News & Insights

Two paths leading to the same place: we need more housing

By Hazel Compton

12 Jul 2024

Investment

Two paths leading to the same place: we need more housing

When discussing China’s housing demand diminishing and the Labour win, Gary Reynolds focuses on how more UK housing could deliver something for the longer term, supporting our economy and helping wealth creation.

China

We could learn from China’s housing approach and build more houses ourselves.

China’s housing market was as much a place for people to invest their money as a way to increase better quality housing, with both helping one another. However, the bottom fell out of this market, with the Chinese Government stepping in to help with ‘two-tier’ housing – funding social housing alongside the private housing. This is akin to how 1960’s UK created council housing (which was then sold off a few years later). This reduction in building has forced a decrease in wealth, affecting the global economy. But the fact that raw housing materials, such as cement and copper, will still be in demand to create Net Zero infrastructure, should bolster this fall.

We could take note on how to help our own economy and build more houses ourselves. The former Bank of England economist Kate Barker reviewed the UK housing market in 2004, saying we needed 17,000-23,000 social rent homes to be built each year (on top of the 24,000 built the year of the report), however this hasn’t happened.

In their manifesto, Labour committed to changing housing planning restrictions, which is, according to Gary, “an easy win for them.” This would help us move towards this now-overdue target for appropriate housing and help lower house price inflation. Let’s hope that Starmer is more committed to the policy than Blair, whose party was in power when Kate Barker published her report.

Election

The Government purse strings are not helping the average person, even if it is helping our funds.

Labour’s pledge to create a roadmap around business taxation that outlives their own time in office implies working on something for the longer-term. Building this longstanding thinking into housing would be a good continuation. If a government could commit to the concrete planning needed to put in place an ingrained strategy that persists even if the party came out of power, it would deliver strong economic growth. Doing so would also mean more families able to have their own homes, offering more wealth creation across the generations.

With former Bank of England economist Rachel Reeves controlling the Labour purse strings, one way to revive the UK economy and boost growth could be to build a solid foundation around more housing, doing a “good thing for youngsters.” By getting the economy going, Labour could then use this to fuel spending on the NHS and education.

We are noting this with a bias, however: increases in infrastructure and construction would help our investments in those sectors, helping our funds and clients as well. Gary admitted that “the next ten years may well be very good for the type of companies we hold.”

Conclusion

While fuelled by Keynesian theory, Gary is sure that if there was more housing to boost demand (and bring housing prices down enough to help young people get on the ladder), the economy would fire up. This would hopefully increase people’s productivity by the historic 2% p/a, further kick-starting growth.

Hazel Compton Brand Publisher

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