The NAEA and ARLA have launched a Brexit report, compiled with Centre for Economics and Business Research (Cebr).
A British 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, according to the Brexit report from the National Association of Estate Agents (NAEA) and Association of Residential Letting Agents (ARLA).
Compiled with the Centre for Economics and Business Research (Cebr), the report looks at the effect a ‘Brexit’ or a ‘Bremain’ result would have on the UK property market, highlighting potential short and long-term implications.
While the impact that a Brexit would 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 – and the Government has pledged to build 1million new homes by 2020.
Construction based jobs are decreasing in popularity among UK nationals and five per cent of current construction workers were born in non-UK EU countries – and they are becoming ever more important in filling the skills gap to boost housing stock.
An ‘out’ vote could cause a severe shortage of skilled construction workers, then we wouldn’t have the resource to put the bricks and mortar together. Mark Hayward, NAEA.
Mark Hayward, Managing Director, NAEA said, “An ‘out’ vote could mean that in ten years’ time we’d find ourselves with a severe shortage of skilled 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.”
However, an ‘out’ vote could provide first-time-buyers (FTB) with breathing space as demand for housing eases off.
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, 19 per cent, (£5.3bn) of total Foreign Direct Investment (FDI) inflow to the UK came from EU sources; in 2013, 17 per cent of sales in London’s prime property market made to non-UK residents were to European nationals.
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.
3.03 million UK residents were born in other EU countries. If, following a Brexit vote, the UK does not maintain free movement of labour, the population of the UK could decrease by 1.06m people. With fewer people, demand will ease, making the market more accessible for FTBs, as well as second steppers and last-time-buyers, especially in the capital.
Reduced migration would also affect the private rental sector (PRS). 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.
If tenant demand eases to the point that landlords cannot recoup costs, we’ll see a mass exit from the market and we’ll be back to square one. David Cox, ARLA.
David Cox, Managing Director, ARLA, said, “The fact that rent costs would face downward pressure is a blessing and a curse. While renters should face fair prices, landlords need to be able to at least break even on outgoings such as a mortgage. If demand eases to such an extent that landlords cannot recoup costs, we’ll likely see a mass exit from the market, which would then just have the opposite effect on demand as supply falls – we’d be back to square one.”
LONDON’S ‘SAFE HAVEN’ STATUS
The Capital has the highest population of non-UK EU residents, so the consequences will be heightened, especially in the short-term from reduced FDI. In 2013/14, a quarter (25 per cent) of London’s prime property buyers were from outside the UK – 20 per cent buying their primary residence, and five per cent 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 PRS. If the sentiment towards London as a ‘safe haven’ changes, the UK’s largest rental market will feel the brunt of a Brexit,” said David Cox.
Mark Hayward added, “Ultimately, a Brexit could have long-lasting and damaging consequences.”