The warning was issued in new independent economic analysis commissioned by the Mayor of London, Sadiq Khan.
Experts from Cambridge Econometrics considered five scenarios of how the UK’s future relationship will look.
But even a softer Brexit and remaining in the Single Market but leaving the Customs Union could cost thousands of jobs.
Khan said: “I’ve released these impact assessments because the British people and our businesses have a right to know the likely impact on their lives and personal finances.
“This new analysis shows why the Government should now change its approach and negotiate a deal that enables us to remain in both the Single Market and the Customs Union.”
One of the major issues facing the construction sector is the shortage of skills. The sector currently relies heavily on a foreign migrant labour force. Almost 13% of construction workers across the UK were born abroad, and in London and the South East, this proportion increases to 50%. In particular, 25% of employees in the sector in London were born in the EEA
Once the UK leaves the Single Market, it is likely that the skills shortage could get worse, if the new agreements don’t allow for free movement of people. This could result in even higher pressures on wages, as labour supply contracts, causing construction firms to face considerably higher project costs. Additionally, this could reduce firms’ capacity to deliver new houses to meet the government’s housing targets, and further deepen the housing crisis, especially in London.
The labour market issues the construction sector faces are reflected as an expected fall in productivity in the macro modelling assumptions. Once the UK leaves the Single Market, the construction sector is also likely to be affected by trade impacts.
A 2010 study by the Department for Business Skills and Innovation highlights how reliant the UK construction sector is on the rest of the EU, estimating that 64% of building materials were imported from the EU, and 63% were exported to the EU. If the UK faces a reduction in access to the EU market following Brexit, construction firms could experience an increase in their costs or a shortage of building materials, as they face an increase in tariffs or limits on quantities imported, which is reflected in the trade assumptions applied to this sector.
At the moment, the UK construction sector benefits from having access to the European Investment Bank (EIB) and the European Investment Fund (EIF), which have invested €7.8 billion in major infrastructure projects, and lent €666 million to SMEs in 2015. A loss of these financial aids could significantly impact the ability of firms to deliver big infrastructure projects such as High Speed 2 and reduce development opportunities for start ups.
Additionally, foreign investment could dampen due to uncertainty over the UK economy following Brexit, and as investors delay making decisions on the future of projects. This loss of potential future investment has been reflected as a fall of up to €852m in investment in the sector by 2030, depending on the scenario and the severity of Brexit.