so, what would a Labour government mean for the property sector?

I don’t expect a sea change in how property investors are treated. The current government has belatedly worked out that pushing landlords to sell up through increased taxation or regulation doesn’t actually help anybody. This means there are now more properties for sale, but unfortunately, tenants can’t afford to buy them. Consequently, there are now fewer rental units on the market, which means that rents have gone up, thus making it more difficult for tenants to afford to rent anywhere. And then we have the now shelved Renters (Reform) Bill, the mere threat of which was enough to scare thousands of landlords out of the sector. I’m afraid I can only see any new iteration of the Bill being more draconian for landlords under a Labour regime.

One of the biggest misconceptions in the rental sector is that all landlords are wealthy.

According to the government’s 2021 English Private Landlord Survey (updated in March 2024), 45% of individual landlords own just one buy-to-let property, with a further 40% owning between 2 and 4 properties. The report states that the average earnings for ALL landlords’ (EXCLUDING rental income) is just £24,000 per year and that their median age is 58.

What happens if we add in their rental profit? The median gross rental income was £17,200, from which they would need to deduct mortgage repayments, agency fees and running costs to arrive at a pre-tax profit. Obviously, each landlord’s costs will be different, but we’re clearly not looking at a king’s ransom. How much more regulation and taxation are these types of landlord likely to accept before chucking in the towel?

Property development?
As more and more landlords have felt the pipes squeaking on their buy-to-let portfolios, many have moved into small-scale property development to offset the pain. For many, the type of projects they undertake are just one step up from those they’ve done previously, such as creating an HMO or doing a refurbishment. Simply putting flats above a shop or converting a small commercial building can be expected to generate a six-figure profit, so no wonder there’s a healthy appetite. It certainly puts the average landlord’s buy-to-let profits in the shade. So, will Labour’s approach to property development differ from that of the Tories, who have actively encouraged it by creating many new permitted development rights in England?

In my opinion, there’s unlikely to be too much change. The reason for this is that the housing crisis is an incontrovertible fact, it’s getting worse rather than better, and it’s impossible to fix unless the government of the day is prepared to ignore the squeals of objectors across the land and start building lots of new houses.

We need to build around 4 million new homes which means we’re not going to be able to avoid the green belt or stick them all somewhere out of the way where no one will notice.

Green, brown and grey
Labour reckons it could build some new towns—around 1.5million homes—using what it calls the ‘grey belt’. This is green belt land that already has something built on it, such as car parks or petrol stations. They’ve stipulated that 50% of grey belt development must be affordable housing, but it’s not clear how the economics of this will stack up for developers who clearly are going to want to make a profit. This focus on the grey belt hasn’t gone down that well with the countryside charity CPRE, who argue that we should instead turn this grey belt back into green belt. Which you might think is rather ignoring the housing crisis until you realise that we could build 1.2 million new homes using existing unused brownfield land. These are existing commercial properties and land not in the green belt, which could be converted to residential use. CPRE, not unreasonably, believes we should be starting with unused brownfield land first instead of targeting the grey belt.

These brownfield sites are a rare political win-win. They positively impact the house-building numbers, plus voters are generally happy for these sites to be converted. It also gets more people living in our town centres, which benefits local economies. On that basis, I can’t see Labour deciding that brownfield conversions are a bad idea. It should also be good news for landlords and investors because larger housebuilders won’t touch small commercial conversion projects since most lack the skills or appetite to do them. This leaves more opportunities for first-time property developers.

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Ritchie Clapson, CEng MIStructE is co-founder of propertyCEO