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Housing: The £50bn question

Sajid Javid caused a stir over the weekend, calling for the government to borrow money to fund housebuilding.

Some reports have even suggested that the communities secretary wants Philip Hammond to borrow as much as £50bn.

The logic here goes that, with interest rates at record low levels, there has never been a better time to borrow to fund construction.

Housing is the current big focus of the political parties, and was discussed at length in this year’s general election and again at the recent party conferences.

The Conservatives, in particular, are trying to be seen to make more of an effort, after housebuilding has consistently fallen below targeted levels and the need for a greater supply of housing becomes ever-more apparent as young people struggle either to pay rent or raise a deposit to buy.

The prime minister tried to allay some of these concerns by announcing an extra £2bn for affordable housing in her now-infamous conference speech, trailed as a “council housing revolution” when it turned out to be anything but.

Mr Javid was to be given freedom to introduce a raft of measures to increase housebuilding, too, including giving councils new freedom to build their own homes using that £2bn, while also forcing those councils to examine local need and setting them targets to build in their area where necessary.

It is still unclear, though, on what areas of the country that £2bn will be spent, and whether it will go towards ‘affordable’ rent and shared ownership, or on increasing the level of social-rent homes that are needed.

Labour’s proposal was a new Department for Housing, with a promise to build 100,000 new council houses per year, presumably funded by borrowing. Sound familiar?

It has to be said that, if Mr Javid were to get his way with £50bn set aside for housebuilding, it looks and smells just like a policy that Mr Corbyn would be pretty proud of.

Associated with that housing, of course, is infrastructure, and Mr Javid did also tell Andrew Marr that any borrowed money could be used to help fund that as well.

Borrowing has been used to fund infrastructure and other schemes for some time now through the European Investment Bank, but currently that lending does not sit on the UK’s balance sheet.

After Brexit, any UK-based replacement’s lending would sit on the balance sheet, posing a problem for a government that wants to reduce borrowing.

The Financial Times has reported that any replacement for the EIB would require the government to commit a large amount of capital, perhaps as much as £15-20bn according to one industry expert – a sum it is difficult to see the government conjuring up currently.

That expert also told the FT: “The whole concept is very hard to envisage at a scale and effectiveness that would make the sort of difference which the EIB does… no-one who understands this stuff believes there is a practical way of creating a UK infrastructure bank that comes anywhere near providing anything like the EIB.”

Mr Javid did try to make a distinction between borrowing for construction, which he called “investing for the future”, and the deficit, which he said “needs to keep coming down”, saying that if the government could “sensibly borrow” money for housing and infrastructure it should be considered.

Former construction minister Nick Boles echoed this, tweeting today that the UK can afford to borrow for investment because the deficit is down to 1.5 per cent of GDP.

Mr Javid failed to point out exactly what “sensible borrowing” would look like, though, whether housing bonds or anything else - and he said that the private sector still has the “biggest role” to play in meeting demand.

This shows that the government’s thinking is still muddled. After all, why would private housebuilders build significantly more homes that reduce demand when they are doing just fine as it is?

The Conservatives in particular see a need to reach out and appeal more to the young and those who are most in need of support – those who generally leaned left at the last election, at great cost to Ms May – and it seems that Mr Javid (and other Conservative MPs and ministers) see construction, and housebuilding in particular, as a way to do that.

But hoping for the private sector to plug the gap in housebuilding is wishful thinking at best.

Mr Hammond did recently call on his cabinet colleagues to come up with some “bold” solutions to fix the housing market, and massive public borrowing certainly fits that bill.

But as has often been the case with recent government policy announcements on housing, Mr Javid’s intervention has raised more questions than answers – let’s hope the Budget next month provides more of the latter.

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