Among a series of claims in the Treasury’s short-term Brexit analysis were some quite startling projections about the potential impact on UK house prices. Relative to a vote to remain in the EU, the Treasury’s Brexit scenario estimates that UK house prices will be between 10 to 18% lower by the fiscal year 2017-18.
The first thing to note is that this does not suggest that house prices are set to fall under a Brexit scenario – they’re merely projected to increase at a lower rate. However, it should also be pointed out that the Treasury’s projections are at odds with analysis from independent institutions. The National Association of Estate Agents predicts that by 2018 average prices will be £303,000 if the UK remains in the EU and £300,800 if the UK votes to leave. That’s just a 0.72% difference, which compares to the 10-18% difference projected by the Treasury.
Table 1: Independent House Price Projections
UK Remains in EU
UK Leaves the EU
Source: National Association of Estate Agents
Table 2: Difference between Brexit & Remain scenarios on average house prices (2018)
HM Treasury estimates
-10% to -18%
Source: HM Treasury & National Association of Estate Agents
Independent analysis suggests that there could be both positive and negative effects from Brexit in relation to the housing market. The Ratings Agency Moody’s suggests that first-time buyers would benefit from lower competition for housing, as house price and rental inflation would slow down if immigration was curbed. On the flip side, there are concerns about a Brexit leading to a reduced construction workforce, which could slow the pace of housing delivery. A shortage of construction skills is a major issue in the UK, with 42% of building contractors reporting recruitment difficulties in the past few months.
The relative impact of the positive and negative impacts of Brexit on the UK’s housing market is hard to quantify. However, the Treasury’s forecasts about the short-term impact on house prices seem to be wildly exaggerated and an unnecessary distraction from the very real problems facing the UK’s housing market. It also, incidentally, poses real questions about the credibility of the Treasury’s other Brexit forecasts.
In the longer term, the impact on house prices arising from a Brexit may well be considerable. However, regardless of the EU referendum result, tackling the current undersupply of homes across the UK is what really matters. This includes reforms to the UK’s planning system and boosting apprenticeships in construction – as highlighted in the Centre for Policy Studies economic bulletin “What’s behind the housing crisis?”. These are the real issues currently facing the UK’s housing market, not the prospect of a Brexit.