Recently I attended an engaging event by the Chartered Institute for Housing (CIH) Scotland; ‘Building Beyond Brexit – What Now’. Speakers gave their thoughts on the implications of the vote to leave on the Scottish housing market and a lively debate ensued. Unfortunately, but not unexpected, as a town planner it left me feeling disheartened and frustrated. It also left me wondering if there’s anything we can do to move on from this?
A month in and it is my view that all we seem to have are ‘known unknowns’. The future is uncertain, and timescales for Britain leaving the EU remain elusive. The UK still needs to renegotiate its trade agreements with the EU, a process that could take years to finalise.
So what will impact will Brexit have on the Scottish housing market? In the short term, the effects so far have been slight. The average house price across the country has fallen 2.6% this April to June on the same period last year. We are just back to pre-recession living standards, but not yet anywhere close to pre-recession levels of house building. A market shock could undermine progress made in recovering from recession.
Looking at the Chartered Institute of Housing (CIH) Scotland survey on the implications of Brexit, I was not surprised to hear that 75% of respondents felt that there would be an impact on their business plans as a result of the referendum. More generally, there was a feeling that Brexit puts new housing targets at risk, jeopardising the pledge of 50,000 affordable homes in five years.
A further implication is investment in the market. There have been efforts to attract pension funds and other organisations to invest in the private rented sector. By leaving the EU, the UK and Scotland lose free access to finance from EU countries making investment in Scotland less attractive, with potential impacts for the housing market.
There is potentially less scope for Section 75 agreements as the cost of finance rises, with knock on effects for affordable housing delivery. Import costs for materials may rise and without free movement of labour there is a risk of increased shortages of skilled workers in the construction sector.
It is also worth considering the status of housing as a political issue in the UK and Scotland in the context of severe political upheaval. I think Brexit is likely to result in issues such as housing falling down the political agenda as time and energy are expended on Brexit negotiations and trade deals.
This uncertainty is compounded by the looming shadow of IndyRef2. Will Scotland proceed towards independence and towards membership of the EU in its own right? Aside from the market implications of another independence referendum, this will surely take the attention of our MSPs away from housing.
One month after the vote, all I seem to read about is a tumbling pound and a lot of political and financial uncertainty. However, there may still be some positives coming out of these uncertainties – interest rates are likely to be lower as the Bank of England moves towards zero percent interest and the value of land may fall as foreign investment goes elsewhere.
I believe the Scottish Government can’t do much to mitigate the Brexit disaster apart from pursue independence and continue its drive to deliver more affordable housing. They are already committed to delivering a target of 50,000 affordable homes by 2020, this surely is more now more important than ever, perhaps as a Keynesian lever to keep the construction industry going.
So what can we do? On reflection, I can only conclude that the property sector needs to rally together. We need to minimise every other possible risk to the market and make it as easy as possible to deliver homes, and make it as attractive as possible to build here, despite Brexit.
We have come through a global financial crisis, a recession and the independence referendum. I’m not sure how much more uncertainty the industry can stand.
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