I’m simply not convinced by the house-price-fall argument.
Tony Ward is chief executive of Clayon Euro Risk
Another day, another barrage of arguments encouraging us either to remain within or leave the European Union. Quite frankly I’m confused by it all: trying to differentiate fact from fiction on either side of the argument is virtually impossible.
And so to the latest rhetorical battleground: house prices.
Apparently Fitch has floated the notion that prices could crash by up to 25% if the decision is to leave the EU. The rating agency said a messy exit characterised by ‘rancorous and protracted’ trade negotiations would fuel market turbulence and risk ‘permanent damage’ to the UK's financial sector. ‘UK homebuilders and residential property companies would be negatively affected by a combination of lower demand for property caused by lower net immigration; higher funding and labour costs; lower available liquidity, and a weakened employment market. Although the severity of the impact would depend on the final terms of the exit and timing of the process, bubble-level prices in some areas could be at risk of dropping significantly’. Fitch estimates that UK house prices are currently up to 25% above 'sustainable' levels in relation to disposable income.
Chancellor George Osborne immediately joined the party, stating that a UK vote to leave the European Union would cause an ‘immediate economic shock’ that would restrict growth in house prices. In the event of Brexit, he claimed, by 2018, houses could be worth up to 18% less than if the UK voted to remain. How those figures have been arrived at I’m unclear but I understand an analysis by HM Treasury will state that two years after a theoretical Brexit, UK house prices could be 10%–18% lower than after a remain vote.
Whatever the outcome of the referendum, I truly believe that over the longer-term house prices will remain largely unaffected. I’ve said before it’s not the result that bothers me so much as the need for a clear and unequivocal decision – an end to uncertainty so businesses will start spending again. I’m simply not convinced by the house-price-fall argument. I’ve argued this before but I’ll say it again: demand continues to outstrip supply and this trend will persist regardless of the decision on 23 June.
Last week, several house building companies reported strong profits on the back of a huge boost in demand for their houses. Countryside reported that the average price of its houses climbed 46% in the six months to the end of March, compared to the same time last year. This won’t change radically. In May I wrote that local authorities had revealed that fewer than 460,000 homes were completed in England during 2011–2014 and the National Housing Federation argued that 974,000 were needed. And so we continue to play catch up.
Of course, there will be short term economic repercussions whatever the outcome of the EU referendum. But it’s my belief that house prices will remain robust.
