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Brexit might not help young people onto property ladder

by Sam Ashworth-Hayes | 02.06.2016

Chris Grayling says voting to leave the European Union will make it easier for young people to make their way onto the housing ladder. But by ruining their job prospects, a Brexit could force some young people out of the housing market. The overall effect is ambiguous.

The Tory MP argues that high immigration from the EU is pushing up house prices; a bigger population means “more people chasing not only properties to buy but properties to rent”.

While migration does boost housing demand, a healthy market would respond by building more homes. Many experts believe the excessive upward pressure on prices is a result of the failure of British politicians to let the market work.

Even leaving aside the effect of any reduction in migration, Brexit would still be likely to lower house prices. The Treasury estimates that by 2017-18, the short-term impact of a Brexit could see house prices 10-18% lower than they would have been in the EU.

But that’s not necessarily good news for young people. House prices fall in the Treasury’s model because the cost of borrowing rises while incomes fall. In other words, there would be a large reduction in demand.

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In turn, this causes an increase in unemployment. If this were to hit 16-24 year olds proportionately, then between 70,000 and 100,000 more young people would be unemployed than would be the case if Britain remained inside the EU.

But young people tend to be hit particularly hard by economic downturns. Firms stop hiring, which punishes young people entering the labour market for the first time. As the Treasury points out, when a downturn hits then the increase in the unemployment rate for young people is double the rate for older people.

For young people paying rent or saving for a house it would be little comfort if the price of a house fell after they found themselves out of work. Moreover, an increase in the cost of borrowing would hit young borrowers with lower savings especially hard.

Over the long run experts believe a Brexit is unlikely to have any significant effect on the unemployment rate, but wages would be permanently lower.

Young people who do experience a spell of Brexit-caused unemployment could lose more than the rest – a period of sustained unemployment damages both future wages and prospects of homeownership. The young people who do lose out could lose a lot.

Contacted for comment, a spokesperson for Vote Leave said: “We reject the overly pessimistic assumptions used by the Treasury. The driver of high house prices is demand and a lack of supply, and immigration increases demand”.

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Edited by Geert Linnebank

2 Responses to “Brexit might not help young people onto property ladder”

  • Leave = less people = lower house prices & higher wages (simple supply and demand economics)

    Stay = more people & free movement for the up to 50% unemployed youths in the EU = more young people competing for limited houses and jobs = more demand for houses = higher house prices = more competition for jobs = lower wages.

    It really is that simple.