You’d have to be living under a rock not to have noticed the Labour party’s general election win on Thursday 4 July 2024, with the biggest majority since 1832 and a historic 412 seats.
The last time Labour were in power – from 1997 to 2010 – was marked by significant economic and social changes, which in turn had a huge impact on the housing market. Tony Blair’s Labour Party swept to power in 1997, ending 18 years of Conservative rule. This era saw dramatic fluctuations in house prices, influenced by a combination of government policies, economic conditions, and global events, most notably the 2008 financial crash.
Following their latest victory, we consider what happened to UK house prices the last time we had a Labour government and what we might expect from the current Labour party when it comes to the UK housing sector.
Early Labour Years: 1997-2000
Upon taking office in 1997, the Labour government inherited an economy recovering from the early 1990s recession. The housing market had already started to stabilise, and the new government’s policies aimed at fostering economic stability further bolstered this recovery. One of the key aspects of Labour’s strategy was maintaining low inflation and interest rates, which made borrowing cheaper and more accessible.
In 1997, the average UK house price was approximately £70,000. The Labour government’s initial years saw moderate but steady growth in house prices, supported by increased consumer confidence and a strong job market. Additionally, Labour’s focus on economic stability and prudent fiscal management helped create an environment conducive to property investment.
The Boom Years: 2000-2007
The early 2000s were characterised by rapid house price growth. By 2002, the average house price had risen to around £100,000. This period of prosperity can be attributed to several factors:
• Economic growth and low unemployment: The UK economy experienced robust growth, and unemployment rates fell significantly. More people in work meant more potential homebuyers, increasing demand for housing.
• Low interest rates: The Bank of England, which was granted independence by the Labour government in 1997, maintained low interest rates. This policy made mortgages more affordable and encouraged borrowing.
• Liberal mortgage lending: The early 2000s saw a boom in mortgage lending. Financial institutions offered a variety of mortgage products, including those requiring little or no deposit, making it easier for people to enter the housing market.
• Limited housing supply: Despite rising demand, housing supply did not keep pace. The planning and construction processes were often slow, and new housing projects could not match the burgeoning demand, pushing prices higher.
By 2007, the average house price had surged to around £190,000, nearly tripling in a decade. This period of rapid growth created wealth for many homeowners but also led to concerns about housing affordability and the sustainability of such high prices.
The 2008 Financial Crisis
The global financial crisis of 2008 had a profound and immediate impact on the UK housing market. The crisis was triggered by the collapse of the subprime mortgage market in the United States, leading to a worldwide credit crunch. In the UK, this resulted in a sharp contraction in mortgage lending and a significant economic downturn.
Impact on house prices:
• House price decline: UK house prices fell sharply following the crisis. From their peak in 2007, prices dropped by about 20% over the next two years. The average house price fell from around £190,000 to approximately £154,000 by 2009.
• Reduced housing demand: The economic uncertainty and rising unemployment led to reduced demand for housing. Many potential buyers were unable or unwilling to purchase homes during this period of financial instability.
• Tighter lending criteria: In response to the crisis, banks and financial institutions tightened their lending criteria. Mortgages became harder to obtain, requiring larger deposits and stricter credit checks, further dampening housing demand.
• Government intervention: The Labour government implemented several measures to stabilise the housing market. The Bank of England slashed interest rates to historic lows, and the government introduced fiscal stimuli to support the economy. These actions helped prevent a more severe decline in house prices and began to restore confidence in the market.
Recovery and the end of the Labour government: 2009-2010
By late 2009, there were signs of stabilisation in the housing market. The measures taken by the Labour government and the Bank of England began to take effect, and house prices started to recover slowly. However, the housing market remained fragile, and prices had not returned to their pre-crisis peaks by the time Labour left office in 2010.
Post-crisis market characteristics:
• Modest price recovery: House prices showed a modest recovery from their 2009 lows, but the growth was uneven across the country. While London and the South East saw stronger rebounds, other regions lagged behind, with some only recovering in the recent pandemic house price bubble.
• Continued affordability issues: Despite the price corrections, affordability remained a significant issue. Many first-time buyers struggled to enter the market due to the higher deposit requirements and tighter lending conditions.
• Long-term policy impacts: Labour’s policies, including the Decent Homes Programmeaimed at improving social housing, continued to influence the housing sector. However, the overarching impact of the financial crisis dominated the final years of Labour’s governance, with few able to forget the infamous note left by Liam Byrne,the out-going Chief Secretary to the Treasurer, to his successor: “I’m afraid there is no money”!
What can we expect from today’s Labour government when it comes to the housing sector?
Both Labour and the Conservatives made plenty of pledges to current and prospective homeowners in their election manifestos, although housing does seem to have slipped in the priorities of all parties behind the economy, health and migration.
When it comes to housing though, Labour have promised to:
• Put measures in place to support renters such as immediately ending no fault evictions, extending Awaab’s Law to the private sector in an effort to improve the quality and safety of all rental homes, introduce rent caps, and “empower renters to challenge unreasonable rent increases”.
• Introduce a Freedom to Buy scheme (essentially a rebrand of the Conservative’s Mortgage Guarantee Scheme) which will help 80,000 first-time buyers secure a mortgage and get on the property ladder over the next five years, and offer first dibs to local people buying local properties.
• Introduce planning reform to build 1.5 million new homes and build on “grey belt” land – defined as “neglected areas such as poor-quality wastelands and disused car parks that are in the greenbelt”.
• Build 150,000 new social homes a year, 100,000 of which will be council homes, alongside substantial investment in the current affordable housing stock.
With the average monthly rental fee now hitting close to £1,300 according to Rightmove (and an eye-watering £2,600 in London), these promises to reform the rental sector are unsurprisingly popular, although sceptics have suggested that disincentivising private landlords could actually have the opposite effect and reduce supply, thereby pushing up demand (and therefore rental prices) further.
With supply and demand being one of the key issues for homebuyers when it comes to the thorny issue of affordability, the delivery of more new homes – and affordable ones at that – is certainly welcome news following years of limited housebuilding coupled with rising interest rates.
Of course, it remains to be seen whether these promises can be delivered successfully,alongside a very ambitious list of other manifesto pledges, and the impact they will have on the value of our homes and the wallets of UK taxpayers is yet to be determined.
