It’s a pretty straight forward assertion – the recently announced budget is, in essence, a perfect metaphor for the new age of government spending and planning after the pandemic.
Politically, it’s a pretty interesting switch for the Tories who used to see themselves as the small state, low tax party of government, preferring to let the free markets set prices and demand and only ever getting involved as a measure of last resort.
Following furlough, stamp duty relief, and a raft of other measures, that age of Conservatism seems long gone, at least in the medium term.
Of course, it’s easy enough to see why the government were forced to spend enormous amounts of money in order to keep the economy moving during the pandemic, it was an unprecedented situation that saw the majority of businesses closed and people unable to work. Without large scale state intervention, it’s likely most industries could have collapsed causing mass unemployment.
Whilst the government appear to have done a decent enough job of ensuring that didn’t happen, the issue they’re now facing is inflation and a sluggish recovery that they could really do with speeding up, but also, they need to increase taxes in order to achieve that. So where did the budget leave us in that regard?
The budget
For some time now, incomes haven’t been keeping pace even nearly enough with the increase in house prices. For those who’d hoped that the pandemic may have slowed that growth as the shutdown of the economy paused activity, that hope was extremely short lived and, in fact, the market never even dropped and actually rose by 10% or more year-on-year both last year and in 2021.
Home ownership remains a step too far for many working people, and the budget that was announced last week is unlikely to help bridge that gap. According to the Resolution Foundation the tax burden for each family is going to rise by £3000 per year by 2022.
With a rise in National Insurance looming and cuts in Universal Credit, most middle earning families and working people are set to be worse off in the next year or two, and that’s likely to mean that those looking to get on the housing ladder are going to struggle.
For investors
As an investor, what does that mean for you? Well, realistically it likely means that any property price increase is going to slow in the short and medium term.
That’s not a bad thing, however, as it also means that rents are going to grow and probably quite quickly. That will push your rental yields up, meaning that you’re earning more as a proportion of the value of your property.
As more people are pushed into the rental market the more demand will be created with a lack of adequate supply, meaning that prices are driven up.
With that in mind, over the next few years it’s going to be a good time to be invested in property. You may not get the same price growth, but the rental growth and subsequent income will be much better.
