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Brexit: The Fortnight After the Night Before

It’s been a fortnight since the UK voted to leave the European Union and, since the referendum result was confirmed, many sectors throughout the UK have been overcome by uncertainty and concern over the stability of a post-EU Britain. None less than the Construction and Housing industries which, prior to June 23rd, sat very much divided, with some suggesting that stopping the flow of migrant workers into Britain would only accentuate a potentially disastrous skills shortage, and some arguing that removing EU construction sanctions and ‘red tape’ would enable UK construction and housebuilding companies to complete their builds much more efficiently and effectively.

So, we are two weeks in – which side was right and which was wrong? Are we going to be better off outside of the EU, or should we have put up with the red tape and sanctions in order to keep employing skilled workers from Europe and trading in the single market?

The fact is, we are still not sure. Not just within construction or housing, but in all sectors throughout the UK.

‘Skills Catastrophe’

As aforementioned, the Remain camp were very much concerned about the flow of skilled migrant workers coming into the country being dried up as a result of Brexit. Many construction companies had expressed views that without these workers, the skills crisis could be exacerbated, resulting in detrimental long term effects to the UK construction and housing industries.

Since the result, Brian Berry, the Chief Executive of the Federation of Master Builders, has further intensified his position on this topic:

“The UK construction industry has been heavily reliant on migrant workers from Europe for decades now – at present, 12% of the British construction workers are of non-UK origin.

It is now the Government’s responsibility to ensure that the free-flowing tap of migrant workers from Europe is not turned off. If ministers want to meet their house building and infrastructure objectives, they have to ensure the new system of immigration is responsive to the needs of the industry.”

Berry acknowledges, too, that more must be done to give more British people the skills to thrive in the construction industry, and that apprenticeships are the way to do this:

“We need to train more construction apprentices so we are not overly reliant on migrant workers from Europe or further afield. That’s why it’s so important the Government gets the funding framework right for apprenticeships.

When you consider that this whole policy area is currently in flux, and then you add Brexit into the mix, it’s no exaggeration to say that a few wrong moves by the Government could result in the skills crisis being a skills catastrophe. It’s only through close collaboration between Government and industry that we’ll be able to overcome these challenges.”

‘Crested Newts or Slow Worms’

In the opposite corner is John Elliot, Managing Director of Millwood Designer Homes. Elliot believes that the reduction of red tape and EU sanctions will be integral to the progress of house building.

“I am excited to get on with the New World and see the back of EU laws which have been detrimental to use for over 40 years. One of the UK’s biggest assets is our home grown housing market and this will now be much better off out of EU regulation.

For many years, the EU Habitats Directive has had an unnecessary impact on housebuilding. The mere hint of great crested newts or slow worms on a site, which unlike in Northern Europe where they are rare and given special protection, are prolific in the South East of England and can delay building for months as they have to be “translocated” and caught and taken somewhere else for release.

“Special Protection Areas” were another misguided EU directive, which in the case of Ashdown Forest in East Sussex, has resulted in a 7km zone where building can only take place if would-be builders provide SANGS (Suitable Alternative Natural Green Spaces). However, according to conservationists, this is detrimental to the Forest as it will destroy the flora and fauna.

Our exit from the EU will stop the continual flow of red tape and see our housing market grow and flourish without unnecessary constraints placed on building much needed new homes; working towards creating a better future for Britain.”

Conversely, David Richards, Partner at Leathes Prior Solicitors, points out that despite the vote to leave the EU, EU law will remain until Article 50 is invoked:

“Fortunately, most EU law will remain enforceable in the UK, at least for the time being. I am talking from a legal point of view, of course. In actual fact, EU law remains in force right now anyway, given that the referendum was of no legal effect at all. Then we have two years after Article 50 is invoked. Given that Article 50 was specifically designed to give the EU a stronger negotiating position than the leaving country, it wouldn’t surprise me if that wasn’t invoked for quite some time. But EU law will linger for a lot longer than that.”

Looks like the Great Crested Newts and Slow Worms have got a while to rest yet.

'Even Stronger Position'

Despite a lot of pre-referendum speculation, with experts and analysts alike offering their predictions and advice, no one knew for sure how the market would react.

