Penfold Associates

The EU Referendum result has certainly brought major changes and more are to come. We have a new Prime Minister and a new Chancellor. Economic policy is being reviewed with some probable movement away from the austerity programmes of the last six years and more emphasis on growth. We have to wait for detailed proposals in the Autumn Statement but it has been suggested that Mr Hammond will give a major boost to infrastructure spending. We can only hope that he recognizes that housing is a vital part of national infrastructure and allocates the funding necessary for a comprehensive housing strategy.

Under the previous leadership of Mr Cameron and Mr Osborne we had a partial housing strategy. It focused only on owner-occupation and was skewed towards demand-side interventions rather than measures that would increase supply. It certainly ignored the needs of people who could not realistically contemplate owner-occupation. But despite a plethora of measures to promote owner-occupation – and despite actions to speed up the planning process – there has been no significant increase in new housing production.

The previous leadership relied overwhelmingly on the private house building industry to deliver more homes. That industry failed to deliver the increase Government wanted. This is not surprising as decision-makers in the industry are driven by the commercial interests of their companies. It is not necessarily in the interests of those companies to over-extend themselves and take on the additional risk of rapidly expanding production. The industry has concentrated on the safer areas of the market and the more profitable market segments. This should not be surprising. Those decision-makers have a duty to their shareholders. This inelasticity in production has been the case historically too. The only times that significant increases in housing output have been achieved since World War 2 have been when there have been major public investment programmes in council housing or housing association homes.

We must hope that the housing strategy in the coming Autumn Statement brings a more comprehensive approach. As well as assisting house-builders and potential owner-occupiers, and encouraging investment in a modern and high quality private rented sector, the new housing strategy and its associated spending programmes should include investment in more social rented housing to meet the needs of people on low incomes. These are the traditional tenants of council and housing association homes whose needs have been ignored in the last few years. It has to be recognized that the affordable housing programmes implemented since 2010 have not adequately addressed the needs of people on the lowest incomes.

There are positive signs. The new Prime Minister made some very inclusive remarks on taking office. The Chancellor appears ready to take the economy in a different direction. Following the Bank of England’s post-Referendum steadying actions, interest rates for Government borrowing are at historically low levels. Now is the ideal time to increase public investment in infrastructure and that investment should include housing. Mr Hammond, however, may face a problem in his own Department. There has already been press comment about the conventional wisdom in the Treasury that infrastructure spending takes too long and is therefore not useful as a tool to inject immediate growth into the economy. This element of “group think” may to some extent explain why the country’s infrastructure investment has lagged behind the level needed for so long. To a degree the alleged view of the civil servants is correct. Planning and building major infrastructure projects does take time. But that does not mean we should not make a start. Also, there is plenty of evidence from the past that housing is one area where public investment can be mobilised and brought to fruition relatively quickly. The most recent example was by the last Labour Government following the “credit crunch”.

At this stage we do not know what Mr Hammond will include in his Autumn Statement. We can only urge him to include a proper comprehensive housing strategy and to provide funding for a housing programme that will meet the needs of people who have been ignored for too long.

Kim Penfold
August 2016