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    Whatever happened to the Brexit property crash?

    2 March 2019

    Whatever happened to the great Brexit property crash? The stock market has been pummelled on occasion since the referendum in 2016 but none so much as housebuilders’ shares. They suffered one downward loop immediately after the Brexit vote. Then again, as the chances of a no-deal Brexit increased towards the end of 2018, it was housing shares which suffered the most, with Taylor Wimpey, Barratt and several others plunging by 30 per cent, as rumours of sliding house prices took hold.

    And then? One by one, as housebuilders’ results came through, they turned out to be actually rather good. When Barratt reported on 6 February, for example, revenue was up 7 per cent, profits up 15 per cent, margins 2 per cent and sales volumes 4 per cent. The main housing indices have held steady. True, the Halifax index produced a headline-grabbing monthly fall in prices of 2.9 per cent in January, but that followed a 2.2 per cent rise measured by the same index in December. Prices didn’t really yo-yo — it was a mere statistical quirk created by low transaction volumes in the winter months.

    Look at the annual figures, and they show a pretty stable housing market. The Halifax index is up 0.8 per cent over the past 12 months, the Nationwide index (which has always seemed to have a southern bias) up 0.1 per cent and the Department for Communities and Local Government’s index up 2.5 per cent. Transactions in the last quarter of 2018 were 0.8 per cent higher than a year earlier, and there is little sign of vendors taking a cut: according to Hamptons, 17 per cent of homes in the last quarter of 2018 sold for above their asking price, in line with the average over the past decade.

    The exception is the prime London market. LonRes measures prices as having fallen 5.7 per cent in the past year, while 56 per cent of properties for sale in the prime central-London market were previously for sale at a higher price. But the fall in demand for multi-million-pound properties hasn’t got a lot to do with Brexit: the market peaked in 2014, when a referendum was still a twinkle in David Cameron’s eye. What caused the downturn in the London market was George Osborne’s jacking up of stamp duty in December 2014. He succeeded in his stated aim of reducing the number of overseas buyers — but at the cost of reducing his tax revenue. He should have had a word with Arthur Laffer before coming up with his policy: according to an analysis by buying agents Ludgrove Property, transactions in prime London markets are down 26 per cent since 2014. Even with increased stamp duty bills, the Treasury is losing out to the tune of £1.9 billion a year in revenue.

    No one has satisfactorily explained why the housing market should suffer from Brexit, unless you believe Osborne’s equally silly pre-referendum forecast that unemployment would surge by between 500,000 and 800,000 in the event of a Leave vote. Why should people stop moving house just because we are no longer in the EU? The pound has fallen, yet it hasn’t led to more than a token rise in interest rates. True, the construction industry has come to rely on overseas labour, but so well-remunerated are many building jobs (there are reports of brickies on £100,000 a year) that they are not going to suffer too much from the minimum £30,000 a year earnings requirement the government says it will impose on EU migrants after Brexit. Houses will still get built — even if they don’t get cleaned as much. Nor is housebuilding especially reliant on imported materials. Most of the bricks and tiles used in British homes are made from clay scraped out of British quarries.

    All in all, there is good reason to think that housebuilding is an industry which will be relatively lightly affected, even by a messy Brexit. Investors may still have in mind how several housebuilders suffered a near-death experience during the 2008-09 slump, but they are very different beasts now. Most are fairly light on debt — indeed several are returning large quantities of cash to their shareholders. They own a lot of development land bought at fairly low cost during the last recession, and they are still benefitting from state subsidy in the form of the Help to Buy scheme, which has another three years to run.

    The days of easy returns from house-price inflation are over but then neither is there much prospect of a house-price crash. That was what used to occur when large numbers of homeowners had huge mortgages which suddenly became unserviceable when interest rates soared. What is remarkable now is that more than half of all homes are owned outright. Mortgages of more than 90 per cent loan-to-value have become rare. Even in the event of rising interest rates there would be little reason for people to panic-sell.

    From beyond the political grave, Gordon Brown seems finally to have achieved what he promised more than two decades ago — an end to boom and bust.