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Impacts a no deal Brexit could have on new build construction

Impacts a no deal Brexit could have on new build construction

October 9, 2018

Despite Brexit negotiations in turmoil and uncertainties about the final deal, the prospect of a no-deal Brexit is definitely looming, and whilst talk around a no-deal Brexit has been rife, there has been very little detail about what it will actually mean for the UK.

As recently reported in the Telegraph, Conservative MP Jacob Rees-Mogg confidently declared that a no-deal Brexit would boost the UK economy by £1.1 trillion over 15 years. Whilst the Independent quoted the First Minister of Scotland and leader of the Scottish National Party Nicola Sturgeon as describing a no-deal Brexit as “catastrophic.”

No one can seem to agree on whether it will be a positive or a negative, but regardless, as reported by the BBC earlier this year, Bank of England governor Mark Carney has said the prospects of a no-deal Brexit are now “uncomfortably high.

How will this affect new build construction?

What the possibility of a no-deal Brexit means for new build construction is again, not certain, but research conducted by property and construction consultancy Gleeds found that 66% of industry contacts believe this uncertainty around the Brexit deal is having a negative impact on the sector.

Here are a few ways new build construction could be impacted by a no-deal Brexit:

Material inflation

A no-deal Brexit is likely to cause the sterling to fall further which would push up the price of construction materials.

According to Build UK, over £10bn of construction products are imported from the EU each year, including £1bn of timber and £750m of aluminium products. This adds up to about 15% of products used in UK construction. With the cost of importing materials from the EU increasing after a no-deal Brexit, unless a construction firm has defined these extra costs in its contracts, it will have to bear these additional expenses.

Delays at the borders

After leaving the EU, products imported into the UK from the EU would be checked at the border for appropriate paperwork rather than being waved through. This raises the prospect of big delays which could have a knock on effect to construction projects and deadlines.

Loss of investment

Currently, the UK construction sector benefits from access to cash from the European Investment Bank and the European Investment Fund. According to a report commissioned by economic analysts, Cambridge Econometrics; losing these investors could result in a loss of up to £754 million of investment in the sector by 2030 which could stall multiple new build construction projects.

UK becomes less attractive, resulting in fewer new homes

The fall in sterling would not only push up the price of construction materials, but also reduce the value of potential earnings. This, coupled with the fact that construction projects have been picking up across Europe, means the UK may no longer be the first choice for construction workers.

The same report commissioned from economic analysts, Cambridge Econometrics, also states that the number of new homes being built could fall due to a severe shortage of construction workers.

The report predicted that there could be up to 43,000 fewer construction jobs across the whole of the UK, with 5,000 of those affecting London. New homes, infrastructure and work space relies heavily on a skilled migrant workforce – with one in four workers in the capital coming from the EU.

Since there is such a demand for housing, the Government has already committed to delivering an average of 300,000 homes a year by the mid-2020s. It will be interesting to see how this target will be affected if the UK enters a no-deal Brexit.

According to Melanie Leech, chief executive of the British Property Federation, there is a real concern around not knowing if there will be enough skilled workers to resource the construction industry over the coming years:

‘We urge Government to provide clarity on the status of EU workers as soon as possible… We are already seeing this uncertainty undermine regeneration up and down the country. Government must get migration policy right if we wish to build much needed homes and the physical environments capable of driving innovation, which underpin a successful post-Brexit UK.’

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