Britain’s Got a New Housing Bubble – and It’s About to Explode

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May 8, 2014 by Nash Riggins

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Ever since Britain’s housing bubble went splat in 2008, the coalition has been making a lot of noise about fixing this country’s severe lack of affordable housing. In fact, you could almost say it’s become a sort of crusade for the PM and his little-known housing minister.

Yet as the government’s interest in tackling Britain’s ever-worsening housing crisis has continued to grow, builders have simultaneously starting to get cold feet. From Bristol to Bo’ness, planned mass developments are being mothballed with increasing regularity – all under the arbitrary rationale that ‘current market developments are unsatisfactory’. Translation: apparently socially-conscious building firms are a relic of the past.

This puts the government in quite a pickle.

When we talk about positive economic growth, one of the biggest factors tends to be the health of a nation’s construction industry. Simply put, if Britain wasn’t stimulating its team of busy builders, the Chancellor of the Exchequer wouldn’t be in any sort of position to boast about his government’s supposed austerity-driven successes. The more we build, the more workers we can house and the more our factories can produce. In theory, that should mean everyone in Britain benefits from an adequate provision of affordable housing.

But, as always, things can never be that simple.

The UK’s real estate market is booming. In the last 12 months, the average price tag for a home has shot up more than nine percent. Yet as stagnant wages and out-of-reach living costs continue to wreak havoc on most of our current accounts, a growing number of people in this country are finding even the lowest rung on the property ladder completely unattainable. Meanwhile, the ones who can afford something are being pressured to buy out of panic rather than necessity. In turn, the working definition of ‘affordable’ has become grossly distorted by Britain’s building sector – whose financial health requires more than just steady work to boost national growth figures.

In order to have a noticeable impact on the economy, developers need to ensure that each and every construction project is turning a profit – and because Mr Osborne wants to maintain the building sector’s boisterous momentum, he doesn’t want big companies to lose money, either. So to keep that from happening, developers have been given all sorts of fancy new powers to challenge the government’s affordable housing quotas if planned developments don’t look economically viable. Apparently most of them don’t. We’re already building around 12,000 less houses per year than we actually need – and with 11 housing appeals currently pending, that leaves us with lots of houses we can’t afford and no plans to build ones we can.

At the end of the day, it’s become clear the coalition is resting too much of Britain’s economic stability upon a housing bubble that’s bursting at the seams. Over the last twelve months, short-sighted plans like the government’s coveted Help to Buy scheme have caused excessive price inflation – and if the Chancellor doesn’t do something to restrain demand, that bubble is soon going to blow up in his face. In order to avoid embarrassment, MPs have got to reign in the UK’s opportunistic contractors and properly incentivise development – before it’s too late.

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