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House prices will grow faster if there is a "hard Brexit" because tighter immigration will worsen the construction skills shortage, meaning fewer new homes are built at a time when they are most needed.
The Centre for Economics and Business Research (CEBR) said around 9% of construction sector workers in the country are from the EU, rising to one in every three in London, where the housing crisis is most acute.
"The consequences of this are ambiguous: if immigration is reduced drastically, pressures on house prices could ease in certain areas. However, as the construction sector relies on immigrant labour skills, the UK might find it difficult to
"After the Tory party conference in Birmingham, a so-called 'hard Brexit' scenario in which the UK loses access to the single market due to the introduction of immigration restrictions has become more probable," said Kay Daniel Neufeld, an economist at the CEBR.
"The consequences of this are ambiguous: if immigration is reduced drastically, pressures on house prices could ease in certain areas. However, as the construction sector relies on immigrant labour skills, the UK might find it difficult to build the required number of houses to address the shortage we currently see in the market."
The Construction Industry Training Board estimates 230,000 jobs will be created in the sector over the coming five years. Many will be housebuilders. There were 142,390 completions in England and Wales in 2015, a 20% annual rise, but well below the 250,000 new homes a year needed to meet demand.
The imbalance is driving up house prices and worsening affordability for aspiring first-time buyers, particularly in London and the south-east. But amid Brexit uncertainty and the fallout from stamp duty hikes, house price growth is set to slow. The CEBR forecasts house price growth to hit 6.9% on average in 2016, before slowing drastically to 2.6% in 2017.
"Similar to other parts of the economy, the housing market has held up reasonably well in the first months following the EU referendum," said Daniel Neufeld.
"Nevertheless, nervousness and uncertainty are starting to show in the market which in addition is still absorbing April's stamp duty surcharge on second homes. Led by the southern regions and London, we expect to see house price growth across the UK slowing considerably in the fourth quarter of 2016, a trend that is set to continue in 2017."
