Housing Crisis & the Brexit cure-all

After immigration, house prices proved to be an extremely popular reason for voting to leave the EU. The question now is whether the Brexit rhetoric reflects reality.

In May 2016 the European Commission warned that first-time buyers were being hit particularly hard, with official projections saying the UK needed at least 220,000 new houses a year. The Commission ordered Britain to ‘take further steps to boost housing supply’. This warning from the EU became election fodder for the Leave campaigners, bringing the housing crisis into the EU referendum. Cabinet Minister and Leave campaigner Chris Grayling said the ‘nature and character’ of Britain would be changed for ever if we agree to concrete over the country. He also said: 

"What we have is the EU telling us we are not building enough houses and yet telling us also that we have to accept unlimited migration from elsewhere in the European Union."

Serving to further fuel the housing crisis argument for Brexit, credit ratings agency Fitch projected that house prices could decrease between 8 %-25% in the event of a Brexit and concluded that:

"UK house prices are currently up to 25% above 'sustainable' levels in relation to disposable income.”

The suggestion subsequently made by Leave campaigners was that a crash in the housing market would actually bring house prices back to a more affordable level for first-time buyers. These two arguments, that less immigration would increase supply and a decline in the housing market would lower prices, unsurprisingly made traction in both the media and the public. The hugely effective media campaign by Leave utilised figure after figure to support the notion that Brexit was a cure-all for the Housing Crisis. The Leave campaign estimated that if the EU allows in five new member states - Turkey, Macedonia, Montenegro, Albania and Serbia - at least 2.5 million new homes would be needed to house them, and that the extra homes would require as much as 161,000 hectares of the green belt. 

A row of estate agent boards in London | Oli Scarff/Getty

A row of estate agent boards in London | Oli Scarff/Getty

As the dust begins to settle on the referendum, we are able to look more objectively about these claims which proved so popular. 

Firstly, if Brexit does lead to an economic crisis, restricted mortgage lending and job losses, it will affect young people the most. So even if prices fall, affordability will not necessarily improve for those that need it the most. 

The aforementioned projection from Fitch in the event of Brexit can be interpreted differently too. For example, if house prices did fall by 25% this would suggest a collapse in the overall economy, meaning higher unemployment and lower salaries - not making housing any more affordable relative to income.

Reducing demand is only half of the issue, whether by decreasing immigration or otherwise. Supply, as widely established, has lagged behind for many years. The Government pledged last year to build one million homes by 2020 but it’s way behind their target. 

Since the EU referendum,  17 of the UK’s biggest house builders have said that ‘investment will suffer as confidence in the economy wavers’, making it harder to raise funds necessary to improve housing supply. 

Fatefully, this links back to the European Commission’s warning in May 2016, which provided the Leave campaign their housing crisis message - in order to support first-time buyers, the UK needs to take further steps to boost housing supply. If these words aren’t heeded, the housing crisis will continue to resonate amongst voters and be subject to political point-scoring.

 

This article was written by Account Executive Oliver Pearce.