The Policy Exchange think tank believes we should sell off vacant council housing to fund more new build homes, Sir Adrian Montague thinks that ditching Section 106 affordable housing in favour of a private rented sector would boost housing investment and construction, and this week City broker Tullett Prebon called for a £10bn social housebuilding programme.
The summer holidays saw most of the country enter slowdown mode, but production of “kick-start the economy action plans” certainly seems to have picked up.
While these reports at least acknowledge the importance of construction as an economic multiplier, they essentially offer variations on a housebuilding theme. But housebuilding has only ever accounted for about 10% of output, and most of the stimulus attempts so far have all foundered on lack of mortgage availability and investment returns (although we are promised more government intervention on housebuilding next month).
Likewise, we often hear about infrastructure as a way out of recession, a possibility bandied around this week in the Heathrow versus Boris Island debate. But anyone waiting for the “infrastructure” effect will have to wait out the consultations, the planning process, the legal challenges, the design phase, the procurement phase – hardly a quick fix.
So it’s positive to come across five new ideas on how government can apply policy levers to encourage more construction activity – although their author likes to point out that these “new” ideas are, in fact, old recycled ones.
David Trench: Ideas
Veteran project manager David Trench FCIOB, now retired after a long career in construction, believes we can draw on past policy experience to boost demand and output. He’s published his ideas in a report on www.designingbuildings.co.uk, the “wiki” site for pooling the industry’s collective knowledge on design and development set up by Trench and others. (The CIOB has just come on board as a sponsor of the site, more on this next week in our September issue).
The 5 suggestions are:
- Re-introduce Mortgage Interest Relief At Source, a housing market stimulus that could apply to all homeowners, not just first-time buyers, to improve affordability and increase new build demand.
- Re-introduce Selective Employment Tax, trialled under Harold Wilson’s Labour government in the late 1960s, which incentivised manufacturing through the tax system. In construction, Trench argues, this would have the added advantage of encouraging investment in off-site systems. While construction projects might pool in London and the south-east, factory-based manufacturing and the employment it creates is spread more evenly across the country.
- Re-introduce stock relief allowances against corporation tax, to encourage companies that have embraced Just in Time and “lean” policies to hold more materials in reserve. While this might go against the industry’s current orthodoxy, Trench says it would increase flexibility and efficiency along the construction supply chain, and encourage the standardisation of construction products by reducing the temptation to specify bespoke.
- Create a National Development Agency to kick-start projects with planning consent and completed designs, and to review projects where the government could step in as funding guarantor. While the former is already happening and the latter is likely, Trench argues that a high-profile National Agency is needed to scale up both processes and to police them on behalf of the taxpayer.
- Encourage the UK corporations sitting on piles of cash (estimated by Ernst & Young at £750bn) to spend it on construction, including refurbishments, by extending capital allowances. While expenditure on M&E plant, machinery and some other items does attract tax relief, Trench argues it could cover 100% of construction investment. As he points out, refurbishment requires short lead-in times but not planning consent, and is capital and labour intensive.
The government can’t be accused of inaction, yet its stimulus policies – most recently the £40bn UK Guarantees scheme – just aren’t enough. With every passing quarter, the economy looks more like it’s going to emulate Japan’s no-growth “lost” decade, while construction is losing jobs, capacity and skills every week.
These five new-old ideas are un-costed, un-tested and no doubt ringed with practical difficulties and unintended consequences. But at least they’re original contributions to a debate that has become part of the sound-track of the double-dip recession, and go beyond boosting the cash-rich housebuilders.
