Andy Burnham has been returned as an MP in the Makerfield by-election by a large majority, making it highly likely he will trigger a leadership challenge that could well see him become the next Labour Prime Minister. What would that mean for real estate markets?
The immediate outcome is further confusion about the direction of travel of the governing Party, and a lack of clarity is always unhelpful for real estate and investors.
Vanessa Hale, chief executive at Real Estate:UK, said in response to the Makerfield result: “Andy Burnham’s Makerfield win means that we are now heading for a Labour leadership contest over the summer. This further political uncertainty will do little to unlock the domestic and global capital required to build the homes, infrastructure and economic growth that the country desperately needs. With viability challenges meaning that building activity across the country is stalled, it is imperative that we move as quickly as possible back to a more stable, predictable policy environment so that we can work together across the public and private sectors to support delivery of the Government’s commitment to deliver new homes, grow the economy and revitalise town centres.”
Should Burnham replace Sir Keir Starmer as Prime Minister, can real estate markets rely on the stable, predictable policy environment Hale is calling for?
While it would be unwise to second guess what the "King of the North" would do as Prime Minister, there are some areas he has made priorities throughout his political career – both as a senior Labour minister running previously to be party leader and during his time as the Mayor of Greater Manchester – that point to what real estate should expect.
Land value tax
Burnham has on numerous occasions thrown his weight behind the contentious issue of a land value tax to replace council tax and stamp duty.
He proposed a LVT in 2010 when he first attempted to become Labour leader and last month said he "continues to believe land is under-taxed" as he launched his campaign to return to Westminster. “I have long been persuaded of the argument for a land value tax,” he added.
What would this look like in practice?
Campaign organisation Fairer Share lists Burnham as one of its supporters for its new Proportional Property Tax. That would replace stamp duty and council tax with a property tax equivalent to 0.48% of a home’s value. The campaign argues this proportion would ensure the Treasury raised the same revenue as it does from the taxes that would be abolished.
The tax would only be paid by homeowners, not renters. Under the proposals, second home owners, foreign owners and empty properties would pay a higher rate of 0.96%. The revenue from the tax would be centrally distributed to local councils.
The proposals aim to address regional disparities that see some homeowners paying the same council tax as others in more expensive homes, given it is based on property prices from 1991. The campaign group estimates around 75% of homeowners would be better off, but inevitably, some homeowners, concentrated mostly in London and the South East, would face higher bills. The plans do propose an initial cap so that no homeowner would be charged more than £1,200 above their prior council tax bill.
The proposal to remove stamp duty is aimed at removing barriers to moving that have been a factor in stalling housebuilding as the Labour Party seeks to build 1.5 million homes across this Parliament.
The plans for an LVT to be introduced are far from new, but have failed to get off the ground previously.
John Webber, head of rating at Colliers, says the reasons are manifold. "There is no country in the world that has been able to successfully implement a land value tax. Most countries that claim to have land value taxes like Australia and Taiwan exempt the two biggest uses of land, agriculture and owner-occupied housing. Even in the UK when it was tried by the Liberal Government in the early 1900s it spectacularly failed and cost more to administer than it collected, nearly bringing down the government."
Knight Frank's head of UK residential research, Tom Bill, said: "The simplicity of the proposal is commendable and scrapping stamp duty make sense given how it hinders social and economic mobility, but the proposal in question feels too overtly political. Shouldn’t the sole aim be to maximise tax revenue?
"Under the plan, landlords, developers, overseas buyers and second-home owners would pay more. A similar approach with stamp duty since 2014 has curbed activity in exactly the sort of high-value locations where most revenue is presumably being targeted. A regular flow of tax receipts has obvious benefits for the Chancellor, but politicizing the housing market feels like an approach that’s been tried and failed.
"At a time when many landlords are struggling to make things stack up financially, any further disincentive is likely to result in less stock and higher rents. And the notion that developers would rather 'landbank' than build houses for a profit is a misguided assumption."
Business rates
On the real estate industry's most hated tax system, Burnham has backed the “Save our Pubs campaign” and has pledged to cut business rates for pubs and music venues by 20%, adding what he estimates is an extra support of £100 million to the extra reliefs granted by Chancellor of the Exchequer Rachel Reeves earlier this year.
