So this last week, we found ourselves back at the Devonshires’ annual BBQ at the CIH Conference in Manchester. An opportunity for clients to join us for good food, a lot of drinks and to unwind after a day on the conference floor. However, this year was a little different, it was a little bit more work than play. Not unsurprisingly, as the shock result of the EU Referendum, commonly termed Brexit by the media, was sinking in. That sinking feeling seemed to make its way into every conversation with Brexit being an ice breaker, topic for discussion or punchline. But what does Brexit mean for the industry and is it really that bad?
The EU provides approximately half of the laws in the UK through a mix of primary and secondary legislation and Regulations. Leaving the EU means that we need to fill that void when Parliament revokes EU law. This is enormous task and we may need considerably longer than the timeframe set out in Article 50 which is two years from when notice is given. This naturally leaves to uncertainty and there isn’t anything more that industry dislikes than the unknown. However, this can also be an opportunity for Registered Providers (RP).
Experts predict that there will be a level of adjustment in land prices which have been too high and possibly even inflated by foreign investment. This has in the past deterred RPs from making investments in urban areas such London. That downwards adjustment of land prices is an opportunity for RPs to build more affordable homes where they are most needed alleviating the continued increasing pressure of the housing crisis. For the ordinary person, the adjustment is only a good this because it will mean that buying their first home is more achievable bringing us closer to the Government object of increasing home ownership.
In the shorter term, an immediate consequence of the Brexit vote is the tumbling of the pound which has recovered somewhat in the last few days but has a considerable way to go before it reaches pre-Brexit levels. Costs of construction went up overnight and RPs will review current deals to reassess viability. However, in the longer term the EU deal we walk away with is absolutely key if RPs are to benefit from land prices adjustments. Free movement of labour, trade and services must be retained to ensure that costs of construction are to be kept down. The UK is a net importer from the EU and if the costs of bringing in expertise and materials goes up, this will negate any windfall from the adjustment in land prices.
Finally, the political situation at home, following Brexit, is equally unstable. We have a Conservative leadership election taking place and a leadership crisis in the main opposition. The Conservative manifesto cannot be relied upon as guidance for Government policy and so RPs find themselves paralysed when making long term decisions. Theresa May has already said that Budget surplus is no longer viable and so wider questions must be raised on the future of austerity policies. RPs would welcome its abandonment along with the 1% cap on rent increases. You never know the weekly £350 million might actually see its way to the NHS.
The effects of Brexit are still being felt and undoubtedly there are many more twists to come. Ultimately, RPs opposed Brexit because it created uncertainty and understandably so. Where there is an upshot, there is a corresponding downside linked to unknowns. Coming back to the question of is it really that bad? In the short and medium term, yes; but in the longer term depending on the outcome of the negotiations and procurement policy, we might not be worse off. We’ll just have to wait and see.