What does Brexit mean for the UK’s property and construction industries?
Jerald Solis, Business Development and Acquisitions Director, Experience Invest
The countdown to 29 March 2019 – the date the UK officially leaves the EU – is ticking away, yet the political deadlock in Westminster has meant that a Brexit deal is still no closer to being agreed. This continued uncertainty has led to some modest – if at times gloomy – projections concerning the future of the UK property market.
However, when it comes to the construction industry, activity is far from stagnating – in fact new-build developments are on the rise in some of the UK’s key regional hotspots. What’s more, the current climate of uncertainty appears to have done little to push people away from real estate investment. Demand for housing has remained consistently strong, and with the country facing a national housing shortage, the construction industry is under pressure to increase the number of new-builds on the market.
Indeed, as the Government diverts more attention to national housebuilding efforts – having pledged to put 300,000 new homes on the market each year by the mid-2020s– the flurry of activity within regional hotspots has opened new opportunities for developers and construction firms.
But what impact could Brexit have on the UK’s property sector as a whole? And more specifically, how could the country’s departure from the EU present new challenges to the construction industry?
The impact of a no-deal on property prices
With the prospect of a ‘no-deal’ Brexit becoming an increasing probability, what impact would this particular scenario have on property prices?
In light of recent trends, the UK property market looks in good shape to overcome the hurdles that lie ahead. While admittedly we have witnessed a period of subdued growth in London, this certainly is not a reflection of the entire market. According to Halifax’s House Price Index, last year house prices increased by 1.3% despite slow developments towards a Brexit deal.
Meanwhile, demand for property in the Midlands and North of England has offset falls in activity within the capital, with cities like Leicester and Liverpool for instance seeing impressive house price growth of 7.7% and 6.0% respectively, according to Hometrack’s UK Cities House Price Index.
Foreign investment into UK property
Since the EU referendum in June 2016, the pound has been on a downward trajectory. As a result, interest from foreign investors for UK real estate remains high, particularly at the top end of the market.
With overseas investors seeking to take advantage of the weaker pound, high-end properties continue to sell well. In fact, prime property sales actually appear to have been fuelled by the EU referendum, with new figures from the HMRC revealing that there was a 50% spike in the number of UK homes sold for over £10 million in the year following the Brexit vote.
Benefitting from high levels of foreign and domestic investment activity, regional markets like the Midlands are similarly becoming key hotspots of activity for the construction sector. Last year, EY’s 2018 Attractiveness Survey revealed that this region recorded its highest number of Foreign Direct Investment projects in the last decade.
The fate of the construction industry post-Brexit
There is a pressing need for more residential properties to be built across the UK. Simply put, there are not enough houses and flats to meet the demand of both renters and buyers.
As mentioned at the start of this piece, the Government has set a target of adding 300,000 new homes to the market each year by the time 2023 arrives. Whether this target can be achieved remains to be seen, and Brexit could present some new challenges to this.
For one, the UK’s construction sector is reliant on a large number of EU nationals. If the country cannot continue to attract such workers – many of whom are highly skilled and experienced within property building – then the task of developing new residential sites could prove difficult.
To ensure that the industry is ready to support the nation’s housing needs, it’s important that more attention and resources are directed towards supporting the skills needed to deliver housebuilding. When we consider the challenges posed by Brexit, the potential of a skills shortage serves to be one of greatest issues facing the construction industry.
One worthwhile solution for developers is to work in partnership with local councils to create and support construction apprenticeships; giving workers the valuable opportunity of developing their skills and experience, while at the same time ensuring the construction industry has a workforce capable of meeting the demand for new-build developments.
Another solution is for the Government to ensure that construction workers currently based in the UK are able to remain in the country. Furthermore, it can provide assurances that it will not be excessively difficult for other workers to still come from overseas to ply their trade in the construction sector.
Looking to the coming 12 months
As we prepare for what Brexit – deal or no deal – could mean for the property market, it is imperative that the Government meets its own targets when it comes to increasing housing output through new-build developments. The housing shortage continues to present one of the biggest challenges for UK society, and the construction industry has a vital role to play – the sector must be nurtured carefully over the coming months.