Taken from the April 2015 issue of Housebuilder Magazine.
Ever mindful of my responsibility to the fair readers of this column, I am constantly on the lookout for interesting takes on how politics affects housebuilding. So imagine how pleased I was to hear Melanie Baker, Chief UK Economist at Morgan Stanley, recently speaking about the election at an event run by our sister company, Newgate Communications.
Melanie was on a panel with such heavyweights Anne McElvoy of the Economist and Peter Riddell, grandee of political journalism. For me, Melanie was the star turn as she gave her take on how the markets would respond to coalitions of different flavours.
Her basic premise was that the choice that mattered for the markets was not between the Conservatives or Labour but between a government of established parties and a government that involved one of the more fringe contenders such as the SNP, UKIP or even the Greens.
Regardless of which mainstream party was in power, the former, she said, would result in more fiscal tightening. That tightening will be front end loaded with significant pain being felt in the early years of the new Parliament. She said that that the effect would be to dampen UK growth but, consequently, there would continue to be downward pressure on interest rates.
After the last five years of painful fiscal tightening, that doesn’t sound too appealing a prospect. But Melanie went on to point out that the markets viewed it more favourably than the alternative. If a fringe party plays a significant role in the new Government, there would be less chance of them making difficult spending decisions and that, consequently, there would be less fiscal tightening. This would lead to a more volatile economic outlook. And because all parties need to address the deficit, it seems likely that the minority parties will do this through tax hikes rather than spending cuts.
This analysis seems to me to be far more important for house builders than detailed issues, such as how the parties address planning policy. We need steady and predictable GDP growth with homebuyers feeling that their prospects are improving. We don’t want volatility. From the point of view of our working lives, Bill Clinton was right: “it’s the economy, stupid”. For all we might fret about who to vote for; our working lives will probably be easier if one or more of the Conservatives, Labour and/or the Liberal Democrats form the next Government.