Are property markets nothing but a political tool?

If you look at the real estate market in Australia, the UK, parts of the US and some areas of India, it soon becomes apparent that ongoing real estate price rises cannot continue forever. You could argue that each of these markets is in some way, shape or form impacted by the political arena which is in effect using real estate markets as a political tool. Is this fair?

There are a number of factors to look at when considering whether or not property markets are but a political tool which we will cover below.

Strength ahead of elections

If you look at the UK property market, and in particular the stratospheric position of the London real estate market, there is no doubt that the Conservative party will glean support from voters because of this ongoing strength in real estate prices. Despite the fact that some experts have been calling the top of the market, expressing concerns about a house price bubble for nearly 2 years now, the government is in effect doing nothing. So, why is the UK government apparently moving head on towards a full-scale property crash?

Quote from PropertyForum.com: “How do you see future performance for the UK property market?”

There is a debate as to whether the UK property market is as overvalued as some would have you believe with the suggestion that household incomes will improve in the short to medium term and “catch up”. This debate seems somewhat flawed because while wage increases will move beyond cost of living increases from 2015 onwards, they will be nowhere near the ongoing increase in UK property prices.

Is it really political?

The simple fact is that the better the electorate feels ahead of an election the more chance that they will vote for the governing party of the time. While the UK currently has a coalition government of the Conservative party and the Liberal Democrat party, many believe that the Liberal Democrats are a busted flush and will fall by the wayside. As a consequence, an increase in the UK property market will impact the middle classes more than anybody else and this is an area in which the Conservative party is relatively strong.

Even though the Bank of England is “independent” from the government of the day there is no doubt that politicians do put pressure on Bank of England officials to “do the right thing”. Indeed politicians have been suggesting there will be no UK base rate rise ahead of the 2015 election although in reality some believe that a the base rate increase is already overdue. Quite what will happen after the 2015 election in the UK remains to be seen because it would be catastrophic for political support to see a rise ahead of the election and a collapse post the vote.

Conclusion

While there is no firm evidence to suggest that politicians use real estate markets as a means of currying favour with the electorate, the situation today does seem to suggest some kind of collusion. There is no doubt that a strong property market in the UK, Australia, US, etc would help the political elite of the day and offer a good opportunity to regain power at the next election. Whether or not governments such as those in the UK would risk a post-election property price crash to gain power is debatable because this would be an enormous risk.