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Injecting QE into house building will work

Those of us in the house building world have been in the doldrums long enough now to grasp the straws of hope when we see them. And this year, thanks to the perfect storm of house building figures being at least 50,000 below target, the general economic malaise and rising unemployment particularly among young people, my long-suffering peers and I have a growing sense that next week’s Budget might just be the one to deliver for the industry.

The wider economic woes are well documented elsewhere. House building starts in 2011 were a little under 110,000, and early indicators for 2012 reveal little to get excited about.

When housing minister Grant Shapps announced in 2010 that he would be judged on his record of achieving more housing starts at the end of his tenure than were achieved before the recession, it seemed a little fanciful.

The best pre-recession house building year for completions was 2007, with a touch over 175,000 built. Considering that you have to look back to the 1960s and a more liberal planning regime for a double digit year-on-year percentage rise in building completions, Shapps looks likely to fail to meet his target.

I’ve heard many reasons why house building remains resolutely low compared to most of our aspirations. They range from the theory that builders constrain the number of new homes being released on the market each year below a certain percentage of house transactions for fear of affecting resale prices too much. Another more mainstream one puts it down to uncertainty over final values.

The point, though, is the same – for private sector housing, it’s the market that will ultimately decide supply. So is house building in a failed market state, needing state intervention and labelled in the same way as banking, care homes and all the other subsidised industries?

Well, if supply isn’t meeting demand, then the answer has to be probably yes – and therefore the Budget on March 21 offers the perfect opportunity for an extra helping hand.

The proposal rapidly gaining traction among leading housing figures is radical, but direct and likely to be effective. It is for the Bank of England’s programme of quantitative easing to be redirected from gilts straight into the house building industry.

A detailed proposal by the influential Construction Products Association suggests that a newly-established not-for-profit company gets funded by QE and goes on to buy land for development, provide finance for developers and generally make things flow a bit better in the housing sector.

After all, the whole purpose of QE is to boost the economy through better liquidity. While there is some evidence that the existing rounds of QE have had a positive impact on the economy, a growing number of commentators suggest that its effectiveness is gradually weakening and is not doing the job it was meant to.

Pumping money into the economy is a hugely powerful tool and most likely inflationary, but so far it doesn’t seem to have touched the working, ordinary economy.

Imagine the impact that a £50bn injection into the housing industry would have and the immediate benefits it would derive. That’s because, of all the economic sectors, house building is one with the most potential to grow and is the most likely to have a significant and immediate impact on boosting employment.

A booming building sector is a quick tax raiser – house building, VAT exemption notwithstanding, is heavily taxed through fees.
And income trickles down quickly into the local economy, as house builders tend to spend their money at local builder’s merchants, on local professionals and on local tradesmen.

Culturally and historically, nothing has been a more obvious bellwether of the economic climate than the state of the housing market, and one’s house price is a prime indicator of how rich we feel and how confident we are as consumers. You can easily grasp the positive benefits.
Just as many experts concede that the wider economy needs intervention, it seems all too clear that the housing sector needs a programme for growth. Relying on the old argument about the waiting for the economic climate to come round just won’t wash – we need a stimulus and now’s the time.

I’m not sure what other avenues are open to the chancellor. The housing industry enjoys significant tax relief as it is – new house building is exempt from VAT. He could stage a dramatic intervention on the Community Infrastructure Levy, but that seems unlikely given the fact that it has been so warmly embraced by local authorities as a means of plugging the significant hole in their finances.

The planning regime, it appears, is gradually being liberated but progress is slow and every new major development is still greeted by popular protest.

On the demand side, the Stamp Duty holiday for first-time buyers on properties up to £250,000 has seen some boost in numbers at this end of the market. The holiday is due to end on March 24 and many house builders are hoping for an extension.

Are we likely to see a radical approach or more picking at the edges? Enough Budgets have come and gone for realism to kick in and for us all to accept that what makes perfect sense to those in the housing industry doesn’t necessarily get picked up on by government.

But with house building levels so slack and the economy so desperately in need of a dramatic pick-me-up, we must hope that building will be given the boost it so desperately needs. The rewards are all too apparent.

A growth programme for housing – the kind of immediate injection that only QE can provide – might just be the clever solution that we’re all searching for.




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