Posted by: Jules Birch25/07/2012
If the case for a housing stimulus was already unanswerable, today’s confirmation of the depth of the recession makes the lack of one unfathomable.
It’s not just the 0.7 per cent fall in GDP in the second quarter or the 0.3 per cent falls in the two previous quarters or that this is the first double dip recession since the 1930s. It’s not even the fact that the construction industry’s 5.2 per cent fall in output between April and June and 4.9 per cent in the first quarter is one of the major reasons why it happened.
It’s more that, as Brian Green argues over at Brickonomics , the numbers were so predictable. Anyone keeping half an eye on the construction numbers knew things were bad (if not quite this bad) and knew that private sector orders were not making up for cuts in government investment. As I argued, the case for housing was blindingly obvious when the first quarter GDP figures were published in April.
The government will argue that it has responded to this crisis with a growth package for the industry but the closer you examine last week’s measures the less they stand up to scrutiny. They started to unravel for me when I discovered that ‘the greatest investment in the railways since the Victorian age’ was going to mean a 30 per cent cut in direct trains between Cornwall and London. Less parochially, and at a time when a stimulus needs to work quickly, the package seemed to prioritise precisely the sort of large-scale infrastructure projects that take longest to get off the ground because they have the longest lead times.
The announcement on the UK Guarantees Scheme may have won plaudits from groups like the CBI that have argued consistently for a housing-free investment programme. Granted the first guarantees will be awarded in the Autumn and to qualify projects must be ready to start within 12 months of a guarantee being given but the detail hardly inspired confidence of its their ability to make a difference now, when they are most needed.
The only mention of housing was in the section on a temporary lending programme to help public private partnership infrastructure projects that are struggling to raise enough private finance to go ahead. The Treasury said an estimated £6 billion of projects could be eligible, including schemes in transport, health, housing and education. The trouble is, of course, that housing has very few PPP projects because the alternative model of housing associations raising private finance has been so successful. Housing, it seems, was as much of an afterthought this time around as DCLG director general Peter Schofield has admitted it was when he worked on the original Treasury plan for growth.
To the surprise of everyone (including me) there was no mention at all of a scheme to guarantee housing associations loans to bring interest rates down to as low as 20 basis points above gilts. This was the centrepiece of my attempt last week to build a ‘good news’ case for housing and I was confidently expecting to see it there. It remains to be seen whether this measure has been delayed until the Autumn for some technical reason or it has been shelved for some other reason (Treasury nervousness about keeping it off balance sheet?). However, the effect is still to delay the one form of new construction that would deliver growth and jobs most quickly and effectively. As the DCLG has been telling everyone who will listen, every 100,000 new homes means 1 per cent on the GDP, but the opposite applies when 100,000 homes are not built. Next time you go past a big rail or road construction site look at how much of the work is done by big yellow machines made abroad – in contrast housebuilding is relatively labour intensive. The big direct stimulus for housebuilding that we have seen so far is NewBuy but as I have argued many times before it does not follow that what is good for housebuilders is also good for housebuilding.
There are also worrying signals emerging ahead of the second part of my good news case: the Montague report on institutional investment in private renting. Extra investment by pension funds and insurers in private rented housing has to be good news on the face of it, and even more so if housing associations win a major role in provision that allows them to cross-subsidise other activities. But what if the recommendations amount to allowing the private rented sector to cannibalise the funding streams of the social sector. That’s exactly why leaks about changes to section 106 rules to allow private rented homes to count as ‘affordable’ and loans to private renting squeezing out grants to social renting are so worrying (see Inside Housing’s story on this from the end of June and The Guardian’s from Saturday).
That is very much a debate to come when the Montague report is published (this month seems to have slipped into the next few weeks on that). For the moment, the crucial issue surely has to be that it is in the government’s own interests to boost construction of new homes and it is not yet doing remotely enough. Only one thing would generate growth and jobs more quickly – cutting VAT on repairs and maintenance, maybe on a time-limited basis – but the politics of that one did not seem to work out too well for David Gauke yesterday.
From Inside edge
Housing commentator Jules Birch puts the latest news in context