The National Association of Estate Agents and Association of Residential Letting Agents say that although there are no conclusive ‘leave’ or ‘remain’ arguments for the industry in the EU referendum, a Brexit “could have long-lasting and damaging consequences.”
NAEA managing director Mark Hayward says it’s not as simple as saying a Brexit would be good or bad. But a report released today by the bodies - drawn up with the Centre for Economics and Business Research - says 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.”
The 23-page report highlights four particular concerns of the NAEA and ARLA:
1. Skills shortage: It says that while the impact Brexit 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 meeting the government target of one million new homes by 2020.
The report maintains that construction based jobs are decreasing in popularity among UK nationals. With one in 20 current construction workers born in non-UK EU countries, labour from those nations is important to fill the skills gap to boost housing stock.
“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” says Hayward.
2. Foreign investment in the UK: The report says an ‘out’ vote could provide first time buyers with breathing space as demand for housing eases from migrant labour.
The report says 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.
CEBR says that in 2014, 19 per cent (£5.3bn) of total foreign direct investment inflow into the UK came from EU sources; in 2013, 17 per cent of sales in London’s prime property market made to non-UK recipients were to European nationals.
The report claims 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.
3. Reduced migration flow: There are currently 3.03m UK residents who were born in other EU countries. If, following a Brexit vote, the UK does not maintain free movement of labour, the total 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, and this is will be especially apparent in the capital.
But it also says that reduced migration would 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.”
David Cox, ARLA’s managing director, says: “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.”
4. London’s ‘safe haven’ status at risk: The report says the capital has the densest population of non-UK EU residents, so the consequences will be heightened, especially in the short-term from reduced foreign direct investment.
In 2013/14, 25 per cent of all 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 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” warns Cox.
Mark Hayward concludes: “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. 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.”