The housing news from the US is good. After three months of decline, the pick up in housing construction is pronounced. Starts rose by 5% last month – down from a year ago, but encouraging. It suggests that the Federal Reserve chairman was right in suggesting that the American housing market is making a reasonable adjustment on the overheated expansion of recent times. The market can therefore look with some confidence on what will be a continued gentle downward trend but without the collapse many had feared. This is good news for the UK, where the doomsters were confidently suggesting a knock-on slump, driven by the US experience.
However, two other issues stand out. First, despite the low interest rates and the generally good feeling about the US economy, there is still a general unwillingness to buy a new home. This attitude seems to originate in media speculation. Commentators can have a huge effect on the housing market, particularly when, lemming like, they all forecast doom. In the similar situation in the UK, however, we have seen little reaction at the continuing warnings of downturn. I believe it to be because the picture here has been more confused. A spate of stories on such examples as the London mini-boom have given contrary views about the market even when “expert” commentary has continued to be almost universally downbeat. The warning must be that any sharp change, however temporary, will give greater credence to the pessimists and that could start a more precipitate and prolonged fall in prices. (That, incidentally, is another reason for fearing HIPs.)
It must also be said that the supply and demand situation here is wholly different from the experience in the States. That is exemplified by the second figure taken from these quarterly returns. Despite the moderation in demand, the annual rate of housebuilding in America is now 1.9m units. Taking our completions as 160,000, the contrast is remarkable. At their rate, we would be building 310,000 homes annually, which, coincidentally, is the rate we need to keep up with the UK’s real demand and make up for the growing backlog. So Mrs Kelly’s 200,000 by 2016 looks even less credible. Stability in the US should therefore give us greater confidence in the likelihood of continuing reasonable growth in the UK. However, the volume of completions ought to remind us of the market failure in this country as compared with America. Radical changes are essential if people are to be housed.
Interestingly, the position on supply and demand in the two nations is widely different. While, in 2006, the US gap between starts and sales is the largest it has been for more than 20 years, here it is the exact reverse. The excess of demand over supply in the UK has not been so great since 1950. However, America has largely a free market in housing construction and, of course, land availability is easier.
Here, the government is much more involved in housing provision. Its determination to produce “affordable” homes is distorting development and we pay the price in cost, delay and in the number of homes built. It is a fact of life that housing is likely to be most short in countries where supply is most distorted by government interference. In that sense, the Treasury is right to be concerned about the disparity with the US, but utterly wrong to think that more taxation and enforced affordability is the answer.
The reason for Labour’s stubbornness in its intention to introduce a development levy and its refusal to understand the harm that it will do to the lives of thousands of families remains a mystery. We’ve been here at least four times before and the result has always been the same. Land has not been brought forward, housing starts have diminished and the excess of demand over supply has increased. I know the chancellor is in dire trouble about balancing the books but he really must look elsewhere to meet the shortfall. Housing our people is now an urgent political issue. Freeing up the market is the only way to make a difference, but the Treasury seems utterly bent on doing the opposite.
John Gummer is Conservative MP for Suffolk Coastal and a former Secretary of State for the Environment
