The longer the economy is flat on its back – and the UK is now heading into a fifth year of recession or very low growth – the more desperate the government will get to find any way of pumping life into it. We’ve already seen calls for massive spending on infrastructure, despite the fact that, the London airport aside, there is very little evidence that the UK suffers from any shortage of roads or railways.
We’ve seen dozens of ideas for the Bank of England to prop up businesses by giving them freshly minted money. The latest wheeze is to rip up the planning laws and allow developers to pave over the countryside with new factories, offices and branches of Tesco Metro. The trouble is, it is not going to work.
Prime Minister David Cameron was making the case for more building in his speech to the Confederation of British Industry, the business lobbyists, earlier this week. He promised to make sure that judicial reviews, which usually hold up any planning decision for years, are radically cut down. Planning restrictions on people extending their homes have already been thrown onto the regulatory fire.
The Adam Smith Institute, a think tank, earlier this year called for the scrapping of the green belt and received a sympathetic hearing. If it weren’t for the Lib Dems, the government might well have gone for it – and it may still do over the next couple of years.
It certainly needs to do something. By the time of the next election in 2015, the economy may well be no bigger than it was in 2010, and the UK will almost certainly have lost its triple-A credit rating. It won’t be much of an economic record to fight on.
True, some of the planning laws are nonsensical. There is far too much bureaucratic red-tape – and scrapping it is as useful as getting rid of any other over-burdensome regulation.
And there is some evidence that building booms can lead the way out of recession. It worked in the 1930s. Just take a look at the vast swathes of ‘metro-land’ on the outskirts of most of our major cities. The neat rows of suburban semis were built in the mid-1930s – and the work they created meant that the UK recovered from the Great Depression far faster than many other major economies.
Likewise, in the 1980s, the right-to-buy scheme, which sold off council houses, and the rapid deregulation of the mortgage industry, led to a boom in home ownership. The vast amount of spending that generated helped fuel the recovery from the deep recession of the early 1980s – and laid much of the basis for the recovery of the 1990s.
But it’s not going to work this time. There is very little evidence that the UK doesn’t have enough real estate. True, there are some sections of the housing market where there is not enough supply – affordable starter homes in London, for example. But those examples are rare. In most places, house prices are static or falling. And while that partly reflects the disappearance of easy mortgages, it hardly suggests demand is overwhelming.
In the commercial market, there is too much property, not too little. And a lot of new stuff is going to come onto the market. Retail is in deep structural decline. The rise of the internet means a lot of shops are going to go out of business. One in ten high-street stores are now empty.
There won’t be many takers for those Comet stores that will soon be empty. Most of them will have to be converted to other uses. Old shops in town centres can easily be turned into houses or small offices. Out-of-town sheds can be turned into factories.
Or indeed homes? Laughable? Perhaps not. A generation ago the idea of old wharfs being places for people to live would have seemed ridiculous. Now apartments in converted docks change hands for a million or more. Who knows, a flat in an old Comet building might be just as desirable one day. There is certainly nothing else useful to do with all that retail space that was built in the last decade – and a lot more of it will come onto the market in the next few years.
Worse, our demographics are about to go into reverse. The population has been growing in the last few years, but only because of mass immigration. The birth rate only hovers around replacement level. But people don’t move to zero-growth countries. If there are fewer people, that means less demand for property.
In the 1930s, people were moving out of slums into comfortable homes. In the 1980s, home ownership was exploding, and waves of immigrants were about to come into the country. Nothing like that is happening now. In fact, the demand for real estate is more likely to fall than rise.
Preserving the environment matters far more. The only way for a developed economy like the UK to grow is to move upmarket. The UK needs to be an attractive place for people to work and live – and while lower taxes would help, so would pleasant, manageable environments for people to live and work in.
Trying to kick-start a building boom is just another way of trying to reflate the debt bubble. Property developments are built with speculative, borrowed money.
What the UK needs to do is fix its structural problems – too much debt, and too much state spending. A building boom won’t help. It will just create more debt. Most of the loans will go bad – and that is surely the last thing the UK needs.