Blackfriar: Use QE cash to get Britain building and back on its feet

The Government has instead dangled a few stringy carrots before buyers and housebuilders, such as shared indemnity schemes and a stamp duty holiday, in the hope that the market delivers the solution.

It hasn’t. Production of new homes remains pitifully low.

Figures from the Department for Communities and Local Government show that compared with the 2005-6 peak of 233,890 housing starts, there were just 139,430 starts in 2010-11.

One stockbroking firm is advocating a far more imaginative use of the Government’s newly created cash from quantitative easing (QE). The Bank of England has so far authorised the purchase of up to £375bn of mainly government debt, in an effort to boost the supply of money in the economy and encourage more lending.

But writing before the BoE’s recent start of another £50bn round of QE, Gerard Lane, analyst at Shore Capital, said QE cash should be used to get Britain building.

“Just as the State which had developed in the first half of the twentieth century proved inadequate to the tasks confronting the Great Depression, we would suggest that the State’s impotence to enable growth in current times is similar,” he said.

“With low inflation and low growth, we would welcome not just more QE, but better use of QE. We would suggest the Government take a long-term view in relation to UK housing.”

The grand infrastructure plan announced yesterday will see Government use its ability to borrow for next-to-nothing to underwrite £40bn of private investment in infrastructure.

Housing barely gets a look in. Instead, projects in transport, utilities, energy and communications will get the guarantees.

But housebuilding is a rapid way of getting cash flowing through the economy. It delivers a quick boost to the economy, providing employment, increasing supply, and lubricating the sale of goods from washing machines to carpets.

This week’s revelation from the 2011 census that the population of England and Wales has grown by 7.1 per cent over the past decade to 56.1m makes the need for new housing all the more important.

With household sizes shrinking, and an extra five million people forecast to swell Britain’s population between 2010 and 2020, around 250,000 more houses need to be built per year.

Lane reckons £50bn of QE could be used to build an extra 1.5 million homes, creating 800,000 jobs, cutting welfare costs and reducing housing costs in the long term.

Industry figures estimate that for every £1 spent in construction, there is a £2.84 boost to the economy.

Sadly, Blackfriar doubts the Government will adopt Lane’s unorthodox approach and authorise a massive state-funded building programme.

But getting Britain building would be a significant step towards hauling us out of the mire. Desperate times call for innovative measures.

The IPO market appears to have gone into hibernation.

Just one main market initial public offering (IPO) hit the London Stock Exchange during the second quarter, as woes over the eurozone crisis and recent stock market flops put off investors.

The Alternative Investment Market (AIM) fared slightly better, with 11 new listings during the quarter, including one by Sheffield technology firm WANdisco.

Subdued activity continues to cause turmoil and consolidation in the stockbroking and investment banking community, with some analysts fighting for their jobs.

Jonathan Keeling, chief executive of brokerage Arden Partners, said one positive from the continued upheaval is a ready supply of willing recruits who accept lower wages.

“For the first time we are seeing wage deflation and a broad pool of talent available at more competitive remuneration levels than has been seen in a long time. It is likely that continued weakness for the rest of 2012 will further drive excess capacity out of the market.”

But there’s another silver lining for some. As one chief executive, whose engineering company has been on the receiving end of some scathing analyst commentary, put it to Blackfriar recently.

“Analysts are having a tough time. But I’m not losing any sleep over it.”