Building infrastructure isn’t building homes

Builders on building siteIn 2012, we reported on the government’s proposal to increase the level of construction of large scale infrastructure (speeding up the planning and other processes to enable these projects to get under way more quickly). The measure was seen at the time as a practical and potentially effective way of helping the economy get back to a greater level of economic activity.  It was a viewpoint shared by many that some long term activity could only help the economy as it bumped along.

However, the politicians include private house building in this ‘infrastructure approach’ when it is fundamentally a different issue.

When residential private house building is artificially boosted by a change in the planning approach or  fiscal reductions, changes in 106 agreements, or other means, this will have a detrimental effect in the medium and long term on existing housing stock, and therefore the overall economy.

Whilst in the short term there is a boost to local employment and the associated spin offs, in the medium and long term, the effects can be to prolong the fundamental imbalance between supply and demand in the housing sector.

Progress is made within the wider property sector overall (which is arguably the biggest economic sector in the UK) when there is an excess of demand over supply such that there is a consequential uplift year by year in residential property prices.

This provides a positive outlook for an area as a whole including all the associated spin offs for home improvements, the DIY sector, carpet and furnishing companies, as well as for local builders with new kitchens and bathrooms, house extensions and a natural demand and desire for house builders to build new properties without artificial stimulus.

Flooding the market with new homes

Using artificial means to help flood the market with new homes does not help the economy.  Invariably, these are built by large building companies with individual or collective lobbying power in Westminster.  This additional supply actually stifles the rest of the market by removing excess supply or extending the period of supply over demand for housing.

This results in a longer period before house prices can stabilise, those in negative equity can move or people have a positive approach in order to contemplate other economic activity, such as home improvements, etc. 

This prolonged imbalance of demand and supply means that, unless you are a shareholder in one of the major housebuilders, every new home built is an increase in the oversupply in relation to the existing demand.

You don’t boost an economy by perpetually boosting supply just because it is easier to influence.  The government has to boost demand to create a thriving property sector and this in turn will help drive forward the rest of the economy into a new sustained era of prosperity.

If you’re buying property, whether new or old, a Chartered Surveyor will overlook the condition and structural elements of your new property to help you safeguard your investment.

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