It could affect current plans to build hundreds of thousands of new homes, compromise London’s position as a safe haven for property investment, but could also have positive effects for first time buyers.
The report from the National Association of Estate Agents (NAEA) and the Association of Residential Letting Agents (ARLA) compiled with the Centre for Economics and Business Research (Cebr), highlights a number of short and long term implications potentially arising from the upcoming vote.
While the impact Brexit will have on migration policies is unconfirmed, imposing greater restrictions on foreign workers coming into the UK may compromise the UK’s ability to build homes with the Government having pledged to build one million new homes by 2020.
It points out that construction based jobs are decreasing in popularity among UK nationals, and as 5% of current construction workers were born in other EU countries and workers from the are becoming more important than ever in filling the skills gap to boost housing stock.
A leave vote could mean that in 10 years’ time there would be a severe skills shortage of construction workers, according to Mark Hayward, NAEA managing director. ‘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,’ he explained.
But he added that a leave vote could provide first time-buyers with breathing space as demand for housing would be expected to ease off.
The report also says that non EU businesses are currently attracted to the UK’s status as a gateway to the single market as it allows them to establish and grow their presence across Europe. In 2014 some 19% or £5.3 billion) of total FDI inflow into the UK came from EU sources and in 2013 some 17% of sales in London’s prime property market made to non-UK buyers were to European nationals.
It suggests that in the event of Brexit, a portion of FDI would be re-directed to EU countries, freeing up housing units, particularly in London, previously purchased through FDI for British buyers.
Also, if the UK does not maintain free movement of labour, the total population of the UK could decrease by 1.06 million and the report argues that with fewer people, demand will ease, making the market more accessible for first time buyers, as well as second steppers and last and last time buyers and this is will be especially apparent in London.
Reduced migration would also affect the private rental sector. Currently, private renting is a more popular choice among UK residents born in other EU countries than for UK born individuals. The report says that if migration reduces the flow of renters from Europe, demand will weaken, which would put downward pressure on rent costs.
‘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 out goings they have, such as a mortgage,’ said David Cox, ARLA managing director.
‘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,’ he added.
There is also a suggestion that London’s safe haven status could be at risk. The report explains that it has the densest population of non-UK EU residents, so the consequences will be heightened, especially in the short term from reduced FDI.
In 2013/2014, a quarter of all London’s prime property buyers were from outside the UK with 20% buying their primary residence and 5% buying an investment property.
‘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 decision,’ Cox pointed out.
Mark Hayward also explained that it’s not as simple as saying that Brexit would have a positive or negative effect on the property market. ‘We might like 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,’ he said.
‘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,’ he concluded.
