Brexit Secretary David Davis confirmed, just before Christmas, that the Government had not undertaken any detailed assessments of the impact of Brexit on the housing sector, or in fact any sector. But this is not an excuse for housing providers to skip this step.
Brexit will happen in one year – at 11pm, UK time, on Friday 29 March, 2019 – and boards across all sectors need to assess their resilience, in the face of this unique event, which is likely to dramatically affect both our social and economic environment.
The changes surrounding Brexit will impact key housing inputs including recruitment and retention of care and support staff, land values, tender prices, construction costs, and the cost of finance. The size, shape, and combinations of these impacts will have implications for housing sector outputs including new affordable housing stock, the maintenance of existing stock, and care and support services.
As housing development professionals we’re:-
- used to things changing
- used to the unexpected market variations
- used to anticipating changes to regulatory requirements
- used to identifying and mitigating for known unknowns.
But there’s something different about Brexit. Yes, we know it’s coming and we know when. We can assume that the impacts will be widespread and will permeate every aspect, every element, of the housing sector – so what’s different about it?
Predicting the likely impact of Brexit on the sector is difficult and imprecise. However, we can and should be considering the changes that have occurred since the referendum, where the sector is particular exposed to risks, and how we might deal with the uncertainties.
What we know
- Development costs have already increased – The post-referendum devaluation of the pound saw an increase in the cost of materials for new housing (5% in the year from the referendum)
- Development is exposed to further increases in material costs – RICS has reported that 2/3 of building imports and exports are EU transactions. The cost of materials will likely be affected by tariffs and exchange rates post-Brexit.
- Construction tender prices are hugely dependent on what the Brexit deal does for movement of labour, import tariffs, and strength of the pound . The BCIS index is forecasting a range of potential impacts on tender prices from between a 9% to 28% increase by 2022.
- The Adult Social Care sector may see a worsening skills and labour shortage – There are 90,000 non-British EU nationals working in the Adult Social Care sector in England with a large portion of them working in London and the South East. We know that non-British EU nationals are quitting their British jobs: 10,000 EU nationals have already quit the NHS since the referendum (a 22% rise from the previous year).
- Funding sources may be reduced – The European Investment Bank has lent the UK over £5 billion for social housing and has cut off UK access to funding since the referendum. Terms of the Brexit agreement will determine accessibility to EU funding but currently, non-EU countries like Switzerland only access EIB funding for energy and transportation projects.
- House prices are a significant unknown factor – Most predictions see prices remaining relatively flat in the run-up to March 2019 due to lack of certainty related to Brexit, but with increases over the long-term due to underlying market fundamentals.
- As with most sectors, depreciation of the pound, increased borrowing costs, and reduced economic growth could see a negative impact on housing association cashflows.
How to deal with it
If you haven’t done so already, with only 12 months to go, organisations should be making themselves ready for the impacts of Brexit. With a range of business areas affected, it’s vital that all potential scenarios are modelled collectively and that mitigation plans are being actioned.
We could merely speculate on potential outcomes:
- impact on labour
- costs of material
- cost of development
- cost of maintenance
- interest rates
- inflation rates
- property values.
In 2017 we have already seen a fall in employment, a slow down in economic growth and house price increases stalling. These changes are also set in a context of the roll-out of universal credit, which could affect cash flow. Boards need to be 100% assured that your organisation has the resilience to cope with those issues.
Even with so many unknowns, boards can use Brexit to look at resilience through a different lens, to look at your assurance framework, then assess the interplays between your golden rules and triggers.
How Altair can help
The Team at Altair has something better to offer.
In this period of the ‘known unknown’, we are here to help organisations prepare for change through bespoke sensitivity analysis that responds as a clearer picture of Brexit emerges. This means organisations can modify their development model, modify their thinking and look for opportunities.
We’ll start with podplan: our own in-house development appraisal tool. podplan provides organisations with the ability to update assumptions as and when they change and to promptly understand their impacts at both project and programme levels. This allows organisations to accurately monitor wider business plans and budget setting across functions – from repairs and maintenance through to IT and finance. By superimposing our Brexit assumptions into this widely-used modelling tool, we’ll provide organisations with the assurance that they are considering the full range of post-Brexit effects on their development programmes.
That being said, we are keen to carefully monitor on-going Brexit negotiations and adjust and evolve our assumptions so that organisations can too.
So, while the same old news on Brexit is repeated by the newspapers, Brexit is coming, it’s coming soon, and housing providers need to be ready.
To arrange a demo of podplan contact Alex Neate at email@example.com or 0783 3467882
If you need help to be ready for the impact of Brexit, call us on 0207 934 0175