Coffee House

Trust in bricks and mortar

17 October 2011

2:11 PM

17 October 2011

2:11 PM

If George Osborne is serious about growth, a relatively easy decision awaits him: to
stimulate the economy by spending more on housebuilding. David Cameron knows there’s a problem, and during Tory conference announced a "Tory Housing Revolution" to tackle the failing
housing market, and plans to boost Right to Buy and release more land for house building that will deliver 200,000 new homes and create 400,000 jobs. All welcome, suggesting the government has
recognised the role that housing can play in creating growth. But if the Treasury is looking to stimulate demand in the short term, there’s still much more that could be done.

Investment in housing can happen fast. Analysis of major house builders shows that land banks are already healthy, with planning permissions for between 188,000 and 250,000 new homes. An injection
of finance to get these sites going will create jobs quickly, put money into the hands of construction workers that will increase demand and encourage more production in the crucial supply chain.

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This compares well to the other forms of stimulus sometimes mooted: cutting income tax, VAT or National Insurance contributions. Sure, these may increase the amount of money in people’s pockets,
but an increase in spending won’t necessarily follow. Some, if not all, could be saved or used to pay household debts, while any spending that does occur may be on imported goods, delivering less
benefit to the UK. So every pound spent on housing will mean a greater stimulus than a pound spent cutting taxes. As more jobs are created through the housebuilding, welfare payments will fall and
more tax will be paid. It could be a double whammy for the Exchequer.

In the longer term, additional house building improves economic growth potential by maintaining skills in the construction sector that would otherwise be lost. We know from the last recession that
these took over a decade to recover. And with youth unemployment almost topping 1 million, boosting a sector that is a significant provider of apprenticeships will help provide opportunities to
young people out of work. Increased housebuilding could also improve labour mobility, useful in both upturns and downturns.

It all makes sense. Government spending to jump-start house building could raise demand quickly, while helping to build a stronger economy for the future. It should be an attractive option for the
Chancellor in the Autumn Statement if he is serious about growth.

Vicky Pryce is Senior Managing Director of FTI’s Economic Consulting practice and was formerly Chief Economic Adviser at The Department for Business, Innovation and Skills (BIS) and Joint Head
of the Government Economic Service. She recently spoke at an event organised by Shelter, the housing charity, where she presented a paper on this issue.


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Show comments
  • Herbert Thornton

    TGF UKIP

    The BNP a party of the left? I think that the terms “left” and “right” have lost most of their meaning. As (presumably) a UKIP member you may be interested to look at the BNP website & read Nick Griffin’s latest piece headed – Who’s really behind the EU power grab?

    What ought to matter is whether a party has sensible policies. The BNP has a good many policies that are sensible – and that certainly can’t be said of the Labour, Liberal or (as presently led) Tory parties.

    To paraphrase Deng Xiao Ping – It doesn’t matter whether it’s a left cat or a right cat. What matters is whether it catches mice.”

  • TGF UKIP

    Trouble is Herbert Thornton, that the BNP, just like the LibDems, are a party of the Left. Have a look at their economic policies on their website.

  • Herbert Thornton

    BNP anybody? They certainly couldn’t be any worse and perhaps people will soon begin to conclude that from every point of view, they’re a great deal better.

  • Peter From Maidstone

    Well the Spectator hasn’t been a conservative publication for a long time. It may be because of the owners, it may be because of editorial aspirations to fit in with the political class? Who knows. But it isn’t conservative.

  • Foundavoice

    If Vicky Pryce is an economic consultant, then I’m in the wrong industry!

    What tosh!

  • Joe

    Just, whatever you do, don’t mention all the empty houses/flats that already exist and no-one dares acknowledge. Almost everyone borrowed too much money over the past decade; we now need patience not quick fixes from spunky journos. Large developers are no better than bankers – they have effectively raped architects, tradesmen, and first-time buyers – and the last thing they need is to be encouraged.

  • daniel maris

    FvH –

    Perhaps you’re too young to remember the (highly successful) 5 year housing plans of the 1950s Tory Governments.

  • TGF UKIP

    It should be, but isn’t, surprising to see who the Speccie invites to post on this nominally right of centre blogsite.

    A very, very prominent lefty LibDem comes on to peddle an authentically Old Labour recipe, so the question must be – who will the Speccie invite next.

    I believe Gordon Brown also has some free time to kill.

  • TGF UKIP

    It should be, but isn’t, surprising

  • FvH

    When the Tories start putting in place a Leninist 5 year building plan we know things must be bad!!

