Sunday, 30 April 2017

Chink of light

From: Inside edge

A small dip in the GDP and suddenly there is an opportunity to put housing back on the agenda.

It was only -0.2 per cent but yesterday’s figures confirm that the economy is in a double dip recession for the first time since the 1970s in a downturn that has already gone on longer than the one in the 1930s.

Even though the figure could easily be revised upwards at some stage, it was mainly due to a 3 per cent contraction in the construction sector. For anyone interested in the detail, Brickonomics points out that it could have been even worse, while the Construction Products Association is forecasting a 22 per cent fall in public housing this year.  Yet the grim news seems to have changed the terms of the wider debate about the economy.

In this morning’s newspapers it’s hard to avoid a whole series of calls for change. Here’s Ben Chu in the Independent: ‘It is not just the pace of the deficit reduction that’s worrying some analysts, but the nature of the cuts. While Government current spending (which goes on public-sector wages and welfare) grew last year, Government capital spending (the money used to build new schools, social housing and transport schemes) was slashed by around 13 per cent.’

Jeremy Warner in the Telegraph: ‘When you look at where the axe is falling hardest, it is on government investment – spending on schools, hospitals, roads, bridges, affordable housing, and so on. This is the easiest thing to chop, so that’s where the Coalition has acted first. In fact, this form of state spending should be doubled, tripled or even quadrupled, with the money made up by further cuts in entitlements and bureaucracy.’

Many economists have been making the same points for weeks and months. DeAnne Julius and Vicky Pryce both argued for investment on infrastructure and housing on the Today programme this morning (play clip at 0731) while presenter Evan Davis made the point that he had barely spoken to an economist over the last six months who did not advocate more capital spending and yet that was what exactly had been cut.  

Tim Leunig, again in the Telegraph, argues that housebuilding was key to the recovery from the 1930s recession: ‘Every house we build employs the equivalent of 3.5 people for a year. Raising Britain’s house building levels from around 100,000 to (say) 400,000 would create 1 million new jobs in construction.’

Jonathan Portes of the National Institute of Economic and Social Research points out that even the IMF – usually seen as a cheerleader for austerity and structural adjustment - wants us ‘to spend more on infrastructure (and housing) and increase welfare benefits for poor people (who will spend them), and pay with it by taxing the rich (those with a lower “marginal propensity to consume”).’

Even my quick rant about the need for a Plan B based on housebuilding on my other blog last night found me somehow sneaking into New Economist’s list of seven things to read about the double dip alongside luminaries such as Paul Krugman and Stephanie Flanders.

What I take from all that is that people are ready to listen to the case for housing in a way that they haven’t been at any time during the last two years in which the debate has been dominated by austerity and the need to bring down the deficit. Combine that with all the coverage this week about Newham and Stoke and the housing benefit cuts (featured on the Today programme again this morning) and the way that housing is really starting to make waves in the London mayoral race, and a real opportunity has opened up for housing ahead of the 2013 spending review.

That will not be easy. Many people believe that the current affordable housing programme will be the last. And convincing a government wedded to an austerity plan that included cutting housing investment by 60 per cent is just one of the obstacles that need to be overcome.

For months the business lobby headed by the CBI has been arguing for an essentially housing-free programme of investment in infrastructure. A programme published by the Social Market Foundation for a £50 billion programme of capital investment funded by ‘growth-friendly cuts’ only mentions housing once.

Meanwhile, the government remains wedded to the idea that it can boost housebuilding by relying on the big housebuilders and giving them what they want on planning, regulation, affordable housing and anything else. As I’ve argued many times before, this is a fallacy since the big firms are explicitly committed to a strategy of increasing their margins by tight control of costs and careful management of how many homes they build.

To counter those arguments, first the sector could make the case that housing can deliver growth and jobs quicker and more cost-effectively than other forms of investment (only repair and maintenance scores better whereas big road and rail schemes take years and do not employ many people). Second, it could argue that the government needs to look to other players like housing associations and local authorities and reform housebuilding (see this report by the IPPR). Third, it could make a more radical case about the income stream and savings in housing benefit that rented homes deliver and argue for reform of the borrowing rules or even a new form of quantitative easing for housing.

In an age in which the housing minister can boast that he does not read Inside Housing, I would not want to overstate my case, but there is a chink of light nevertheless.

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