I was recording a radio programme about the potential impact of Brexit on the British housing market last night.
There’s been plenty of talk about it – from the Treasury warning of an 18% fall in prices (in relative terms), to landlord groups warning of a (mild) fall in rents.
But what’s very clear when you dig through the research is that no one really knows what would happen.
The truth is, I suspect it would mean very little to anywhere outside London (the focus of foreign ownership in Britain). And it probably wouldn’t have that much impact there either.
In fact, I think it’s more interesting to look at why all these organisations want to paint such a grim picture – and how that would change if we actually do vote to leave the EU.
The psychology behind painting a disaster scenario
The “catastrophe” arguments for a post-Brexit house price collapse are all flawed (and that’s ignoring the fact that they also assume that falling house prices is a bad thing in the first place).
Sterling will collapse! Fine, but if that’s your argument, then logically that would bring a flood of foreign money into the property market – as it did in 2008/09 (which would also prop up sterling).
Interest rates will go up! Well, no they really won’t. If Brexit were to cause a recession (again, it’s not clear why it would), then raising rates is the last thing the Bank of England would do – regardless of whether inflation picked up as a result of a weaker pound.
The reality is that, despite the protestations of economists, no one can predict the future.
So rather than indulge in endless scenario analysis, it makes more sense to look at the psychology behind why various organisations are putting out quite such apocalyptic visions of Brexit – and how that would change if we actually vote “Leave”.
Let’s start with the government. The motivation here is obvious. Clearly, David Cameron doesn’t want Europe to be a live issue in the Tory party anymore. Unlike Nicola Sturgeon’s stand on independence for Scotland, he most definitely wants this to be the last EU referendum for a generation, if not forever. And he’s effectively staked his political career – his legacy, even – on doing it.
If ‘Leave’ wins, it’ll be tricky for him to stay as prime minister. If “Remain” wins, but only by a small margin, he’ll be spending the rest of his time in office watching his back, rather than getting on with running the country.
So it makes sense for Cameron and George Osborne to make big, scary claims before the vote. They don’t just want Remain to win. They want ‘Leave’ to be utterly trounced. They want to put the eurosceptics back in their box.
As for the other catastrophists – the likes of the OECD and the IMF are bound to stand up for the EU. These are clubs. They like other clubs. They’d like it if the world was run by one great big club. So they don’t want to see anyone walking out of a club and making it less popular. This isn’t a backroom conspiracy – it’s a simple case of one transnational organisation standing up for another.
What about companies? Again, companies – particularly big companies – are conservative institutions. They’re used to things being done in a certain way. Change involves hassle, paperwork and uncertainty. Taking clear sides in politics – particularly against the government – involves risks to brands and influence. So again, it makes sense for them to be largely on the Remain side.
The point is that on this side of the vote, the weight of effort and lobbying power is focused on presenting everything in the worst possible light.
The post-Brexit U-turn
However, once the vote is over, all of that lobbying power will shift focus. If Britain votes to ‘Leave’, then the calculus changes.
Various facets of the Leave camp differ on lots of details, particularly immigration. But a desire for continued free trade remains a key plank of pretty much every ‘Leave’ constitution (apart from perhaps the far left, who seem pretty confused about where they stand on the EU in any case).
So no one in government in the UK wants trade barriers to go up. And none of the companies involved want that either. If trade barriers go up, that creates losers on both sides of the barriers. The buyer has to pay more. The seller is unable to sell as much.
Neither buyer nor seller wants that. So they will bring pressure to bear on their host governments – however spiteful they are inclined to be – for a smooth transition to take place.
Same goes for all the City institutions. Everyone who is threatening to up sticks and leave the City will shift focus to making sure that passporting and all the other things they value about the EU remain in place.
Because, again, the calculus changes. Do you really want to leave London? The British might not be that fond of bankers at the moment, but are you going to enjoy a warmer welcome or a more flexible labour market in France? Do you want to shift your institutions to countries that are ultimately still hostile to ‘the Anglo-Saxon model’? Don’t think so.
Certain countries in the EU might want to “punish” Britain. But those with more rebellious populations might want to think twice. It’s worth remembering that Britain is not uniquely eurosceptic. Polls suggest that nations across the EU would be having exactly the same discussion as we are now were they given the opportunity of a vote on the topic.
Does it make more sense to act like an angry spurned lover? Or like a magnanimous former colleague? It’s always hard to tell with the EU. But one is at least as likely as the other.
My point is, the apocalypse scenarios are very unlikely, and not just because they are genuinely unlikely. It’s because if we do vote to leave, the focus of most parties’ efforts will move to making the transition as smooth and as positive as possible.
Anyway, you can listen to the programme on Sunday at 11am on BBC Radio 5 Live. And we’ll be looking at the state of the property market in more detail in the next issue of MoneyWeek magazine, out next Friday. If you’re not already a subscriber, sign up now.