Brexit is slowing down Manchester’s city centre construction boom, according to the town hall, due to investor uncertainty and the fall in the pound.
Two reports tabled to councillors in the last week suggest the breakneck pace of development seen in recent years is easing off, citing Brexit as a key factor that could yet pose a ‘significant risk’ to the city’s plans for more housing thanks to rising building costs.
One also reveals how the pound’s devaluation over the last three years has allowed foreign investors, particularly those from China and Japan, to pick up city centre apartments for more than a quarter less than domestic buyers.
The analysis comes as Manchester – as well as Greater Manchester – tries to prepare for any economic shock that Brexit might bring, with leaders suggesting there could be parallels with the 2008 crash should we leave without a deal.
Yet the council’s leader has said government civil servants ‘put down their pens’ on Brexit planning in April, only regaining a sense of urgency a few weeks ago.
According to the town hall’s own analysis of Brexit preparedness in the city, the pound’s ‘striking’ devaluation since the Brexit vote has been ‘the most significant economic impact’ of the EU referendum result so far.
“Manchester’s market is increasingly pressured in relation to build costs and competition for construction employees,” it says of housing and office development.
“More developers are having to import materials – in the context of an increasingly weak British pound – and the ultra-competitive situation is allowing construction workers the freedom to move between sites on the promise of higher wages, with the direct implication of significantly increases labour costs.”
As a result, the cost of building a development has risen by 15pc in the last two years, it says, adding: “Against this backdrop, Brexit poses a significant risk to Manchester’s objectives in relation to residential growth.
“Greater devaluation of the British pound would increase material costs further and a reduction of skilled labour from the EU will increase the construction skills shortage.”
However the weak pound has at the same time helped ensure the market for buying city centre apartments has remained ‘buoyant’- by ‘generating demand from individual overseas buyers attracted to the UK by the opportunity to buy property at a significantly reduced price’.
“Evidence suggests that buyers from China and Japan saved 16% and 27% respectively on the purchase price of a city centre apartment compared to domestic investors buying in sterling,” it says.
“As a result, overseas investors have been able to carry the additional costs associated with the 3pc stamp duty land tax levied on purchases for second homes.”
The report was tabled to the same council committee as an update on the city’s affordable housing strategy, which noted that the city centre market in general is set to slow down after a ‘high water mark’ this year.
“Notwithstanding the continued forecast growth in the numbers of jobs within the Manchester economy over the next decade, a number of factors are now starting to influence the appetite of the market to bring forward new supply, particularly in the city centre, which is linked to the appetite of financial institutions to support further residential development,” it says.
“These challenges for funding are associated with the uncertainties for the national and the Manchester economy generated by both Brexit and the wider global economic uncertainties.
“The impact of this fiscal landscape is now leading to a slowdown in the pace of schemes being brought forward for development.”
The updates come as Manchester and other local authorities attempt to prepare for Brexit in the context of limited information or certainties.
That includes the potential for a recession, with council chiefs looking at the parallels with 2008 and how far the public sector can prepare for economic shocks – including by ensuring it has a ready pipeline of infrastructure projects to take forward.
Nevertheless the council believes Manchester’s economy is resilient, thanks to its various different strengths, particularly in comparison to the 1980s recession that saw the city reliant on engineering and chemical manufacturing.
Speaking to the economy committee, council leader Sir Richard Leese said that had meant Manchester’s economy was wiped out within the space of a couple of years in the early 80s, whereas it had more or less recovered its jobs figures within four years of the 2008 crash.
However other parts of Greater Manchester have not been so lucky, he noted, meaning Manchester’s economy would need to also support them in the event of a Brexit recession.
“I know this is often controversial, but the sort of development we’ve seen – particularly over the last five years – in and around the city centre, both residential and commercial development, is absolutely crucial in the long term to keep job creation going and to enable us to play that role not just for the city but also for the wider city region and indeed beyond,” he said.
Several councillors at the meeting, including Liberal Democrat Greg Stanton, queried why the update had come so close to Britain’s intended exit date, rather than sooner – but in response Sir Richard said the government had provided no information at all for months previously.
“After the deferral of Brexit to October 31, basically civil servants effectively put down their pens on planning for a very long period of time and it’s only really in the last few weeks that we have started to see urgency from government in terms of dealing with the likely consequences,” he said.
“And that means that for us in Greater Manchester, we have for a long period of time been starved of the sort of information Councillor Stanton has perhaps been talking about.”