Last week the UK government revealed 84 sectors which it identified as ‘at risk’ in the event of a no-deal Brexit. An illuminating glimpse into the reality of the Brexit negotiations, the list featured a couple of curve balls, with Financial Services making a surprise appearance while Construction wasn’t featured – a positive sign for our industry. The first batch of the ‘impact papers’ are due today and are expected to detail the immediate government actions in the event of a no-deal Brexit for key areas such as the NHS, Financial Services and the Erasmus scheme.
The exclusion of the UK property sector — and Construction in particular — was a surprise to many. Recent findings by the Construction Industry Training Board (CITB) suggest that one-in-three construction firms are already suffering . Our own in-house research, undertaken following Mark Carney’s frank warning that the Bank of England was modelling possible no-deal Brexit scenarios, had suggested that the Construction Industry could struggle if the government failed agree a deal. Not least because 8% of the UK construction workforce are EU nationals; a disproportionately higher number than the 5% of EU nationals that currently make up the UK population.
Even with freedom of movement, the Construction sector has felt the impact of a skills shortage. Closing the borders or making it harder to hire foreign nationals will only amplify the problem. A recent report by The Centre for Cities thinktank advocated extending freedom of movement for two years beyond the 29 March 2019 deadline. This would certainly help avoid losing skilled workers already here, something the CITB has identified as a major concern for employers in the industry. Of course, a stay of any length is a short-term measure and is unlikely to increase the attractiveness of working in the UK for EU construction workers, especially if sterling continues to plummet. At the time of writing, GBP was at record lows against both the Euro and the Dollar thanks in part to Brexit uncertainty and the possibility of a no-deal.
With the likely escalation of the current skills shortage comes the inevitable increase in labour costs – particularly if we’re competing with the Eurozone for skilled workers. This, coupled with yet unknown tariffs on European building materials, could put increasing pressure on developer margins. The UK currently imports 64% of building materials from the EU and exports 63%. There are a number of trade issues which reverting to WTO rules (the default if a deal isn’t reached) wouldn’t solve, such as moving goods between the UK and EU countries. A no-deal Brexit could well impose limitations on imports and exports – even if only temporarily – that could result in anything from increased build costs to a shortage of materials. In this case, the government’s target to built 300,000 houses a year would certainly become less attainable.
In the markets, Brexit uncertainty and a weakened currency has seen foreign investment in London commercial property soar. Bloomberg reports that foreign investors spent £5.6 billion on London offices in the first six months of the year, pushing the City into top spot for overseas investment in H1, beating Hong Kong Island CBD, Paris, Manhattan, and Frankfurt by a significant margin.
For homebuyers, a no-deal Brexit will likely keep a degree of uncertainty within the property market for a longer period of time. However, the government will still have the opportunity to settle on a deal with the EU in the coming months and years after Brexit, and this is what most homebuyers will be looking for to improve market sentiment.
In short, the government’s identification of the 84 sectors most at risk in a no-deal scenario and the pending publication of the guidelines needed to ensure that those industries can survive is encouraging. However, a no-deal outcome has wide reaching implications for many sectors and, whilst it is not desirable, Westminster and Brussels still have time in the coming months to work out a deal.