13 Mar Brexit and housing
We now live in a post Brexit world
It’s been a few months now since we all woke up to a result that has shaken the world.
While it’s not the result I wanted, the reality is that it’s happened and I am an eternal optimist, (you have to be if you are an entrepreneur trying to disrupt the housing industry and the status quo). As with any crisis there are challenges ahead, but also opportunities.
All the challenges can be summarised in one word: uncertainty. Watching the news yesterday, I heard a politician (who was pro-Brexit) use the words uncertainty about 10 times in the space of 2 minutes. The impact of uncertainty is two-fold: first, a drop in confidence and second a period of inactivity. On one hand, nothing in the housing industry has actually changed. By that I mean that we have not triggered the infamous article 50, and so as of today, we are exactly the same as we were 3 weeks ago. The fundamentals remain that we have over demand and under supply in housing, London remains a strong commercial centre and there is heavy inward population movement to drive economic growth.
But of course, on the ground, everything has changed. The political landscape is completely different with a new PM and a possible new leader of the opposition, a resurgence of protest politics and a probable general election on the cards at some time over the upcoming months. People have realised that we live in a country of two halves – the haves and the have nots. The have nots clearly voted for change – change is scary – but it can’t be worse than what we have now!
No-one knows what is happening or what will happen and this affects people in different ways. There are three broad groups of people in the housing industry:
First, there are the investors, who see property as a commodity and are seeking a purely financial return. When times are uncertain, it’s not clear whether investing now will be a good or a bad thing, and so they are playing a ‘wait and see’ game. The problem here is that if everyone waits and sees, nothing actually happens. If buyers stop buying, sellers take property off the market, and so the buyers who want the property can’t buy it. This stops the market moving and the danger is that if people really want to sell to move out of an area, or downsize or move for whatever reason, they will have to price the property low enough to entice buyers enough to get them off the uncertainty fence and to part with their money.
Investors are generally nervous of doing something against the common wisdom, so if everyone is waiting around, they also do nothing. I’ve spoken to several investors since Brexit and all of them are waiting. I’m not sure exactly what they’re waiting for, and probably nor are they. However, at some point in the future, people will feel like they can begin to see the landscape through the fog, and will then have enough confidence to make a decision.
The second group are the consumers who are currently buying homes for themselves (the owner-occupiers). On the whole, we are seeing most of these people are continuing with their purchase if it is practical to do so (i.e. one purchaser may be relocated as a result of Brexit). They are taking the view that they are buying a home for the long-term and therefore are not affected by short-term changes in market sentiment. They are buying because they have a reason to do so and have the confidence. To this group of people, a home is not just an investment, it’s also a place to enjoy and live in and provide a place to put roots down into the local community.
The third and final group are owner-occupiers who wish to buy a home at some point in the future. We have seen that the urgency has come out of the market, and so while we are still getting enquiries, a lot of people are looking at the fog and waiting for it to clear.
Challenges for self-build and custom build?
Well generally, the challenges will come around financing. Given the cost of housing and the cost of building homes, financing is very important. Very few of us can finance the entire build from cash, so we tend to be reliant on selling our existing home or taking out a mortgage. If bank lending tightens up like it did in 2008, the system may jam up. In 2007 we saw about 1.5m transactions in the property market, in 2008 that dropped to less than 500,000. The economy, especially the housing market, needs money to lubricate the moving parts and keep everything moving to create both buyers and sellers. We are yet to see what banks are likely to do, but pre-Brexit the Government was getting ready to launch a scheme to lend up to £2bn to small and medium sized developers (including custom builders and community groups). It will be very important that they continue with that plan. The economy needs that money more than ever now.
On a more granular level for self-builders or custom builders, personal financing will be the key to a successful project and it would be wise to organise and plan it early. If financing will require the sale of an existing home, then that should be done with time in hand. It would be wise to have cash in the bank rather than equity in your home.
However, it’s not all doom and gloom. Amongst these challenges also lie opportunities. For self-build and custom build – the most obvious opportunity will be around land for sale. We are already seeing land being reduced in price and we think that a jammed up system will also mean that land-owners cannot rely on the standard developers and must look at other people to sell to. This is where self-builders or custom builders may offer a great alternative to the mainstream. In a seller’s market, land-owners want to sell to developers with ready-cash and who don’t ask too many difficult questions. When they disappear, fully funded community groups may be the only alternative.
In general, when the mainstream stalls, it becomes the time for new models to come to the fore. I think that we now have a golden opportunity to see more self-build, custom build, co-housing, community land trusts and general community-led housing, I hope to see these forms of housing becoming an important part of housing delivery, just like they are in the rest of Europe, and perhaps with Brexit, the time has come.
In our uncertain times, we must look to innovation to help us through. This is the time for new business models in an industry which is traditionally incredibly conservative.
Self-build and custom build have been around for a long time, but have not caught on because the infrastructure and the awareness is not there – the industry has had a helping hand with planners, Government and its time has come. As they say, necessity is the mother of invention.
Perhaps, after all, Brexit will prove to be the Phoenix rising from the ashes.
As someone who always sees a building site as a home half built, I certainly hope so.