A referendum on Britain’s continued membership of the European Union seems far removed from the UK housing market and whether or not an individual decides to buy or sell.
This is the view of analyst Anthony Codling, of the broker Jefferies, who believes that whichever way Britain votes on June 23, build rates will not slow, nor will demand for new homes wane.
The referendum “doesn’t move the needle”, he said. “To the average man on the street, [Brexit] makes no difference. Whether I want to move house or have another child makes no difference in or out of Europe.”
This is not to say that Mr Codling is not sensitive to political risk. He downgraded the entire residential property sector (including Persimmon, Rightmove and Countrywide) in January 2015 and forecast a weak year ahead, citing uncertainty around the general election as one of the factors that would dampen demand.
But some in the City do fear the possibility of Brexit, thinking it will shake an already jittery housing market. In January, one US investment bank gave a presentation to UK fund managers.
The overall message was that Brexit would spell prolonged uncertainty for investors and developers in the housing sector, which could hamper new building and therefore prop up prices, which on average in the UK jumped nearly 10pc in 2015 (according to the Halifax).
“We were told: ‘The EU is not set up to have members leave and could make the exit process very difficult,’ ” one fund manager said.
The investment bank refused to comment on the presentation.
Uncertainty to plague the market
Across town, in Mayfair, Mark Preston, the elect executive trustee of the Grosvenor Group, is opposed to the very act of holding the public vote. “We absolutely should not be having a referendum – it shows an extraordinary lack of spine on behalf of our politicians,” he told The Daily Telegraph.
“We vote in our leaders to be ideologically convinced and we’re risking [instability] – like they did with Scotland, which was equally idiotic – asking for an emotional vote based on the news the week before. “It’s the uncertainty that will cause the most damage,” he added.
Guy Grainger, chief executive of property agents JLL, said before the election last year that a Conservative victory – and therefore a public referendum on Britain’s membership of the EU, could be a threat to the property industry and big business. At the time, he said that he had never before seen a pre-election build-up in which “business is as nervous about a Conservative win”.
Savills, the estate agency, warned in its recent results that the UK residential and commercial investment markets were “subdued” in the run-up to the EU referendum. The Royal Institution of Chartered Surveyors added to this chorus, saying that the referendum could bring “a degree of uncertainty for buyers that may negatively affect some elements of the market”.
Traditionally, general elections tend to have a somewhat paralysing effect on house sales, particularly in the luxury market in London, as buyers weigh up whether to buy investment properties, rather than simply moving for more space. Last year’s election was a particular nail-biter, as it raised the threat of Labour’s mansion tax.
Research from Hamptons International and Jefferies has shown that transactions slow ahead of a general election, to be followed by a price spike at the time of the vote and in the following six months.
And that’s if the outcome provides stability – not something that is a given in the case of a Brexit.
The analysis also showed that on average, prices 12 months before an election are 4.9pc lower,while 12 months afterwards they are 8.6pc higher.
This is usually attributed to a release of pent-up demand but in this case, if the uncertainty of life post-Brexit hit investor and buyer confidence, stifling supply, house prices could be pushed up further.
The Scottish referendum
The nearest point of reference is the Scottish referendum, which hit the market, particularly at the luxury end. Volumes of Scottish property sales in August 2014, the month before the referendum, were 8pc below the typical seasonal trend.
Mark Granger, chief executive of property consultants Carter Jonas, said: “As we saw before the referendum on Scottish independence, many occupiers and investors delayed their decision-making. We expect a similar ‘wait-and-see’ approach as the EU referendum draws near, which could impact on sentiment and activity.”
A recent note by Knight Frank warned that “experience from the 2014 Scottish referendum shows that we ought to expect a slowdown in housing market activity as we get closer to the polling date.”
However, Richard Donnell, research director at Hometrack, said that this short window “is likely to cause less disruption than the longer campaign in Scotland, where the debate focused on the likely consequences for jobs and the Scottish economy”.
He added: “The question is whether the whole of the UK will be as engaged as we saw in Scotland. It might not be as large, but there will be an impact, especially combined with changes to stamp duty for buy-to-let landlords in the Budget.”
Johnny Morris, research director at the estate agency Countrywide, agreed. “Although the run-up to the referendum doesn’t feel short, it is in terms of the housing market: the average home takes six months from instruction to completion. “It’s not going to be like a general election, when you see a big impact on the housing market.”
Another blow to luxury London
Uncertainty over the referendum and a vote for Brexit looms largest over central London. And it is not just about the number of sales, but also supply and the confidence that developers have to invest in the market that may be under threat. There are already fears that the massive pipeline of swanky apartment blocks is over catering for a subdued market place.
A survey by KPMG earlier in the year found that 66pc of real estate experts thought that Brexit would have a negative impact on investment coming into the country, suggesting the view of the UK as a safe haven could take a hit.
Added to that, the stamp duty measures in the Budget that hurt institutional landlords; many in the industry thought this might stymie the nascent institutional private rental sector.
According to Knight Frank, 49pc of investors in central London property are foreign. Berkeley Group’s managing director, Rob Perrins, said that he was concerned that Brexit could deter inward investment into London. “We must remain connected to Europe in order to remain influential – the city is so much better off within the EU than out of it.”
Randeesh Sandhu, chief executive of Urban Exposure, a residential development finance provider, said that a Brexit may affect investment in the high-end market, as well as the private rental sector. “Uncertainty will affect capital flows into the UK. A lot of developments are funded by overseas capital, and some of that might want to watch and see how the markets play out before they invest.”
Mr Grainger, of JLL, said last week that even if there is a “remain” vote, his company anticipates UK real estate investment volumes “could still fall in 2016 due to uncertainty pre-referendum”. However, some of the pent-up demand could be deferred to the end of 2016, when there could be a surge.
Exacerbating the supply crisis
Tony Pidgley, chairman of the high-end builder Berkeley Group, says the supply crisis could be exacerbated by Brexit. He believes a “leave” would affect the FTSE 100 company adversely, due to the large number of EU workers in its supply chain.
He said: “I’m very British and I believe in Britain and I like to buy British. But 50pc of our 14,000 subbies [subcontractors] are from Eastern Europe. [Brexit] would make a massive difference.”
Another chief executive of a FTSE 250-listed property company told The Daily Telegraph that it would hit the sector hard because it would intensify the already-troubling skills shortage.
Hansen Lu, an economist at Capital Economics said: “Admittedly, according to the 2011 census, only around 10pc of those working in construction were foreign born, although given post- crisis labour trends, that figure might be closer to 12pc now.
“Yet given that it takes years to train skilled tradesmen, immigration reflects the easiest route to meeting the current labour shortage. Thus, if it compounded existing labour shortages, Brexit could have a lasting, dampening effect on housing starts.”
Mr Codling agreed. “If we vote to leave, and if the UK exchange rate weakens, there’s less benefit for overseas workers being here and they would leave the UK. So we could see a reduction in skilled labour which, if it was constricted more, we could see upward pressure on house prices.”
However, this could conversely have a positive effect on sales of luxury properties, which have come to a standstill. Mr Sandhu said: “The depreciation in sterling, which is already happening, will mean that international investors can buy British property cheaper. That influx could make up for the investor money that is playing wait-and-see.”
The majority of property commentators seem to feel that the anxiety leading up to the referendum and any Brexit uncertainty would be short-lived, or merely a headwind. But with interest rates potentially rising as early as next January, and the stifled luxury market, the question really is, at what point does a series of headwinds whip up into a gale?