UK Political Cycle and the Effect on National House Prices: An Exploratory Study

Abstract

Over the last two decades, many developed countries have experienced notable changes in house prices. This exploratory study considers if house price movements in the UK can be linked to the political cycle as governments realise homeowners represent a large portion of the voter base and their voting decisions could be influenced by the magnitude and direction of house price changes. Specifically, the paper investigates whether house prices behave differently before and after elections and under different political regimes. To examine this relationship, the study analyzed quarterly UK national house price data since 1960, along with data on the results of UK parliamentary elections during the same period. Over this period, real UK house prices increased by an average of 2.84% per annum. While there is no evidence that house prices in the UK behave significantly differently under different political parties, it is evident that house prices perform much better in the last year before an election, compared to the first year after an election. Over the time period defined for this study, house prices increased by 5.3% per annum on the average in the last year before an election compared to 1.3% per annum in the first year following an election. As this research clearly identifies major variations in house price performance around election times, residential property investment decisions should take into consideration the political cycle.