The failure of the U.K.'s June 8 general election to provide a clear governing majority for either of the two main parties has disappointed leading figures in the country's real estate sector.
In a shock result, the governing Conservative Party lost 12 seats and its majority in the House of Commons, the U.K.'s lower house. The losses leave the Conservatives as the largest party in a "hung parliament" – one in which no party has a clear majority to govern. The Conservatives' losses were compounded by surprise gains by the Labour Party, led by leftist outsider Jeremy Corbyn, which secured 29 more seats than its 2015 election result and 40% of the vote – 2.4 percentage points behind the Conservatives.
The election was seen by the U.K.'s real estate sector as one of the most important in recent times, with issues such as the country's approach to exiting the European Union, or Brexit, housing and property taxation all at stake.
"This is not the outcome the country needed going into the Brexit negotiations or in terms of setting a clear direction for the UK's future," Melanie Leech, chief executive of the British Property Federation, the country's industry membership body, said in a statement. "Businesses don’t like uncertainty and there will clearly now be a further period of uncertainty, which will be unhelpful."
The Conservative Party under Prime Minister Theresa May had called an election three years early in order to strengthen its political mandate ahead of Brexit negotiations, which were set to begin June 19. The Conservatives proposed to strike a deal with the European Union that involves no access to the EU's Single Market or Customs Union, a "hard Brexit" scenario that is generally considered to be damaging to business.
The election has further muddied the waters for business, said Chris Ireland, CEO of real estate services firm JLL in the U.K., but it could encourage the government to adopt a different approach to negotiations with the EU. "The result suggests that the hard Brexit that many were assuming would now definitely occur looks somewhat less likely. That could be a longer-term positive for the UK market," said Ireland.
The U.K.'s real estate sector should be capable of managing any turbulence ahead, said Colin Wilson, head of U.K. and Ireland at global real estate services firm Cushman & Wakefield. "If there is a lesson from our experiences over the last 12 months, it is that UK business, including the real estate industry, has become accustomed to uncertainty and managing through it – as evidenced by the many significant investment and occupier commitments since last June.”
Both the main parties' manifestos had promised significant action on addressing the U.K.'s severe shortage of homes, with the Conservatives basing their commitments on a housing policy document, or "white paper," published in February and proposing the building of 1 million new homes by 2022. The uncertainty created by the election result and what this might mean for housing was met with some impatience.
"Our part of the sector has plenty of funds to invest and if even as a stop gap, new ministers should adopt the White Paper and maintain momentum on delivering the homes we need. For the sake of those needing a home, let’s all just get on with it," said Ian Fletcher, director of real estate policy at the British Property Federation.
The uncertainty will continue to influence housing market performance, according to Liam Bailey, global head of research at real estate consultancy Knight Frank. However, he noted that "trends [that existed before the election] will largely continue, at least for the remainder of this year."
Other sectors will remain resilient despite the election result, while some may even benefit from its impact on the currency markets, said Ireland. "Sectors with long-term structural support, such as logistics and alternatives, will remain strong," he said. "If the pound remains weak, retail and hotels will benefit, alongside U.K. manufacturing. But as before, JLL continues to believe the U.K. offers significant opportunities for medium- and long-term investors."
The Conservatives – four seats short of achieving an overall majority – are now expected to form a parliamentary alliance with the Democratic Unionist Party, which won 10 seats in Northern Ireland, the only region in which it stands. The two parties share similar views on many issues, although the DUP are likely to want a "softer" Brexit than the Conservatives as Northern Ireland's economy would be severely exposed to an exit from the European Single Market and Customs Union given the region's land border with the Republic of Ireland, a separate EU country.