One of the most pleasing aspects of the government’s housing strategy was the acknowledgement of the beneficial impact of investment in housing to the wider economy.
The strategy says: “Getting house building moving again is crucial for economic growth. Housing has a direct impact on economic output, averaging 3% of GDP in the last decade. For every new home built, up to two new jobs are created for a year.”
It goes on to say: “Without building new homes, our economic recovery will take longer than it needs to.”
There is now a belief at the highest levels of government that investment in new home building is a good thing and vital to the economic health of the nation.
This builds upon work published last month by the housing charity Shelter, funded by Legal & General.
Shelter commissioned two of the country’s leading economists to write papers outlining the economic case for housing investment. One, by Vicky Pryce of FTI Consulting, describes the “multiplier effect” of investment in housing, showing that for every £1 invested in housing construction there is a £2.09 economic impact more widely.
This “multiplier” comes about from the money that house builders spend buying the goods and services to build houses, the wages of those involved in the construction – from planners and architects to plumbers and bricklayers – and the impact of the spending of their wages in the wider economy.
What’s even better is that very little of this money “leaks” out of the UK. The real economic impact of the spending is in the UK rather than abroad, spent on the materials that we produce locally and on local wages.
This “multiplier” compares very well to other forms of investment that the government might consider, such as “advanced manufacturing”, which has a lower multiplier of 1.7.
So can providing more and better housing become the economic engine of the UK recovery?
We certainly hope it will. For there have only been a few years since the war when we have built enough homes to meet demand and cut into the backlog – in the 1950s under the Macmillan government and in the 1970s under Wilson.
If all the initiatives announced in the housing strategy – the £400m for the “Get Britain Building” fund to assist building firms, the freeing up of public sector land for 100,000 new homes, the initiatives to re-start the 133,000 units in “stalled” developments and others – come to pass, then that multiplier will really be doing its job.
The Shelter research pointed the way and the government’s housing strategy has vindicated the findings.
As the strategy says: “The current challenging economic and financial circumstances make action on housing even more important to lay the foundations for stronger growth and stability in the future.”
Amen to that.
Stephen Smith is director of housing at Legal & General
