Can the Scottish Housebuilding market continue to weather the Brexit storm?
Just over six months ago I wrote that I was very much of the view the Scottish housing market was bucking negative Brexit predictions, and that the outlook – particularly for new build homes – was extremely positive.
Now the summer is drawing to a close and the warmer weather has been replaced with the autumnal storm of the Brexit debate, what’s changed since then?
A lot has happened politically. The bookies’ odds of a ‘no deal’ scenario have halved and sterling has seen a recovery of sorts. The odds on leaving without a withdrawal agreement are 15/1. Conversely a second referendum is now 14/1, having been 3/1 just a few months ago. A soft Brexit - with Mrs May’s Withdrawal Agreement as the basis - looks a more likely prospect after the “mistake” in counting parliamentarians’ votes during an amendment to the bill proposed by Mr Kinnock. The truth is that no-one knows what will happen, and the bookies must be having a tougher time than most figuring out what to do next.
There has been much in the media about KPMG’s report on Brexit’s effect on house prices, with their analysis of a no-deal scenario likely risking a 6% drop in house prices in Scotland. A decrease of 10%-20% is not “out of the question” according to KPMG if the market reacts more strongly than expected.
As the situation evolves and the odds on outcomes constantly shift, with a softer Brexit looking like the most likely outcome the KPMG analysis suggests a house price increase of 1.4% in Scotland in the scenario of a more orderly exit.
Irrespective of the Brexit effect, I firmly believe the fundamental of demand in the Scottish housing market is really strong and in excellent health. People need to move. There is still a clear lack of supply of new homes in Scotland and, for a multitude of reasons (including the time it takes to achieve an implementable planning permission), land remains in short supply.
That, coupled with relatively available mortgages at low interest rates, is driving house prices up – reported to be at an 11 year high in Scotland. People feel relatively secure in employment, but that is being eroded slowly by the length of time it is taking to resolve the Brexit crisis.
Inevitably, demand will have been tempered by Brexit, so once the Brexit path is swept clear of autumn leaves and is understood, then I would expect house prices to push on if a disorderly exit is avoided. With those that have sat on the fence, putting off buying a new home, now making a move.
Certainly we have seen activity subdued recently at the top end of some of the traditional hotspots in the central belt, but it has been great news to see transactional activity increasing generally - particularly with Aberdeen celebrating its first rise in house prices since the end of 2017.
Housebuilder clients we are acting for see no let up in demand from buyers for attractively priced properties in good locations in the central belt, particularly where incentives such as part-exchange are on offer. Part-exchange properties are not remaining on the books for long – pricing and expectations in that respect are realistic and turnover tends to be rapid.
As I mentioned in February, the biggest threat to the industry currently remains around supply of materials, particularly timber. A number of businesses have taken steps to secure a supply chain that will hopefully be Brexit-proof – whatever the outcome. That includes looking further afield than the EU for supplies of materials.
Such is the pace of political upheaval at the moment this blog may, like newspaper front pages, be out-of-date as soon as it’s published. We can only watch from the sidelines as the politicians and bookies try and make sense of the mess. However, in the meantime the housebuilding industry gets on with the day job: doing the best we can with those parts of the equation that we can control and influence.
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