  • Heartless Perry

    Tosh!

  • Rhoda Klapp

    S’funny, she doesn’t usually fail to get the point.

  • John Moss

    The easiest way to acheive this is to allow “social” rents to rise to market levels, supported by housing benefit where necessary, to cover this. Then claw back the higher spend by stopping handing out grants to house-builders.

    Illegal sub-letting will be squeezed out completely, those with higher incomes who do not merit support will pay a proper rent or buy their home, but Councils and Housing Associations will gain £3-4bn a year in net income from their existing assets.

    Borrow against this to fund more home-building, estate re-building, repairs and refurbishment and you largely acheive her goals.

  • daniel maris

    PFM – There’s pressure from both ends. There is a finite supply of fine Georgian, Victorian and Edwardian housing in the capital. As more and more of that gets taken up by Russian oligarchs, Arab potentates, and the global workforce that staffs the City, so the upper middle classes move into smaller properties away from the centre. Nice properties with gardens that were available to teachers and bank clerks a couple of decades ago and well out of their reach now.

    We are being turned into a nation of rabbit hutch tenants.

    The days of Parker Morris standards and a “property owning democracy” seem far away now.

  • Cynic

    We don’t need a rash of new houses – there is unsold/empty property as it is. What we need is fewer people. That way, the quality of life would improve and there’d be enough accommodation to go round. Let’s stop paying people to produce more than two children, send back all illegal immigrants and discourage immigrants coming in to be with relatives of relatives.

  • TomTom

    Building houses hardly improves our carbon footprint does it, and Vicky Pryce knows a man who has a fetish for making heating and lighting unaffordable for mere mortals. Surely house building is affecting our climate – the Urban Heat Island Effect

  • Baron

    Vicky Pryce puts her trust in abit of Keynes: “This (house building) compares well to the other forms of stimulus sometimes mooted: cutting income tax, VAT or National Insurance contributions.”

    Only a cut in NI should be considered, the other two measures would only suck in disproportionately more imports, and as for house building, only if we control immigration, without some clever management of it, the extra jobs created will be filled mostly by immigrants, even more so that in other sectors of the economy. What we desperately need is boosting the supply side of the economy, no longer is it desirable or even possible to finance demand mostly through borrowing which cuts in VAT, income tax will require.

  • Leo McKinstry

    If building houses were really the key to economic growth, then Ireland and Spain should be two of the most prosperous, dynamic countries in Europe.

  • Hexhamgeezer

    On ‘Right to Buy’, just how many decent flats and houses worth acquiring does dave and chums think are left? Also, huge numbers are now sub-let by our culturally diverse local authority housed communities who, apart from facilitating the Neather style social transformation of the land, are living quite nicely on the rental proceeds elsewhere.

    It’s an issue worth investigating rather than the clouds of fluff normally blowing through the msm.

  • les

    So she’s off then – not remotely interested in what the woman has to say!

  • ButcombeMan

    It is quite difficult to understand how any economist could write such an article without mentioning Stamp Duty. Very poor indeed.

    Stamp Duty is the government’s foot on the throat of house building and the housing market. It is too high for first time buyers, it creates artificial step changes in the amount to be paid. It makes it too difficult for anyone to change their property, even when they need to. (For a change of job or downsizing in old age as examples).

    Yes, some modest stimulation of the housing market, especially for first time buyers, is needed.

    The government should start with stamp duty. Lower it or remove it completely for cheaper property and smooth it further up the range of property values with big increases above (say) £1 million-but even these increases should only be on the amounts above the tax change points-not the whole amount.

    The Treasury would recoup some of the losses from reduced stamp duty through increased economic activity & VAT on the associated service & retail industries that get used when people change house.

    The increased economic activity would provide NI, Income Tax and Corporation Tax.

    There is as yet no sign that anyone in government or Whitehall, understands this.

  • Peter From Maidstone

    There is not a housing crisis, there is an immigration crisis. In my ward I would say that over the last ten years the immigrant population has become at least 20%. It is this which has placed pressure on the housing stock at the bottom end.

    We don’t need more houses we need to send some of those who have come here recently back home.

  • Herbert Thornton

    This belief that building more houses is the answer to all the nation’s economic problems is very much misguided.

    It reminds me of a comment I heard something like 60 years ago from a very competent economist –

    “If we go on believing that this sort of thing is the answer, we’ll all end up living in shiny new houses – with nothing to eat.”.

