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Brexit vote: one year on

A year after Britain’s vote to leave the EU, Carl Brown finds out whether Brexit is really having the dramatic consequences expected

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The immediate headlines for housing following Britain’s vote to leave the European Union (EU) last June were gloomy to say the least. “Cloud hanging over development plans”, “Associations warned over house price exposure”, “Millions wiped off house builder shares”. These were just some of the eye-catching stories published in Inside Housing in the aftermath of the referendum.

Social landlords warned that uncertainty around Brexit would hold up development, make financing unaffordable, and impact on supply chains as well as the importing of building materials. Credit agencies, the European Investment Bank and commercial house builders also warned of the dire consequences of Brexit, while three-quarters of 51 sector chief executives said they thought the overall impact would be negative.


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A year on, has this sentiment changed? Has there been any softening in the sector’s apparent antipathy towards Brexit? To gauge the current feeling we polled chief executives of housing associations and arm’s-length management organisations (ALMOs), as well as council housing bosses, receiving responses from 88 of these sector leaders.

Using their responses and speaking to a range of sector experts and bodies has made it possible to build up a picture of how the sector is now feeling about Brexit on the first anniversary of the historic vote.

We asked about both the short-term impacts in the aftermath of the vote, some of which are already starting to be felt, and the potential longer-term effects of the UK’s departure from the EU.

Turning to the former, the cost of building materials is by far the most cited, with more than a third of landlords (26 out of 64 who responded to the question) saying it is the most important issue they face.

The result tallies with a warning issued by the Federation of Master Builders earlier this year that a drop in the value of the pound post-Brexit had pushed up materials costs (due to more expensive imports) for two-thirds of builders. This feeds into wider, longer-term concerns about inflation, more of which later.

Nine landlords say an overall negative impact on the economy is their leading concern, while five mention falling house prices.

However, despite some short-term worries, it seems like housing providers are braving the weather. When asked if they have changed their business plan since the EU vote, the vast majority (72 out of 86) said they had not. The bigger players are showing the most resilience, with no chief executive whose organisation owns more than 30,000 homes answering ‘yes’ to the question.

Three smaller organisations confirm they have altered their business plans amid fears of cost inflation.

When it comes to building homes, landlords are even more steadfast. Only nine out of 86 leaders say they have changed their development plan post-referendum. Of these, two say they are likely to reduce open market sale or halt investment in new private rented sector sites until the longer-term picture becomes clearer.

David Montague, chief executive of 90,000-home L&Q, points out that bond prices and borrowing costs fell in the Brexit aftermath following what he terms a “flight for security” by investors in an uncertain market. However, Mr Montague warns the same investors “could change their mind” if the government does not have a “clear plan for investment and growth”.

So if the immediate impact of the vote is not sufficiently serious to halt development on any major scale or radically change business planning, it could be more instructive to examine landlords’ concerns about what may happen further down the line.

An overall negative impact on the economy between now and when we leave the EU is the most important consequence expected by 30 leaders. A total of 42 bosses cite a hit on the economy as the most pressing matter once Brexit actually happens.

“The social purpose of building homes is important to us, but survival is more important still.”

Keith Exford, chief executive, Clarion

Inflation also seems to be a significant concern among the sector, with 20 landlords expecting building costs to rise further over the next two years.

Keith Exford, chief executive of Clarion, says cost uncertainty could “slow down” the 125,000-home landlord’s development plans.

“The social purpose of building homes is important to us, but survival is more important still. If the core business of looking after existing tenants and maintaining properties is put at risk, the obvious thing for us to do would be to slow our development programme.”

For ALMOs which have had their management fee frozen by cash-strapped councils, a steep rise in inflation could also pose a serious headache. “If management fee freezes continue and inflation goes up as expected, ALMOs will have to pay staff more or struggle to recruit,” explains Eamon McGoldrick, managing director of the National Federation of ALMOs. “If they pay more they will have to trim back elsewhere.”

Getting the staff

Aside from the more general fears about a faltering economy, sector figures are also concerned about a shortage of labour, with 14 of those surveyed picking it as the biggest impact of Brexit.

Mr Montague warns that if immigration rules restrict the pool of workers, labour costs will rise. Henry Gregg, member relations director at the National Housing Federation (NHF), backs up this view, saying there is already a problem with the construction industry struggling to recruit younger, skilled workers.

The Royal Institution of Chartered Surveyors in March said 200,000 EU construction workers could leave the UK in the event of a ‘hard’ Brexit.

