The Mayor of London, London Councils and the G15 group of London’s largest housing associations have sent an open letter to the housing and communities secretary James Brokenshire, claiming that £5.2bn would be needed to mitigate against the “potentially catastrophic” impact of a no deal Brexit.
The letter claims that Brexit is already impacting the homebuilding sector in London and says it is “becoming clear” that most private home builders and major developers are holding back on starting new projects. It warns this will lead to a loss of affordable housing as around 20% of affordable supply is generated through S106 agreements.
Although some national housebuilders are performing well, with Persimmon Homes posting a record-breaking £1bn profits this week, in London, the market is less buoyant. Last year Crest Nicholson announced it was closing its central London office as part of strategy to focus on work outside of the capital. And in December, Berkeley Group reported that a slowdown in London and the south-east had forced pre-tax profit down 26% over the previous six months.
The letter continued: “To compensate for lost cross-subsidy from market sales, and to adequately de-risk housing association and council programmes, emergency grant investment – of around £5.2bn in the event of a no-deal Brexit – would be required.”
It claims that this would support around 30,000 affordable homes planned to start over the next 18 months, and remove sales risk by enabling the conversion of around 9,000 market sale homes to affordable homes based on social rent levels.
“Councils need to be freed from red-tape to enable rapid and responsive investment in an uncertain market, and a first step towards this would be removing rules restricting use of their own receipts from right to buy sales,” the letter continued.
Last week, a Reuters survey of 25 market watchers forecast that in a no-deal Brexit scenario, UK house prices would drop by 3% in London in six months, compared with a 1% drop nationally.
The letter claims that if house prices fall significantly, private home builders will “inevitably come under pressure” and need government support to keep going.
The relatively new Build to Rent sector may also require commercial lending support “if existing sources of development finance become harder to obtain,” it stated.
The letter also expressed concern over the availability of the supplies needed to build new homes after Brexit, as 60% of imported construction materials currently come from the EU.
“It is very difficult to see how housing development could continue at scale unless ongoing access to materials can be guaranteed,” the letter said.
It claims that Brexit could create “very serious threats” to the supply of essential labour – not just in the construction industry, but also the care sector, which could impact housing associations and councils.
More than a third (35%) of London’s construction workers are from overseas, and 17% of care staff are non UK citizens. “Housing providers will struggle to provide services unless care workers are able to continue working in the UK,” the letter stated.
In light of the “significant challenges” it could face, the letter calls for the government to unlock funding earmarked to the GLA under the Housing Infrastructure Fund, a government capital grant programme of up to £2.3 billion which was set up more than two years ago to help deliver up to 100,000 new homes in England.
As yet, no funding has been released for London borough’s bids to build around 18,000 new homes.