  • Pettros

    Rubbish.

    The developers with these land-banks do not have that much trouble getting finance. Its those buying the houses who cant get it. Hence the land is still undeveloped.

  • Justathought

    Rather than shower house builders with taxpayers money I would prefer the councils and housing associations (who have amassed billions of £’s worth of social housing under Labour) to consider the government proposal of letting their tenants have the right-to-buy. That would release as much money as they need to meet the future housing needs. The social landlords might even consider refurbishing some of the 700,000 empty properties scattered around the country although I understand their preference that these should be in Labour constituencies!

  • J Fletcher

    The problem that government won’t accept is that building costs are the main problem. Build costs went up by 50% 2001-2008 and are expected in increase by another 20% 2008-2013. But that is just like-for-like costs. More environmental measures are being required every year.

    If the cost of building a house means there is little or no profit margin, a fact in many parts of the country, then we won’t build.

  • Tim R

    This is a wind up, yeah?

    I can’t be bothered with a point by point argument but I think I know where this writer is going with this tripe – government can spend your money better than you can. In fact, it can spend it so much better than you that it will borrow money to prove it. And pay the interest on that borrowing. Cos it will stimulate the economy or some such blah blah blah.

    Tax cuts. Now. Thanks

  • nonny mouse

    >Super idea….with all these unsold houses because of the Mortgage Credit Squeeze they could give them away

    Houses are not selling because they are too expensive.

    Maybe banks are not lending because they expect house prices to fall and don’t want to get caught with more bad loans.

    A big part of the reason they are too expensive is a lack of supply.

    Cutting VAT to encourage people to build extensions is just going to push up house prices. It makes the problem worse.

  • startledcod

    Vicky Pryce is Senior Managing Director of FTI’s Economic Consulting practice and was formerly Chief Economic Adviser at The Department for Business, Innovation and Skills (BIS) and Joint Head of the Government Economic Service. Which could serve to highlight why we’re in quite the mess we are. Some of the assumptions made in this blogpost wouldn’t be acceptable at grade-inflated-dumbed-down GCSE Economics.

  • startledcod

    Oh dear, do I detect dogma based economics?
    “Investment in housing can happen fast.” Tax cuts can happen faster.
    “Analysis of major house builders shows that land banks are already healthy, with planning permissions for between 188,000 and 250,000 new homes. An injection of finance to get these sites going will create jobs quickly,” – assumes that lack of finance alone is the problem and ignores the lack of solvent customers and/or their inability to secure a mortgage.
    “put money into the hands of construction workers that will increase demand” in Poland where those workers will repatriate their money.
    “This compares well to the other forms of stimulus sometimes mooted: cutting income tax, VAT or National Insurance contributions. Sure, these may increase the amount of money in people’s pockets, but an increase in spending won’t necessarily follow. Some, if not all, could be saved or used to pay household debts, while any spending that does occur may be on imported goods, delivering less benefit to the UK.” – phew what a scorcher. So construction workers won’t be saving (that is apparently a bad thing!) or paying household debts (also apparently a bad thing!) or buying imported goods (because construction workers are so different to everyone else – so they are, they’re Polish).
    “So every pound spent on housing will mean a greater stimulus than a pound spent cutting taxes.” – Q E D, except it isn’t.
    “As more jobs are created through the housebuilding, welfare payments will fall and more tax will be paid. It could be a double whammy for the Exchequer.” – as Gordon ‘economic genius’ Brown tested to destruction through PFI schools’n’hospitals.
    Perhaps the Government borrowing money to spend on house-building is a good idea but there is nothing is this woeful economic drivel to demonstrate that.

  • Rhoda Klapp

    If there were buyers for new houses, that would be the necessary and sufficient condition for them to be built. Weren’t you there the day they did supply and demand?

  • Bumpkin

    400,000 new jobs for Polish builders – Jolly good

  • Russell

    Totally agree with the ‘article’. Plus as builders build houses, they buy electrical goods, boilers, radiators, insulation etc. plus first time buyers may buy carpets, tv’s etc.
    All helps the economy and as said provides much needed work for otherwise unemployed people on benefits.

  • TomTom

    Super idea….with all these unsold houses because of the Mortgage Credit Squeeze they could give them away – say BOGOF – or lease them to asylum seekers

  • alexsandr

    or cut the VAT on home improvements. That will get the construction sector going.

    Make it only on work done by contractors, not on DIY, which wont boost anything.

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