Building a better economy

Buried by news of British Olympic golds last week, the Bank of England admitted it had called the economy wrong. A year ago it said growth for 2012 would be 2 per cent. Now it predicts “near zero”.

The shock of double-dip recession has jolted the Government into backing construction to create new jobs and economic growth.

So big investments in rail, energy and communications have all been announced in recent weeks. But these projects are long term and little help now.

Ministers have missed the obvious – new homes.

The National Housing Federation say building an extra 100 000 homes will generate around 750 000 more jobs. And when I launched ‘Rebuilding Britain’ in 2009 to help the country pull out of the deep recession caused by the global financial crisis, every £1 million of public investment in house building produced 11 jobs. Rapidly, and right across the country.

Britain’s fresh recession has hit house building hard. Fewer than 118 000 new homes were built in England last year when independent statisticians tell us that our changing society and growing population requires 240 000 every year just to keep pace.

There’s a powerful economic case for housing investment, and a powerful social case too.

But the market has been failing. So has public policy, and all political parties are at fault. Our housing failures over decades have created a quiet crisis in the lives of millions, as those without a home of their own are forced to sleep on friends’ sofas, unable to move out from their parents or put off having a family of their own.

I expect economic policy desperation to bring a fresh flurry of Government interest in housing. So, mindful of the warning that those who fail to learn from history are doomed to repeat it, I’ve taken a close look at what we’ve done in England over the last 25 years.

We need to build more homes but more of the same will simply repeat three big mistakes.

First, we’ve not built enough homes to meet the needs of our changing and growing society. There are nearly two-thirds more single people of all ages living on their own than there were 20 years ago, and twice as many single parents with children.

Second, we’ve not built homes for all. Since the War, social housing has had a central place in our society, providing homes for the poorest or most vulnerable and settled mixed communities for many who simply want the security of a home to call their own – one in three of those in Britain’s council or housing association homes are working.

But in the last decade we built an average of only 236 new council homes a year, until I changed the rules as Labour’s housing minister in 2009 and started the biggest council house building programme for nearly 20 years. Still insufficient, but a demonstration of what councils across the country can do.

Housing associations have also fallen far short of what is needed, building fewer than 190 000 new homes during the last decade as council waiting lists in England rose to over 1.8 million. Now the Government’s 60% funding cut means many have mothballed plans to build.

Third, we thought we were building to meet the dream of homeownership, when we’ve done more to meet the demand of small buy-to-let landlords. Since 1991, 2. 8 million newly-built houses have been sold across England but the number of people owning their homes has increased by only 1.4 million.

Nearly one in five households now rent from private landlords. There is no other option for many. And this is no longer just housing for the young and mobile. Over a million families with children across England are building their lives with landlords who can terminate their tenancy at any time with a month’s notice.

We urgently need a much bigger but also a more balanced growth in new homes than this country has seen in the last 30 years.

We need the public and private sectors both playing a big part together, and local government with a lead role.

Unlike central government, councils have the land, planning powers and community mandate. They also have very low levels of debt. Local government’s net debt is less than 5%, whilst national government’s soared above 60% with the fall-out from the global financial crisis and is still rising.

Not all borrowing is bad. It’s indispensible for long term investment and infrastructure. And it’s certainly sensible when the cost of capital is historically low, as it is now.

If the Government loosened central controls a little then councils have the credit capacity to borrow and build new homes.

They also have the will. In 2009 I gave the go-ahead to house building bids from 51 councils of all tiers, from all regions and controlled by all parties. They doubled in two years the total number of new council homes built during the previous decade.

This is the type of “can do” action our economy needs, and the type of investment both the Government and the Bank’s Governor should back.