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How Uk Cities Realize Economic And Community Benefits From Housing Construction
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The burst of the housing bubble in 2008 put many UK homeowners and taxpayers on guard against building. But the benefits of building are hard to ignore.
UK planning minister Nick Boles told The Guardian in early 2013 that Margaret Thatcher’s vision of a nation of property owners will fail if “home ownership will revert to what it was in the 19th century: a privilege the exclusive preserve of people with large incomes or wealthy parents.”
What he was speaking to was the current housing crisis, where only half as many new homes are being built as should be to accommodate the growing British population. With a projected growth rate of 27 per cent over the 25 years between 2008 and 2033, new homes are essential. And yet due to a variety of factors – the credit crunch is cited most often in the wake of the financial meltdown in 2008 – much-needed homes are not being built.
Certain schemes such as the “Help to Buy” programme may work – early reports are that it’s better than nothing. An expanding economy, however, is what would help the most. But of course the two are interrelated – what is good for the housing industry is almost always good for the economy overall (short of housing bubbles, of course).
A report from the Scottish Government: Communities Analytical Services (“What does the literature tell us about the social and economic impact of housing?” 2010) provides an interesting and fairly comprehensive look at the community benefits of a revitalized housing sector that can easily apply to England and Wales as well. It argues that the construction industry overall has a disproportionately large impact on the economy, relative to other industries. The benefits break down into three basic components:
1. Direct economic benefits – In Scotland, construction comprised 10 per cent of the GDP in 2009, employing 5.4 per cent of the total workforce that year. Fiscal stimulus programs in the recession were judged to have saved a proportionate number of jobs in the private sector. The most meaningful impact of additional house building is to improve affordability – something that is critically problematic in England and Wales, where the prices of home are beyond reach of more people than just eight years ago (the portion of housing that is rented has risen by 17 per cent in just seven years). But renting is not a decisive negative: private renting, on the rise in England as well as Scotland, contributes to labour mobility. And key to homebuilders, the impact of all new home building is greater in areas of expanding markets versus those that are on the decline.
2. Indirect economic benefits – Housing wealth as measured by house prices translates into new business collateral (supporting start-ups and self-employment) as well as other forms of credit access. New home building can advantage one city over others in attracting and retaining a skilled workforce. And housing policies that lead to greater ownership rates have an inverse effect on old-age poverty.
3. Social impacts – While the study acknowledges there is a “lack of relevant housing data on the economic impact … of housing on health, education and so on,” it references extensive research that shows the correlation between overcrowding – what is happening throughout the UK due to under-building – and poor “self-assessed physical health as well as stress and mental health problems.” Poor housing also correlates with run-down estates, homeless and low educational attainment.
In March 2013, John Cridland of the Confederation of British Industry (CBI) made an appeal for building 100,000 new homes, with £2.2 billion earmarked for government spending in “high growth areas,” creating 50,000 affordable (lightly subsidized) homes. His push for affordable houses are about making London and other city centres affordable to essential service providers, such as nurses and firemen, as well as the construction jobs created along the way. Worth noting is that this runs counter to the Cameron government’s determination to rein in spending.
The political debate will rage on, of course – the tenets of Thatcherism remain an unsettled dispute several decades after the fact. But with a clear need to build in several critical cities and counties, there should be good data collected over the next several years to feed the discussion – as much as new home construction might feed the economy itself.
Investors are increasingly drawn to the housing market in multiple real asset classes – REITs, via homebuilding companies and those who invest in real asset classes that can be designated for zoning changes to residential and commercial use. As with any investment, interested participants should discuss opportunities with independent financial advisers who can determine acceptable risk.
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