So the Brexit dilemma is to be decided by a general election, probably the most difficult to call in the living memory of most voters. While predicting the outcome and its consequences is really a step too far for a column such as this, it does seem reasonable to consider what the ripple effects will be for the housing market and residential property sector in general.
One of the key selling points of Boris Johnson’s Brexit deal to the ERG hardliners in his own party is that it will end “freedom of movement”, whereby any EU citizen is entitled to live and work (or not work) in any other EU country.
The result, almost inevitably, is that people have been leaving countries where wages are low to live and work in countries where they are high and which (even allowing for additional costs) offer a better standard of living. On a pro rata basis, this influx from the continent has been running at only around half the rate in Scotland as in England yet still has been big enough to have a significant effect on the housing market, albeit mainly in the rental sector.
We deal with a lot of EU immigrants, virtually all of whom are in employment and who – the inevitable few rogues apart – make ideal tenants. If this inflow stops then landlords face not only a drop in demand but also a decrease in good covenants. Such a scenario would lead to lower rents or at least call a halt to rises for a certain spell – good for remaining tenants but not perhaps for landlords now being squeezed by higher taxes.
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On the other hand, Johnson belongs to the “Britain needs immigrants” school of thought and says he intends to replace free movement from the EU with an Australian-type points system whereby people from Europe or elsewhere will have the opportunity to come and work should they have skills our economy requires. For the foreseeable future, in terms of “foreign” trade, what landlords lose on the swings they could gain on the roundabouts.
Boris returned with a working majority gives me a fair idea of the sort of housing environment likely to follow. The effects on the market of a Labour victory, on the other hand, are more difficult to predict.
The first conundrum is Jeremy Corbyn himself. A lifelong opponent of Britain’s EU membership, Corbyn has been persuaded by Blairite elements within the shadow cabinet to commit to a second EU referendum. But, historically, the Labour leader has seen the EU as a businessman’s charter, membership of which holds back any government intent on a massive programme of nationalisation. Will Jeremy be so keen on referendum mark 2 once he has a handle on power?
Should a second referendum take place and “Remain” win then free movement with Europe will continue. This is likely to be compounded by further population growth as Corbyn wants more liberal policies towards asylum-seekers hoping for the right to remain in the UK and to third-world immigration. Initially, the consequent upsurge in demand for housing will be good for private landlords but, without additional infrastructure, not so good for the country in general.
John McDonnell’s idea of giving private tenants the “right to buy” their homes at a discounted market price makes me think that devolving housing to the Scottish Parliament wasn’t such a bad idea after all. But the way responsibility is divided between Holyrood and Westminster means Scotland would not be immune from the Labour proposal to curb tax-free inheritance at a lifetime £125,000.
Such a move would bring most homeowners – if mortgage-free – into the inheritance tax trap and much of the equity built up over several decades, which they hoped would be passed on to their children, will go to the government instead. This would discourage home-buying and act as a disincentive to the development of new houses. As the UK economy is partly reliant on a healthy housing market, inevitably corporation tax receipts will suffer, leading to a massive own goal for any government.
- David Alexander, MD of DJ Alexander