Two industry bodies warn on EU exit impact

Both the National Association of Estate Agents and Association of Residential Letting Agents have warned that leaving the European Union could have ‘damaging consequences,’ on the housing industry.

Despite no conclusive arguments to either leave or remain in the EU, both firms have voiced concerns over construction of new properties should Britain leave.

Worries

Managing director of the National Association of Estate Agents, Mark Hayward, believes the situation is more complex than suggesting a Brexit would be good or bad.

However, a report drawn up by both firms alongside the Centre for Economics and Business Research (CEBR) states that a UK withdrawal from the EU, ‘risks drastically reducing the construction workforce, compromising current plans to build hundreds of thousands of new homes needed to ease the shortage in supply.’[1]

In the 23-page report four particular concerns have been highlighted:

• Shortage of skills-While the impact of Brexit on migration policies is as yet unconfirmed, any restriction on foreign workers coming into Britain could compromise ability to construct new homes. What’s more, the Government’s target of one million new homes by 2020 could come under threat.Mr Hayward observed that, ‘an out vote could mean that in 10 years’ time we’d find ourselves with a severe skills shortage of construction workers. So even if we then had planning permission, investment and materials to build more housing, we simply wouldn’t have the resource to put the bricks and mortar together. It has the potential to have a very damaging effect on the future housing market.’[1]

• Foreign investment-The report suggests that an out vote could see first-time buyers given leeway, as demand for housing eases. CEBR figures suggest that in 2014, 19% or 5.3bn of total foreign direct investment into the UK came from EU sources. In 2013, 17% of sales in London’s prime central property market made to non-UK recipients were to EU nationals.

• Reduced migration influx impact-At present there are 3.03m UK residents who were born in other EU countries. Should Britain not maintain free labour movement, its total population could decrease by as much as 1.06m. Fewer people will lead to lesser demand, making the market more accessible for first time buyers. However, the report warns that reduced migration will affect the private rental sector: ‘Currently, private renting is a more popular choice among UK residents born in non-UK EU countries than for UK born individuals; if migration reduces the flow of renters from Europe, demand will weaken, which would put downward pressure on rent costs.’ Managing director of ARLA, David Cox, said, ‘the fact that rent costs would face downward pressure is both a blessing and a curse. While renters should face fair and reasonable prices, landlords need to be able to at least break even on any outgoings they have, such as a mortgage. If demand eases to such an extent that landlords cannot recuperate costs, we’ll likely see a mass exit from the market, which would then just have the opposite effect on demand as supply falls-and we’d be back to square one.’[1]

• Capital Pains-The report also highlights that London has the greatest population of non-UK EU residents, therefore the consequences of a Brexit was be felt more heavily. In 2013/14, 25% of the total of London’s prime property purchasers resided outside of the UK.Mr Cox warns, ‘those whose freedom to work and live in the UK is at risk of Brexit are a key demographic for the private rented sector. Current projections of demand for rental properties therefore could be offset by Brexit. If the sentiment towards London as a safe haven changes, the UK’s largest rental market will feel the brunt of a Brexit.’ Concluding, Mark Hayward said, ‘it’s not as simple as saying that Brexit would have a positive or negative effect on the property market. We might to believe, for example, that the ease in demand and lower prices will allow first time buyers a route into the market, but any transactions may be put off for the short term until the period of uncertainty is over. An ease in demand is likely to be matched or outweighed by a decrease in housing stock, not just from reduced labour, as considered in the research, but also from decreased accessibility to building materials produced in non-UK EU countries. Ultimately, it could have long-lasting and damaging consequences.’[1]

[1] https://www.estateagenttoday.co.uk/breaking-news/2016/5/brexit-could-have-damaging-consequences-warns-naea-and-arla