Burnham has also said he would abolish business rates for shops, cafes and restaurants, limiting this to single site venues to protect family-owned businesses. He would also increase the threshold at which businesses pay rates from £12,000 to £18,000 while also extending the threshold under which businesses enjoy tapered relief on rates, from £15,000 to £21,000.
Burnham said these moves would be funded by increasing taxes on online tech giants and their warehouses to ensure they pay their “fair share”. He said he would raise a further £500 million by tackling tax evasion that is harming high streets.
Colliers' Webber says the argument that the relief could be funded by hiking taxes on Amazon and its peers is a "naive dream" given current geopolitics and the relationship with the US President.
"This was also the theory behind the current government’s super higher multiplier, which has just resulted in all bigger businesses being hit by higher rate bills, again undermining business investment, jobs and growth."
Real estate in Manchester
As Mayor of Greater Manchester Burnham has been a highly visible figure supporting regeneration and investment in the region – he was visible at the Mipim conference in France in March for instance with the Manchester delegation.
He has prioritised investment in improving transport and infrastructure, and in real estate, particularly social housing. He has described "good growth" as the defining challenge of the age, and consistently touted what he describes as "trailblazing devolution" deals to put public services back in service of the public. For instance Burnham spearheaded Greater Manchester becoming the first region in 40 years in the UK to bring buses under local control.
What does this look like in practice for real estate?
He has created a new Greater Manchester Housing First unit aiming to deliver 10,000 new social homes by 2028, and set up a team to identify brownfield sites and land owned by public bodies in each Greater Manchester borough that can be regenerated.
In November, he announced plans for a £1 billion fund that has pledged to deliver thousands of new homes and million of square feet of employment space across the region. Backed by local leaders and an initial £300 million from the Greater Manchester Pension Fund, the Good Growth Fund is supporting 30 projects across the area's ten boroughs and provides a "new model of economic growth", according to the Greater Manchester Combined Authority.
The fund will help "to pump-prime building at a pace and scale not seen before this century", with an initial £400 million being provided to deliver circa 3,000 homes and 2 million square feet of employment space.
He is a strong advocate of sustainable development. In 2018 the Greater Manchester Combined Authority launched a new Low Carbon Fund that Burnham said will encourage the use of renewable energy in property developments and infrastructure projects while also providing commercial investment in Greater Manchester. At the same time Greater Manchester held a first Green Summit which set out how the region aims to become one of the leading green cities in Europe.
He has also looked to tackle perceived injustices for home renters. He has introduced a Good Landlord Charter to “drive up standards” in rented accommodation and turned to a £1.5 million special fund employing 10 enforcement staff to tackle bad private rental housing and take action against landlords not keeping properties well maintained.
He is also a supporter of imposing rent controls on the private sector. He has also backed many of the measures which form part of the current Renters' Rights Act including giving councils powers “to acquire properties from landlords who are unable or unwilling to meet standards”.
Mark Chick, Association of Leasehold Enfranchisement Practitioners, director and senior partner at Bishop & Sewell points out that on leasehold reform, Burnham has actively backed the national government’s platform to ban the sale of new leasehold flats and houses, repeatedly saying there needs to be a fairer system that better protects leaseholders. He has also worked closely alongside campaign groups and individual residents who have been affected.
"While Burnham hasn’t said anything explicitly regarding leasehold reform during the by-election campaign, it can be expected that were he to become PM the policy direction would remain on course. Some sector commentators have suggested that speeding up the process could give him a major positive in his first, crucial, 100 days, but that will depend on if and when he becomes PM, and where the legislation is in its timetable when that happens."
Burnham plans to create a new baccalaureate for the Greater Manchester region, which he says would help guide the career choices of young people who want to get to grips with technical subject areas, like construction and the green economy.
On a wider taxation note of interest to the real estate sector he has been consulted by the Labour Growth Group and the Good Growth Foundation on plans to increase capital gains tax to make it commensurate with income tax and has backed a visitor levy or tourist tax to be collected by Airbnb hosts and hotels.
As always, the reality of what is said on the campaign trail and on the sidelines of government is harder to realise when a politician actually takes the reins.