Have your say….
Recent weeks have seen the harsh media spotlight fall on the Government’s increasing attempts to stimulate new home building across the country, in an effort to kick-start the UK economy. A debate has broken out over whether building our way out of recession is the right cause of action, and we analyse some of the arguments below.
In our last newsletter, published on 5th September 2012, our Editor’s comment focused on the potential impacts of stimulating new house building; ie. a short term stimulus and long term damaging affect to the existing housing stock and the economy as a whole. You can read the full article from our very own Editor, a practicing Chartered Surveyor himself, by following this link.
Subsequent to that article, a number of other pieces have been published in papers such as the Guardian exporting similar ideas. The consensus among opposition to the build strategy is that this sort of thing has been done before, unsuccessfully. The horror stories of Spain, Ireland and Portugal, encapsulated in the streets and projects left empty, and even being demolished just a few years after their construction, have been cited as warnings to over stimulating house building. Grand examples like that of the new airport at Castéllon, north of Valencia, which has stood empty since its completion in March 2011, add credence to this argument.
Those nations built at incredible rates for many years, producing a speculative bubble of investment which eventually ended in rapid price deflation and recession, when investors finally realised that demand in the economy would not satisfy the inflated prices and senseless nature of housing they were creating.
Counter to this, it has been argued that the sheer scale of this construction is nothing like that which the UK, even with a huge stimulus, could possibly achieve. In 2005 alone, over half a million homes appeared in Spain, and in 2006, the number of construction starts in Spain outweighed that in of the UK, Germany, France and Italy combined. The British Government is not proposing anywhere near that sort of level and strict controls on mortgage access, of which weak versions in Spain added to the speculative bubble, are expected to keep any speculative effects down.
Nonetheless, small scale effects are already being reported here. The last Government’s strategy of brownfield development aligned to subsidy programmes like ‘housing market renewal’ led to a large amount of inner city flat developments. Even now there are hundreds of empty flats in town centre developments in places like Ipswich, which still claim to have a housing shortage.
Perhaps the UK is not headed for a Spain-esque meltdown with such a policy, but the real issue is whether this is the right direction to be going in or whether those funds could be better spent elsewhere.
As was stated in the aforementioned Editor’s Comment, boosting the supply side of the market is an easy option because Government has a certain level of control. But when demand within the economy is not sufficient to meet this supply, the effect will only be to leave more empty homes, of which there is already estimated to be over 700,000, and weaken the position of the incumbent housing stock; forcing down prices of less attractive, established property.
Although undoubtedly there are hundreds of thousands of potential homeowners with the will to buy property, there is neither the money or the available credit within the economy to facilitate such a thing. Plenty of people will want these new homes, but few will be able to purchase them.
Even with Government help on the demand side with schemes like the reinvigorated ‘Right to Buy’ policy, success has been few and far between. A recent report showed that only 4 per cent of people who have expressed an interest in buying their home under the scheme have managed to complete a sale.
The solution suggested by some is particularly harsh; leaving the property market to the punishing world of market forces, allowing prices to fall and settle more in line with incomes, which will, in turn, stimulate demand. The human consequences would be prohibitive for many, with repossessions and equity traps just two of the main problems.
The alternative solution to leaving the market to the ‘invisible hand’ of market forces is to manipulate supply directly and create new, cheaper housing at the lower end of the market. Timber properties are more popular in America, despite greater and more extreme variations in weather, and we wrote an article recently about a form of industrial printing that could vastly lower costs.
The Editor’s Comment in last month’s newsletter revealed our position on the issue, but what about you?
Comment below and let us know how you think the Government should approach stimulating the ailing housing sector. We’ll put the best comments out on our social media pages and you can remain totally anonymous if you like (just start your comment with the word ‘anonymous’).