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The Chartered Institute of Housing is the independent voice for housing and the home of professional standards

Brexit: Unknown unknowns and deep divisions


The High Court ruling on triggering Article 50 of the Lisbon Treaty puts a constitutional spanner in the Brexit process but it’s no show stopper, says Paul Hackett, director at the Smith Institute. The UK is heading for Brexit, and the challenge is now how to make the best of it and heal a nation distracted and deeply divided.

image of Union Jack flagBrexit has re-wired British politics, in ways we’ve yet to fully grasp. We don’t know what the costs and consequences will be - there are too many of Donald Rumsfeld’s ‘unknown unknowns’.

In the short-term, everything is being displaced. All the concerns and issues that worried us before the referendum haven’t gone away - they’ve become second order priorities, scaled back or put in the ‘long grass’. Many of these issues will be affected by the Brexit negotiations and by the knock-on effects on public finances. 

Having our cake and eating it

A lot depends on whether we end up with a ‘soft’ or a ‘hard’ Brexit. The Cabinet is split on this for now, although no one believes we can really have our cake (access to the single market) and eat it (restrictions on free movement of labour), as Boris Johnson promises. This is also new terrain for the EU and it’s difficult to predict what the other 27 member states (and all the federal parliaments) will compromise on. Much will hinge on the German, French and Dutch elections next year.

There may be a Norway or Swiss-style deal on the customs union and access to the single market, but it’s unlikely to be glorious. If you're leaving, then you have to lose something. We won’t be able to opt in 'a la carte'.

For those who didn’t want a referendum and saw it as fundamentally a pre-election ploy for Tory party unity, it’s hard to accept the outcome and re-imagine a bright future outside of the EU. Indeed, many of the ‘remainers’ are waiting for the economic storm to hit. There’s little sympathy for the Brexit voters who may be worst affected and no empathy for the sentiment and emotion surrounding the fear of immigration, which - according to latest polling - is still a top concern for the vast majority of people.

Deep divisions

The problem is, the divisions will get deeper the longer the resentment and negotiations go on. We are drifting apart, with half the country wanting a less liberal, more inward-looking, and more 'yesterday' England, and the rest mostly looking outward to a more open, diverse and inclusive society. Both camps want Britain to be 'great again', but the pathways are very politically different. 

The divisions also run deep in the housing world. Ipsos Mori’s analysis of voting in the referendum by housing tenure shows that those in the private rented sector (PRS) and with a mortgage voted remain (roughly 55 per cent to 45 per cent), but outright owner occupiers and those in social housing voted overwhelmingly to leave (63 per cent to 37 per cent for social tenants). The gap is even larger among older voters and outside of the core cities and Scotland.

Attitudes could change if the economy contracts and living standards fall, but few people make the connection between Brexit and housing. Indeed, while housing remains a top political issue in London and other high demand areas, it’s much less so in the North and Midlands, which voted overwhelmingly for Brexit.

What it all means

You’d think all this confusion and anxiety would damage the new government’s popularity. Not the slightest. Since May’s appointment the Conservatives have increased their lead (and continue to do so – now 19 points ahead).

There’s a honeymoon factor here, but the Conservative lead has averaged 11 points since June. All the indications are that outside London much of England is becoming more Tory, not less. That trend alone suggests that the majority still support Brexit and that if there was a general election anytime soon the conservatives would walk it.

The latest opinion polls suggest the Tory vote would increase and Labour’s would fall, giving the Conservatives a working majority of 80 seats – perhaps more after the forthcoming boundary review, which favours the Tories. A Labour victory is possible in a snap poll, but Corbyn’s low favourability rating with the public and the high levels of support for Brexit among blue collar voters are not good omens.

While the political outlook seems certain for the time being, the economic prospects look gloomier by the day. The big worry is the threat of stagflation, which is making board members across the housing sector very cautious about their business plans. Not everyone is unhappy. For overseas investors the drop in sterling is a bonus. But for social landlords the rent cut, combined with higher inflation and falling incomes, is a big negative.

The impact on housing

The Chancellor, Philip Hammond, is hinting at a bigger role for new housing in stimulating the economy (he’s an ex house-builder, after all, so he should know - although he will also be aware of cost pressures as a result of skills shortages and higher import costs). The Autumn Statement might repeat some of the kick-start housing programmes seen in the post-crash era, although the money markets will be nervous about any sudden post-Brexit spending spree.

The Treasury’s default policy mode though is still on incentivising homeownership and cutting the £25 billion housing benefit bill. However, given the current completion rates, if the government is to have any chance of meeting its 1 million homes by 2020 target, there will surely have to be an increase in capital subsidy for social housing. More loans and guarantees for first time buyers and new shared ownership schemes won’t do it. Talk of solving the housing crisis by increasing the number of small builders and boosting off-set manufacturing is important, but claiming they will deliver a step change in supply is for the birds.

Even if we had a major public house-building programme and a dozen new towns the government won’t make 250,000+ each year for the next three years – the numbers it needs to hit its target. The likelihood is that what the markets will deliver is a lot more renting than selling of new homes.

The dark cloud

Brexit, with all its uncertainty, is casting a dark cloud over the housing sector. The demographic drivers and income profiles will continue to shape local markets, but the possibility of an economic slowdown and homemade credit crunch is very worrying.

For now, the sector will ‘keep calm and carry on’. But I wonder how long will it take before renters and mortgagees starts to feel the negative effects of Brexit. And when they do, how will they react and who will they blame? 

Life doesn’t look like it's getting any easier. The biggest challenge, though, won’t be leaving the EU and managing the economic impacts. It will be bringing the nation back together – and that could take a generation.

Find out more

Paul spoke at our executive briefing in October - want to come along to the next two? Members can join us in London - for free! - to learn about how the mayor’s housing plans are progressing since he took office (23 November) and what prioritising our nation's health would mean for housing (1 December)

Not a member? Not to worry - these sessions are just £25+ VAT to come along to.   

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