Chris Nelson, Co-Founder of sustainable house developer ‘egg Homes’, suggested that staying in the EU would have been preferential due to the access to the single market and ease of trade across member states:

“Being honest, I would have preferred to stay within the EU as it is good for trade across member states and it would have avoided this period of uncertainty we’re heading into.”

However, despite the immediate aftermath, Nelson remains positive that the market nerves will pass:

“There is now an immediate financial impact, across all sectors of the Construction industry and on the residential sales side, however, I think the dust will settle quickly – there is a knee jerk reaction from the markets, but this shouldn’t last long.

Once new trade deals and agreements are put in place with individual European countries, which will happen very quickly – Europe exports to the UK more than we export, therefore they will be keen to set up new agreements quickly – things should go back to normal and we even could be in a stronger position.”

This air of optimism is seemingly replicated by Carillion Chief Executive Richard Howson, whose uncertainty of the long-term effects of Brexit on Carillion are countered by a strong half-year trading statement and a clearly outlined plan in the face of the vote to leave:

““The referendum vote in favour of the UK leaving the European Union has obviously created uncertainty for the UK economy as a whole and therefore for businesses generally, including Carillion, and it is clearly too early to predict the extent to which businesses will be impacted by this result.

However, Carillion has no significant operations in Mainland Europe and prior to the referendum we undertook extensive work to assess the possible impact on our business of a vote to leave and we have put in place robust plans to manage this outcome.”

'Weakest performance for seven years'

But for all this optimism comes the recent reports of the UK’s construction industry ‘weakest performance for seven years’, in which the Markit/Cips UK Construction Purchasing Managers’ Index fell to 46.0, its lowest level since June 2009. A figure above 50 indicates that the market is expanding - below 50, contracting.

Tim Moore, Senior Economist at Markit, commented:

“The extent and speed of the downturn in the face of political and economic uncertainty is a clear warning flag for the wider post-Brexit economic outlook.”

Howard Archer, Chief UK and European Economist at HIS Global Insight, added:

“This is an absolutely dire survey that fuels serious concern over the construction sector.

The survey can only intensify concern as to just how much the construction sector will be hampered by the Brexit vote.”

Despite some pre-referendum jitters, the index figure before June 23rd was at 52.1, the highest since January. The fact that the market was expanding and yet has now dropped so severely, highlights the impact that Brexit has had on construction and housebuilding.

Markit also added that a number of companies had expressed reluctance among their clients to embark on new contracts in the run-up to the referendum, as well as general continuing uncertainty about the economic outlook.

Shares in constructions companies and developers began to slide immediately after the vote to leave was announced, as it became clear that investors were withdrawing funds for new developments. Some of Britain’s biggest property developers and builders have seen a fall in shares of up to 7%, indicating the potential short term consequences of Brexit for revenues and profits.

'A New Dawn'

Despite the immediate aftermath reflecting what could possibly be a grim future for construction and housebuilding, heads of the industry are maintaining a positive outlook.

Nathan Garnett, Event Director for UK Construction Week, commented on the UK’s existing foundations and how these are something to be built upon:

“A new dawn for UK construction begins here. It is inevitable that our industry will experience a period of uncertainty and adjustment, but the construction sector has proved time and time again to be incredibly resilient.

The UK also has the foundations for a boom in house building, and the industry must and will be committed to meeting the national need for housing. Leaving the EU will inevitably attract new investors to our shores offering new opportunities, and that will happen sooner rather than later. The last few weeks and months have been uncertain for the UK construction industry, but now is the time to embrace the change and these new opportunities.”

John Field, President of the Chartered Institute of Building Service Engineers, suggested that Brexit will actually create opportunities and relationships, rather than temper them:

“We do not anticipate any significant alteration in the very positive engagement we maintain with members across the globe and suggest that the referendum result creates significant opportunities and commitments to increase engagement with regional, national and global interests.”

Whether the UK was right to vote to leave the European Union remains to be seen, and will surely remain to be an issue of contention for years to come until we get a more holistic view of the consequences of Brexit. Opinions before June 23rd were divided and continue to be so in the aftermath. Where some are expressing worry and doubt, reflected by market performance, others speak optimistically about strong relationships with Europe and the possibility of a stronger position than ever before.

It’s been a fortnight since the UK voted to leave the European Union - which side was right and which side was wrong? The fact is, we’re still not sure.

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