Blackfriar: A measure of boldness needed to kickstart housebuilding

Fed up with five years of economic mire, many business leaders now appear to believe a housebuilding boom can help Britain return to growth.

On Tuesday, the Building Societies Association joined business lobby groups the Confederation of British Industry and the British Chambers of Commerce in calling for a housebuilding drive to get the economy growing.

“House building is an important growth engine for the UK economy,” said the BSA.

The CBI demands 50,000 affordable homes at a cost of £1.25bn, which it says would pump £18bn into the economy and create 75,000 jobs.

The BCC wants 100,000 extra new homes to be built by Government or housing associations by 2015.

Unsurprisingly, the Home Builders’ Federation also sees a housebuilding boom as key.

Not all agree on how this would be achieved – while the BCC favours more borrowing, the CBI is dead against.

But however funded, there is a clear need for more housing: 1.8 million households are on waiting lists for social housing. Social housing stock has been sold off and private rents are soaring.

Housing schemes are a rapid way of injecting money into the economy: the well-known adage is that every pound spent on house building generates £2.84 for the wider economy.

So why the reluctance?

Far from doing nothing, Government has been trying to boost the housing market, but through more nuanced stimulus schemes.

Programmes such as NewBuy, FirstBuy and Funding For Lending incentivise banks to lend, people to borrow and builders to build.

But these are market-led schemes, with a bit of Government intervention, rather than the outright State-sponsored building programme many want to see.

Sir Michael Darrington, former chief executive of Greggs the baker, this week called for £100m of quantitative easing cash to be spent on housebuilding, complete with compulsory purchase orders of farmland and new co-operative building companies.

Business secretary Vince Cable threw the debate wide open by questioning if capital investment – especially in council housing – can be “greatly expanded”, funded by more Government borrowing.

“Such a programme would inject demand into the weakest sector of the economy – construction – and, at one remove, the manufacturing supply chain (cement, steel),” he said. “It would target two significant bottlenecks to growth: infrastructure and housing.”

With Britain’s AAA rating no more, the debate around growth is clearly shifting toward the blunter tool of fiscal intervention, rather than the monetary approach favoured thus far by the Treasury and Bank of England.

Most housebuilding in the UK is currently done by large privately-owned or listed builders.

Housing associations, behind only about 20 per cent of output, and councils, responsible for a mere fraction, would deliver this building boom.

The listed housebuilders have been rather less vocal on the need for a building bonanza. Perhaps that’s because the status quo rather suits them.

The likes of Persimmon are dependent on a steadily-improving market, with stable prices and minimal land price inflation, as they attempt to maintain their earnings equilibrium.

Blackfriar suspect the last thing they want are big, distorting market swings, from a flood of cheap homes depressing prices, or a new cash-rich buyer in the land market.

“We are pleased with what the Government has done to support the industry and stimulate the housing market,” said Persimmon’s chief executive designate Jeff Fairburn recently. “We would like to see steady, sensible growth.”

So will George Osborne open this Pandora’s box and trigger a major building boom similar to that seen in the 1930s? Blackfriar hopes so but doubts it. Instead, the Budget is likely to see more tinkering around the edges, such as cutting red tape around housing. Unprecedented economic times call for boldness. Is George bold enough?

Morrisons is playing it coy as to whether it will or won’t announce the long-awaited launch of an online grocery service today, but Blackfriar has promised to eat both notepad and pen at the press conference in London if it doesn’t.

Chief executive Dalton Philips has claimed that its rivals don’t make money on their internet food service – something they deny.

After two years’ researching this market, Morrisons will have to come up with something pretty spectacular to appease shareholders who are weary with falling underlying sales and the promise of jam tomorrow.