Last month chancellor George Osborne revealed an assessment from the Treasury claiming that house prices could fall by as much as 18 per cent if the UK votes to leave the European Union (EU) on 23 June.
Few in the development industry expect the reality to be this severe, pointing to the fact that the basic supply and demand imbalance for housing will be unaffected by a Brexit, and that mortgage interest rates are expected to stay low to support economic growth. But there is a prevailing view that investment in residential development would be negatively impacted by a Brexit, at least in the short term – and that this would have an impact on planning.
In consultancy KPMG’s survey of international property investors, published last month, two-thirds said they would slow investment in UK property if Britain were to vote Leave, citing the short-to-medium term policy uncertainty that would ensue while the terms of exit are negotiated, and the likely impact on the UK’s wider economic prospects. The managing director of one housebuilder told Planning that his firm would respond to Brexit in the same way it does to the onset of recession - by reining in development.
This is not uncommon among developers and housebuilders, which tend to limit planning applications, slow development on existing schemes, pause starts on sites and stop buying land when recession hits. Andy Pyle, KPMG’s head of real estate, said that the biggest likely impact of a ‘leave’ vote would arguably be the social effect of a UK housebuilding slow-down exacerbating the housing shortage. This battening down of the hatches would also lead to a focus on traditional low-rise housing schemes, which can be built piecemeal, over riskier high-rise flats that require a large proportion of pre-sales - meaning that cities would be harder hit than suburban and rural areas.
Some argue that overseas buyers would rush to capitalise on a Brexit-driven drop in the value of sterling, propping up development activity. Others believe private rented sector investors will step in to any gap created by housebuilders, taking advantage of reduced competition for development land.
But Brexit pessimists counter that even opportunistic overseas buyers will hold off buying until they sense that the bottom of the market has been reached, and that a post-Brexit reduction in the migration of young workers to the UK could hit rental incomes more quickly than sale prices.
If the majority of economic forecasters are correct in predicting that a ‘leave’ vote would reduce UK growth, many developers will have to look again at the viability of their schemes. And as planners know, few will miss a chance to argue down planning contributions. All of which means that councils and the new mayor of London may have a fight on their hands to deliver affordable housing and local infrastructure if the economy dips after a leave vote.
Joey Gardiner is special correspondent for Planning