Angela Lockwood, deputy chair of Placeshapers, says house builders in the North East “are already feeling the lack of bricklayers, as we see people heading home early ahead of any decision about EU workers”.

Ms Lockwood says Brexit could lead to providers having to pay more to attract care workers, which could influence “stretched social care budgets”.

In response to these concerns the NHF will attempt to convince ministers that immigration rules should not unduly restrict workers.

“We are providing evidence to show what the potential impact would be of changing rules around workers in social care and construction,” adds Mr Gregg.

“[House buliders] are already feeling the lack of bricklayers, as we see people heading home early ahead of any decision about EU workers”.

Angela Lockwood, deputy chair, Placeshapers

Clarion’s Mr Exford says associations are also talking to the government about how the apprenticeship levy - paid by companies with a turnover of £3m or more to fund training - could be used to attract people into the industry. Mr Montague cites L&Q’s £5m-a-year investment in a construction academy as an example of how his organisation is helping tackle the skills crisis.

Recruitment issues

Concerns around recruitment could have another effect, according to Robert Grundy, head of housing at Savills, who believes they are “pushing the sector into offsite manufacturing of homes”, which does not require as much skilled labour and could be attractive to prospective employees who prefer to work indoors.

While recruitment appears to be a major concern, landlords seem confident the sector can still attract finance at a reasonable rate in a post-Brexit world.

Mr Grundy says: “There is no shortage of people who want to invest in affordable housing; our experience is that there are more investors than there is product to invest in.”

However, Mr Gregg points out that it is unclear whether the European Investment Bank, which has provided £4bn of investment in social housing over 10 years, will continue to invest post-Brexit.

Piers Williamson, chief executive of The Housing Finance Corporation, in March wrote that it is “unlikely” that Brexit uncertainty “will impact on the availability of private finance for housing associations”.

Nevertheless, these concerns together mean that more leaders think they will have to change their plans post-Brexit than those who have already changed their plans since the vote. A total of 37 out of 85 respondents think they will have to change their business plan post-Brexit, while 30 out of 87 think they will have to change their development plans.

“Our experience is that there are more investors than there is product to invest in.”

Robert Grundy, head of housing, Savills

What sector leaders do not expect to see is a reduction in demand for social housing. A total of 65 out of 88 bosses say they don’t expect demand to fall, as EU migrants tend to live in the private rented sector.

As one respondent puts it: “Most of the publicity… has been wrongly laid at the door of migrants getting priority for social housing. This is hysterical and fake media news.”

One thing most of the people who speak to Inside Housing agree on is that Brexit will dominate the legislative agenda of the new government. Whether this is a good thing or not is debatable.

Tracy Harrison, deputy chief executive of the Northern Housing Consortium, says: “We would get some stability over policy but it’s going to make it difficult to get anything on housing pushed through.” For Mr Montague, this presents an opportunity: if the government cannot make housing a priority, it could instead “give associations the ability to deliver” by loosening rent-setting rules.

Bigger problems

While ministers may be too distracted by Brexit to focus on housing, the housing sector is arguably too tied up with more immediate, concrete problems to think too hard about undefined Brexit-related risks in the future.

Several respondents say that with the rent cut, the Local Housing Allowance (LHA) cap, the post-2020 rent settlement and Universal Credit, associations have far more to keep them awake at night than Brexit. One council respondent goes as far as to describe the UK’s relationship with the EU as a “sideshow”.

They add: “We could deliver more if Housing Revenue Account caps were raised, our future rents were agreed and higher-value council home sales were dropped.”

This could explain why half of respondents (42 out of 84) say Brexit will make “little difference” to the delivery of affordable housing.

It’s worth noting, though, that just three leaders out of 84 think Brexit will make it easier to build affordable homes and just seven out of 83 think Brexit will be positive for their organisation.

Sector figures told Inside Housing that the potential scrapping of EU procurement rules, under which social landlords have to advertise tenders to the whole of the EU, could save time and resources. However, Ms Harrison says it is likely there would be another process put in its place to promote transparency.

So has Brexit opposition softened? It would appear not. When housing association chief executives are asked how they would vote if the referendum was held again tomorrow, 51 say ‘remain’ and six say ‘leave’.

The overall picture is of a sector that is far from thrilled about Brexit and is concerned it could pose serious problems further down the line, particularly around labour shortages and extra costs. However, a majority of landlords do not think they will have to change their business or development plans as a result.

With so many other issues on the immediate horizon, including the rent settlement, the LHA cap and Universal Credit, sector leaders can be forgiven if they don’t think Brexit is a priority. For now.

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