EU Referendum – In or Out
Politics, we all love politics and with the looming referendum I thought that today we could take a look with a post on the EU Referendum – In or Out from a Property Perspective.
Brexit or Bremain has been hotly debated in the run up to the referendum and i am going to state now that this blog post is looking at what could happen to the property market for each scenario, and it in no way reflects my own political views.
- Savills, a real estate services provider, estimates that in 2013/14 68% of buyers in the prime London market were UK nationals. respectively, 16.5% were to nationals of European countries.
- Based on the Office for National Statistics’ projections, under the low migration scenario (which becomes more likely following Brexit) the population of the UK would be smaller by 1.06 million people in 10 years compared to the principal forecast. Lower immigration would mean less people looking for accommodation which would reduce the demand for housing.
- Brexit would also impact the supply side of the property market. The construction sector is already facing skill shortages and 4.7% of the UK’s construction work force was born in another EU country.
- The UK’s membership in the EU gives the country status as a ‘gateway to Europe’. This has a direct impact on the property market: for commercial property, the substantial presence of foreign firms boosts demand. For residential property, demand is impacted by the large number of foreign staff that relocate to the UK as part of their firms’ involvement in the country.
- Should the UK remain in the EU we expect the average UK home to cost £303,000 by 2018. This compares to £290,800 in 2017 and £278,500 in 2016. Under the Brexit scenario we expect the average UK home price to stand at £277,600, £288,900 and £300,800 in 2016, 2017 and 2018 respectively.
- Under the Bremain scenario we expect the average London house price to stand at £536,000, £564,500 and £599,200 in 2016, 2017 and 2018 respectively. Under the Brexit scenario we expect prices of £533,700, £559,300 and £591,700 respectively.
- The impact of Brexit on the rental market would be minimal in the first 2-3 years following the referendum. However, country-wide rents could be impacted more severely in the long term. UK residents born in other EU countries are far more likely to be private renters. Therefore if fewer EU nationals move to the UK in the long term there may be a more noticeable impact on demand levels.
In looking at the key facts the first items that become apparent is the change in house prices for either the in campaign or out campaign, which in itself is a mixed bag. Yes we do need to make more homes available to first time buyers, however should this impact people that already own property? Looking at the impact of rents if the Brexit campaign there could be in the long term more properties available and empty for a longer period of time, this could of course cause the rental price to drop. There are also many other factors to consider following the EU Referendum including and probably the most deciding factor will be immigration control that will also effect the property market as a whole.
Did you know?
- In the 12 months to June 2013, 1 in 6 buyers of Prime London property were from Europe, this is huge 16.5% the closest country to this is Russia with 9.1%
- The long term impacts on the property market should the UK leave the EU depend on a range of factors such as foreign direct investment and the reached labour migration agreements. These longer term impacts are essentially impossible to forecast because so much is still unknown about the UK’s future outside of the EU.
- London has by far the highest share of EU nationals. At the time of the 2011 census, 8.7% of the capital’s residents were born in other EU countries, compared to a 3.6% country-wide average. The South West on this scale comes in just under 3%
- Lower immigration would weaken property demand
- 4.7% of the UK’s construction work force was born in another EU country.
Worryingly the construction work force still has a skill shortage and data from apprenticeships shows that less young people are taking up these vital skills for the housing market, which in the long term will mean that the UK has to rely on Foreign Workers to fill these gaps. Finally the UK status as a gateway to Europe encourages Foreign Direct Investment (FDI). In 2014, the latest year for which official data are available, £5.3bn of FDI came into the UK from EU sources. This represented 19% of the total inflow amount. The UK’s membership in the EU gives the country status as a ‘gateway to Europe’. In other words, many foreign investors looking to establish and/or grow their presence in the UK do so because they want access to the single market. If the country was no longer a part of that single market, a portion of FDI would be redirected toward countries that are. This has a direct impact on the property market. For commercial property, the substantial presence of foreign firms boosts demand. For residential property, demand is impacted by the large number of foreign staff that relocate to the UK as part of their firms’ involvement in the country.
What does it mean?
Almost any major source of political or economic uncertainty has the potential to dampen housing market sentiment as buyers postpone or give up on purchases until the source of uncertainty passes. Evidence of this is already visible in the Royal Institution of Chartered Surveyors (RICS) data. If the UK was to leave the EU in an unprecedented move following the EU Referendum, it would take some time to clarify the country’s migration laws, international trade agreements as well as other aspects of the economic landscape. This would lead to transaction number and price declines, common in periods of uncertainty. Because the period of uncertainty extends not only to the date of the EU referendum, but may, in the event of an ‘out’ vote, last for much longer. Additionally, while election uncertainty usually impacts the entire country, Brexit property uncertainty is largely concentrated in London. Full report is here.
Regardless of which way you are looking to vote on Thursday 23rd June 2016, you can see from the reports and figures that there really is no way of knowing what will happen following the EU Referendum. One thing is certain and that is that the result of this referendum will present some interesting challenges to both investor landlords and tenants alike. However if you would like to chat about the current political situation or about anything else property related, then please don’t hesitate to email me firstname.lastname@example.org or give me a ring on 01803 472595