Budget 2013: A missed opportunity on housing

Given that the UK economy is in its longest downturn for 100 years, we desperately need growth, and we need it now. Unfortunately, although there were some welcome measures included within the Chancellor’s statement, an opportunity was missed to significantly increase the number of new homes built across the country, which would have provided a much needed short term boost to growth, and helped ensure longer term economic prosperity for many of our cities.

The Chancellor did unveil a series of measures aimed at increasing access to home ownership in his Budget. Shared equity schemes were extended, and bank guarantees were introduced to underpin £130bn of new mortgage lending for three years from 2014. While it is positive that the Government recognises how many people are struggling to buy their own homes, these initiatives do not address one of the fundamental issues affecting the UK’s housing market; a chronic long-run shortage of housing.

The reason why house prices are so high in this country is because we’ve consistently failed to build enough homes for the last 40 years.  The worry is that increasing the availability of credit to buy a home will simply compound the problem by increasing demand in a system that has too few houses within it to begin with.

High house prices pose one of the biggest threats to the future economic performance of some our fastest growing cities, as they risk pricing workers out of buoyant labour markets, and discouraging firms from locating there. This is particularly concerning for cities like Brighton, where the average house costs 11 times average earnings; London, where the ratio is almost 14 to one; and, Oxford, where it’s 15 to one. New homes are required in these places to support both short term growth and longer term economic prosperity.

Taking decisive action to boost the supply of housing could provide a significant boost to short term national growth too. It is estimated that building an additional 100,000 homes in the UK (something that we need to do to meet our annual housing targets given current build levels), would generate an additional one per cent of GDP, and support up to 150,000 jobs.

It was disappointing that there was relatively little in the way of direct interventions to boost housing supply within the Budget, bar a commitment to fund an additional 15,000 new affordable homes. This is to be welcomed, but it is clearly not sufficient given the need for short term growth, and the longer term housing challenges we face as a country.

Instead the Chancellor should have acted to ensure that existing housing initiatives such as Get Britain Building and the New Homes Bonus are aimed explicitly at restarting stalled developments in cities where the economy and housing markets are strong, and where the biggest economic impact is likely to be felt. More could also have been done to lift the borrowing restrictions on local authorities and housing associations that prevent them from playing an expanded role in producing housing across a range of tenures

Elsewhere the quality of existing stock, rather than the requirement for an increase in the number of homes, is the most pressing housing issue. In cities such as Burnley, where one in 14 homes is empty, more could have been done to focus on improving the bricks and mortar they already have through retrofit or replacement schemes. Not only would this improve the standard of living for residents, it would also have an associated short term economic impact that comes with such activity. Whereas it’s estimated that 19.9 workers are required for every £1m spent on new housing output, 31 workers are required for the same spending on repair and maintenance.

Fortunately, the Chancellor does have another opportunity to do more to boost the supply of housing and expand the retrofitting of existing stock. In just a few short months he will preside over the next Spending Review. When he does so, we would urge him to think again about what more he can do to boost the levels of new build housing and retrofit programmes for existing stock. In an economy desperate for short term growth, there are not many better bets than housing.