Written by Anne King, Marketing Director BSRIA
Everyone seems to be agreeing over the growing housing bubble. First the European Commission warned us, now Christine Lagarde has said the same at the IMF and George Osborne agrees*. But, what is to be done?
George Osborne is relying on the Bank of England, but this is not just macro-economics. There are policy changes needed too. BSRIA has always viewed a significant increase in housing stock as imperative for our industry - yes, Help to Buy is giving first-time buyers a foothold on the housing ladder, but many economists feel that it is just increasing pressure on the demand side when so little is being done about a critical lack of supply.
The latest statistics seem to show that the take-up of Help to Buy is less dramatic than first believed (sales through the scheme currently equate to less than 3% of housing transactions since the launch 13 months ago). However, the scheme does seem to be encouraging riskier lending - there is a rise once more in competition amongst banks to provide high loan-to-value 95% mortgages. So, we would advocate a change in focus towards schemes that provide more long-term stability in the housing market. New housing starts now need not only to reach 200,000 a year, they will need to stay there for more than a decade if we are to get anywhere remotely near the supply of new dwellings that we need.
But a lot more will need to change to build at that rate. Many argue that the supply is being held back by planning and other restrictions. Be that as it may, if the plots are released we need skilled people to do the building. One way is to recruit more people and the other, probably more sustainable in the long term is to improve productivity.
In the same report, the IMF notes the need for better productivity growth in the UK economy. UK National Accounts data shows that over the last decade, construction productivity grew by only 0.5, well below the average of 1.8 for all industries and services (Multi-factor Productivity - Indicative Estimates, 2010; John Appleton and Mark Franklin, ONS, Sept 2012). The industry is now investing enough to produce good productivity growth, but this is only just adequate to offset the decline in intrinsic labour efficiency. We have certainly learnt some, but not yet enough, of the lessons of twenty years ago when BSRIA reported that almost half of a typical operative’s day could be considered as fully productive. Time was wasted on many unnecessary things such as waiting for materials, or for other trades to complete a task, on rework, or on dealing with variations. (Hawkins, G. Improving site productivity, BSRIA 1997).
We need to tackle this housing bubble from both the supply and demand side and although some of this is in government hands much of it lies with us in industry.
* IMF sounds alarm on UK house prices but changes its tune on austerity, Phillip Inman, The Guardian, 6 June 14