Futures Forum: Brexit: and the economy in the South West
But one industry in particular which seems to have hit the rocks is the property and building sector:
Builders, banks and airlines' UK shares hit hardest by the Brexit sell-off with falls of 25% | This is Money
Brexit: Banks and housebuilders lead London's FTSE 100 plunge
UK bank and housebuilder stocks crash amid stock market plunge | City & Business | Finance | Daily Express
Investors Chronicle - Brexit: Property, housebuilders hit
Here is a piece from earlier in the month, predicting problems for the industry - and the impact on planning:
Opinion: A Leave vote could change the shape of our cities
7 June 2016 by Joey Gardiner
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.
Opinion: A Leave vote could change the shape of our cities | Placemaking Resource
And here is an analysis of the situation and possible repercussions from the East Devon Watch blog:
BREXIT, DEVELOPERS, LOCAL PLANS AND DEVOLUTION
25 JUNE 2016
So, we voted out – and suddenly housebuilders (developers) shares plunged by 40%.
There does not seem to be an immediate link with voting out, but there is. We are in for an unstable time. There will be a recession and pundits differ only on whether it will be short (around 2 years) or long (anywhere from 5-20 years depending on who you listen to). House prices will reflect this by falling and mortgage rates may well rise, pushing some into negative equity and others wary of buying in case they fall into negative equity.
Housebuilders will also need to factor in higher import costs coming in the near future when EU trade reduces and new trade agreements have not begun, along with a local skills gap as workers from the EU dry up. Plus likely (possibly temporary)increases in income tax to cover lost government income from (again possibly temporary) shrinking markets. Not to mention higher unemployment benefits to those whose jobs currently depend directly and indirectly on those employers who would normally benefit from being in the EU.
To compound this, many developers have recently taken their huge profits out of their businesses by giving their directors massive bonuses.
All these factors cause a “perfect storm” for Local Plans and the general East Devon economy. Our Local Plan is predicated on continuous growth and increasing employment, fuelling a constant demand for new housing. And, more worryingly, there are penalties if this does not happen. If we (and all other councils) do not maintain a 5-year land supply, we are penalised by having our housing numbers INCREASED by 20%.
Another complication is that, currently, our council (and others) depend for income on the government’s “New Homes Bonus” – the more new homes it gets a developer to build, the more income it gets.
All this conspires to suddenly make our local plans hardly worth the paper they were written on.
Then there is devolution – which in Devon and Somerset also highly depends on housebuilding – having “promised” an extra 176,000 houses over and above Local Plans, and also dependent on continuous growth and constantly increasing employment. It is no coincidence that the Chairman of our Local Enterprise Partnership (LEP: the lead in the devolution bid) is Chairman of big developer, Midas.
Our LEP was also promised “jam tomorrow” funds (over 30 years) from the government AND anticipated masses of EU funding, all riding on the back of a new Hinkley C nuclear power station. All other devolved areas were given similar promises.
Our new government will now have its hands full attempting to negotiate its way out of the EU, rewriting or scrapping those EU laws we have (including those on environmental protection and workers rights) and trying desperately to work out where this notional extra £350 million a week is eventually going to be spent. It has already been promised to the health service, areas currently in receipt of EU regeneration funding and academic research programmes currently supported by EU grants. That is simply an arithmetical nightmare and almost certainly an impossibility.
This leaves East Devon in a precarious position: heavily dependant on new housebuilding and continuous year on year economic growth with constant employment growth and receipt of funds from a distracted government which has also promised to stem immigration – many having voted for this as its first priority. These two priorities will mean little time for other things. Not to mention having to deal at the same time with the implications of Scotland and Northern Ireland’s differing position on their future in the UK and EU.
The Local Plan and devolution deals are now almost certainly of much lower priority to this beleaguered government and this may well lead to unintended consequences the like of which our council and our LEP can only imagine and for which they have no plan B.
Many warned that economic growth and increasing employment between now and 2030, when our local plan ends, was unattainable and that at least one event would intervene for which there was no contingency. Few expected it to happen quite so quickly.
Brexit, developers, local plans and devolution | East Devon Watch
The new political landscape | East Devon Watch
'If you've got money, you vote in ... if you haven't got money, you vote out' | Politics | The Guardian