George Osborne will present a summer Budget on 8 July. Whether we will hear much about property, I am not sure, but this may be a case of silence is golden for the sector.
Imagine the parallel world in which Ed Balls was presenting a Labour Budget, replete with mansion tax, the abolition (with exceptions) of non-dom status and the rest. Imagine the preparations for Labour’s “use it or lose it” plans for developer landbanks. It could all have been rather different.
Because I suspect Osborne will not mention it in his speech, let me say a few words for property and construction, because we have had good news on the economic contribution of both in recent weeks.
Real estate accounts for 10.8% of Britain’s gross domestic product. Although chancellors like to talk about the “march of the makers”, property actually makes a bigger contribution to GDP than manufacturing (10.1%).
Real estate, moreover, has shown strong growth every year since 2008-09. In the first quarter of this year the sector was 18% bigger, in real terms, than at the low point of the recession and well above its pre-crisis level. Its growth has outstripped that of the economy as a whole, which is 11% above the recession low. And, while there have been times when overall growth in the economy has threatened to peter out, this has not been the case for property.
The other big and related news is for the construction industry. It had a much worse recession in 2008-09 than real estate, suffering a 17% plunge in output. In fact, if you take the definition of recession as two successive quarters of falling output, construction went back into recession in Q4 2014 and Q1 2015. Not good.
However, the Office for National Statistics has had another look at the construction numbers and they show a very different story. A sector that was supposedly a big drag on the rest of the economy has suddenly become something of a star. Without going into detail, the ONS was overstating inflation and thereby understating output growth for construction.
The effects, and we may not have seen the last of them, are dramatic. So in those latest two quarters, the annual growth rate was revised up by between four and five percentage points. Construction output in Q1, instead of being down by 0.3% on a year earlier, is now reckoned to be up by 4.4%. For the final quarter of last year, annual growth of 4.5% has been pushed up to a heady 8.9%. The new numbers only go back to the start of 2014, so there may be more changes to come for earlier years.
The lesson here is not just that official figures get revised, it is that these things can be self-feeding. Gloomy figures can contribute to a lack of confidence and can therefore be damaging. Fortunately, we also have industry surveys and the purchasing managers’ index to go on, and they have consistently been stronger, but sometimes they struggle to be heard against the message from the official statistics.
The message now is that both property and construction are doing well, and contributing significantly to the recovery. Don’t expect to hear the chancellor shouting that from the rooftops, but it is true.
David Smith is economics editor at The Sunday Times
