Economy  

We need to rescue the housing market

Callum Price

Callum Price

As the lockdown continues to slowly wind down, the full impact on the economy is coming into view.

Few now expect a V-shaped recovery, with drastic changes to economic activity and behaviour in store.

If previous downturns are anything to go by, one of the most heavily hit sectors will be housebuilding.

The economic turmoil of the early 1990s saw the amount of houses completed per year fall by 100,000 in England between 1988 and 1992, numbers that did not recover until the mid 2000s.

Similarly, housing starts roughly halved between 2007 and 2009, with it taking nearly six years for completions figures to bottom out.

If the same scale of fall is repeated, the number of homes being built in England could drop by 76,000 - and the industry will take the majority of the 2020s to recover from the hit.

Housebuilding is therefore among the industries that needs urgent attention from policymakers. Planning reform, already essential in the long term, will be critical to the sector bouncing back - and to our ever managing to increase home ownership rates.

But while the government is indeed committed to overhauling planning, it is no quick fix. The first planning permissions delivered under any reforms would start in late 2021 at the very earliest. There needs to be support for the sector now.

The biggest issue with housing supply in England can be boiled down to a single fact: in any recession the slump in private housing supply is sharp and deep, and in any recovery the increase is slow and shallow.

This strange combination of slow boom and sharp bust – driven partly by the long lag times and heavy capital costs involved in housing development – also tends to result in a permanent long-term undersupply of housing. 

To limit any serious deterioration of housing supply in the oncoming recession, the Centre for Policy Studies has proposed, in a new report called ‘Help to Build’, a temporary grant of up to £25,000 for each new build property (capped at a percentage of the ultimate value of the home).

This would be available to all housebuilders who signed up, delivered upon completion of a sale.

This incentive could be used to help potential buyers with a deposit, to support part-exchange purchases, or - if a bulk purchaser can be found - to convert the home into an affordable home for either rent or sale. The only real restriction would be that it could not support buy-to-let purchases. 

Such action would limit the damage inflicted on the housing sector by the lockdown, and ensure that smaller housebuilders and industry supply chains remained solvent.

This is vital as recessions have a longstanding tendency not just cripple supply chains but to increase the power of the larger housebuilders at the expense of SMEs.

The larger players can afford to weather the storm; they have built up cash and land reserves, and maximized the proportion of work done on their sites by short-term contractors.