14 Sep 2012
Why the UK isn’t Spain…
Sure, sure we’re not as good at football or sunny weather as our Iberian neighbours. Here, I’ll argue that our property markets are pretty different too, and that the Spanish example of a devastating property meltdown, partly precipitated by over-building, shouldn’t put us off building more badly needed homes in this country.
We need more homes. That’s not a totally straightforward statement – yes there are some empty homes that could be better used, and no, more homes alone won’t solve all the problems in the housing market or the wider economy.
But the need is pretty well evidenced – first time buyers are unable to find a settled place to start a family. GDP figures are dragged down by low construction. Millions of families are stuck on council waiting lists for an affordable home. Demand outstrips supply.
The prime-ministers’ recent, modest commitments to spur on house building have not been universally popular. Firstly, there are those concerned that house building could damage the countryside. This is an important debate, but I want to focus in this post on another misleading argument that has been doing the rounds (£); that house building won’t help growth and indeed risks leading the UK into a Spain-esque financial crash.
The argument goes like this: Spain and Ireland built lots of homes, house prices shot through the roof, and their economies faltered badly.
It’s certainly true that the Spanish and Irish building booms have caused devastating problems, including high levels of personal debt, ghost towns of empty homes and unemployment. But I don’t think we’re at risk of a similar fate just now. Why not?
- Spain and Ireland had building frenzies.
Seriously, Spain built a lot of houses, repeatedly, for a long time. In 2005 alone, over half a million new homes sprung up. In 2006, there were more housing starts in Spain than in the UK, Germany, France and Italy combined. The UK government is not proposing anywhere near that level of house building, so the comparison doesn’t work. In the heady days of the mid-noughties, 20 new homes were being built in Ireland per 1,000 people. In England at that time, it was more like three new homes. We’ve got a backlog of unmet housing demand, and robust calculations of how much housing we need in the future. The Government’s current plans won’t even meet that, let alone exceed it.
- The boom in house prices in Spain and Ireland was also driven by cheap credit.
Everyone wanted in on the astonishing rise in Spanish property prices, including investors, second home-buyers, and a fair number of British holiday goers. They thought that prices would keep on rising, and developers wanted to cash in so built more. Spanish households borrowed more and more, and did so pretty easily. Sensible regulation of mortgages, like that proposed by the Financial Services Authority, will help to stop this kind of speculation happening in the UK.
Worrying about a hypothetical situation where we have more houses than we need is pointless at a time when young people are desperate for a home to call their own and our economy is stagnating. We need the right number of homes, in the right places, and the sooner the better.