Will Brexit hit housebuilding? The signs aren't good

Less of that, probably. Image: Getty.

Nobody yet knows whether the decision to leave the EU will lead to an immediate downturn in the housing market. But you don’t have to look hard to see signs.

House builders’ share prices have been among the hardest hit, commercial property funds have suspended trading, REITS (investment products linked to property) are falling in value, housing associations have had credit ratings downgraded and forward indicators of construction activity have nosedived.

Equally importantly, there are signs that sentiment is shifting among home buyers and sellers. Newspapers are starting to run stories about asking prices being slashed. At this stage these reports are just anecdotes, but buyers will read them and think twice before making an offer.

We’ll need to wait weeks, if not months, to get a clear picture, and it may be this is no more than a Brexit blip – but you’d be brave to bet that nothing will change. Parts of the housing market, especially London, were already looking highly overvalued compared to rents. Many analysts have been saying that a price fall is long overdue.


“So what?” you will surely be thinking. “Don’t we need a drop in house prices?”

Well, yes – but it is very important how this happens. It’s much less painful to climb steadily down a ladder than fall off it. The rollercoaster nature of our housing market has big knock-on impacts – especially on the critical issue of building more homes (including affordable ones).

There’s a smart piece of analysis (here’s a PDF) which shows a close relationship between the number of homes sold overall each year and the number of new homes built. Roughly, for every ten homes sold overall, one of them is a new build. A big drop in the number of overall sales translates into a big fall in housing construction.

This matters because, for several reasons.

  • A lot of people are employed in the construction industry.
  • We have a massive housing shortage and can’t afford to build even fewer homes.
  • In particular we need genuinely affordable homes. Many of these are built by private developers, or by housing associations who have an increasingly market dependent building model. Affordable house building would be hit just as hard as market development.
  • In fact, we may end up with the worst of both worlds, as we did following the 2007 financial crisis. House prices won’t fall enough to make much difference to the bulk of people who are priced out, but they’ll fall sufficiently to cause a serious and long-lasting impact to house building. Between 2007 and 2009 house prices in England dipped about 10 per cent but house building collapsed by over 50 per cent (see below).
  • It’s not just the initial shock either. House building takes much longer to recover than it takes house prices to start inflating again. We’re still not building as many homes as we did in 2007, even though house prices are above their 2007 level – especially in London and the South East.

Small fall in prices, big fall in building. Source: ONS House Price Index and DCLG Live Table 244.

So we shouldn’t be too quick to celebrate any Brexit house price dip, even if it does initially make home ownership seem closer for some.

The tough truth is that only way to long term affordability is to sort out the fundamentals in our housing market:

  • Building as many homes as we need each year;
  • Building the right sort of homes, which people can afford to rent or buy.

Sadly, if the signs are true and the housing market is about to take a hit these two simple goals will have got a bit harder.

Pete Jefferys is a policy advisor at Shelter. This post was first published on charity’s blog. 

 
 
 
 

CityMetric is now City Monitor! Come see us at our new home

City Monitor is now live in beta at citymonitor.ai.

CityMetric is now City Monitor, a name that reflects both a ramping up of our ambitions as well as our membership in a network of like-minded publications from New Statesman Media Group. Our new site is now live in beta, so please visit us there going forward. Here’s what CityMetric readers should know about this exciting transition.  

Regular CityMetric readers may have already noticed a few changes around here since the spring. CityMetric’s beloved founding editor, Jonn Elledge, has moved on to some new adventures, and a new team has formed to take the site into the future. It’s led by yours truly – I’m Sommer Mathis, the editor-in-chief of City Monitor. Hello!

My background includes having served as the founding editor of CityLab, editor-in-chief of Atlas Obscura, and editor-in-chief of DCist, a local news publication in the District of Columbia. I’ve been reporting on and writing about cities in one way or another for the past 15 years. To me, there is no more important story in the world right now than how cities are changing and adapting to an increasingly challenging global landscape. The majority of the world’s population lives in cities, and if we’re ever going to be able to tackle the most pressing issues currently facing our planet – the climate emergency, rising inequality, the Covid-19 pandemic ­­­– cities are going to have to lead the way.

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The City Monitor team is made up of some of the most experienced urban policy journalists in the world. Our managing editor is Adam Sneed, also a CityLab alum where he served as a senior associate editor. Before that he was a technology reporter at Politico. Allison Arieff is City Monitor’s senior editor. She was previously editorial director of the urban planning and policy think tank SPUR, as well as a contributing columnist for The New York Times. Staff writer Jake Blumgart most recently covered development, housing and politics for WHYY, the local public radio station in Philadelphia. And our data reporter is Alexandra Kanik, whose previous roles include data reporting for Louisville Public Media in Kentucky and PublicSource in Pittsburgh, Pennsylvania.

Our team will continue to grow in the coming weeks, and we’ll also be collaborating closely with our editorial colleagues across New Statesman Media Group. In fact, we’re launching a whole network of new publications, covering topics such as the clean energy transition, foreign direct investment, technology, banks and more. Many of these sectors will frequently overlap with our cities coverage, and a key part of our plan is make the most of the expertise that all of these newsrooms combined will bring to bear on our journalism.

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Sommer Mathis is editor-in-chief of City Monitor.