IMPACT OF POLITICS ON PROPERTY MARKETS

...it grows bigger every day...

Not since the fall of the Berlin Wall have politicians had such a big impact on property markets. The end of state Socialism in eastern Europe in the late 1980s and early 90s allowed for the return of private property ownership there and in China, while in Britain and the United States this transformation coincided with conservative politicians striving to create "property owning democracies" in which tenants could become home-owners.

Today, politicians who reform housing markets do so more through pragmatism than idealism. By raising property taxes the Chinese government has ruthlessly engineered a downturn in its property market to squeeze out inefficient property companies. The Hong Kong, Taiwan and Singapore authorities have introduced taxes and buyer restrictions to cool overheated housing markets too.

In Europe, the Portuguese government will administer the economic equivalent of CPR to its recession-blighted construction sector this month (June) by allowing landlords to raise rents for the first time in 30 years, so they can fund building improvements. Politicians had been putting off this reform for 25 years, because they didn't want to be confronted by angry tenants.

Politicians are impacting on property markets in unintended ways too, sometimes far from home. Property prices in prime central London are higher now than they were during the previous market peak in 2007, because of a house price boom fuelled by an influx of Greeks escaping political meltdown in Athens, French avoiding newly elected President Hollande's planned tax rises, Russians fleeing arbitrary rule under re-elected President Putin, Chinese escaping corruption and autocracy in Beijing and Arabs leaving behind political turmoil in the Middle East.

This politically-driven flow of wealth across the world can have political repercussions in the safe havens where it is directed - in Switzerland, citizens have voted to limit foreign home ownership to 20% in tourist areas, because they are fed up with first-time buyers being priced out of the housing market by wealthy incomers.

The grand projects of politicians may even touch on London's safe-have reputation in two years' time. At the behest of the Scottish National Party, Scotland will have a referendum in 2014 on whether to become independent - although according to opinion polls only 40% of the country is currently in favour of full devolution. If the Scots do vote "yes", then there will be wrangles between Scotland and the remainder of the United Kingdom over who owns which North Sea oil fields and is responsible for the debts of Edinburgh registered banks like Lloyds and Royal Bank of Scotland. The arguments will create uncertainty, which housing markets don't like. Resolution of the arguments could see one or both newly separated countries less well-off or better-off than before, which will have a knock-on effect on their housing markets.

An understanding of economics has long been recognised as useful when analysing the world of property - all those GDP numbers, interest rate stats, construction data and other facts and figures have a bearing on which way a housing market may move. Now, with politicians having an increasingly big impact on property markets, intentional or otherwise, it pays to have an understanding of politics too.

I wrote this blog piece for property consultancy, Knight Frank's Global Briefing, published today.

http://globalbriefing.knightfrank.com/post/2012/06/07/The-growing-influence-of-politics-on-global-property-markets.aspx