Budget 2023: housing crisis set to continue

"Today we build for the future" said Jeremy Hunt in his Budget speech. That did not, however, include building places to live. This do nothing approach will only make a broken housing market even worse and may cost his party dearly at the next election.

lf Mr Hunt's Budget for Growth delivers on its ambitions, the housing market can expect to see modest but sustained increases in home construction and demand over the longer term. Higher employment and improving living standards are positive contributors to a healthy housing market.

Given that investment in home construction accounts for between 3% and 5% of GDP, it was a little surprising to see the sector overlooked in this Budget, especially since it has the potential to contribute far more.

Consider - 

Until the policy was recently abandoned, the government was committed to building 300,000 homes each year. The most recently published data from the Office of National Statistics states that in the year to March 2022, 204,000 homes were built. The National Federation of Housebuilders fears that construction for this year could fall below 150,000.  Closing that gap would add more than 1.5% to GDP.

The figure of 300,000 homes per year has been around since Lord Barker's 2003 report. It has never been met and the backlog continues to grow. Respected think tank Centre for Cities calculates that the current backlog would need the construction of 500,000 homes every year for 50 years to clear. 

The upside potential for GDP growth, employment and living standards is, therefore, huge.

There were no measures in the budget to address the growing shortage of rental homes. No landlords were really expecting any and they probably breathed a sigh of relief at the absence of any additional tax measures. The private rental sector has been turned into a political football and no-one wants to be seen as soft on landlords.

In summary, this budget looks like an opportunity missed to include housebuilding as part of the growth story and to tackle a pressing societal need.

It is also a political opportunity missed. The spiraling cost of a home, purchased or rented, has become a major issue amongst younger voters. At the next election, the government will be judged on its track record. The opposition parties will be judged on their promises. That's a difficult argument to win.

The lack of any measures to promote housing development is a boon to property investors. Demand for homes continues to rise. Supply is flat at best. The result will be house prices and rental values resuming their inexorable upward path, with affordability being the only ceiling.