James Moore: Construction figures mask deep malaise

Click to follow
The Independent Online

Outlook Japan is the word that is currently scaring Western economic policy makers witless. Money printing (sorry, quantitative easing) and historically low interest rates are designed to head-off the torpor that gripped the world's second-largest economy in the 1990s and much of this decade too. It is by no means clear that it is working. But there is another way in which this country could very well end up resembling the land of the rising sun.

Yesterday's figures from the Chartered Institute of Purchasing & Supply (CIPS) showed a continuing fall in construction activity – the 18th consecutive monthly decline. It was of little comfort that the rate of contraction has fallen somewhat – the sector continues to struggle and its by no means clear when the Tamiflu will be applied to the economic H1N1.

Further evidence of the sector's difficulties can be seen in the recent figures from the house building companies on the London Stock Exchange. They were almost uniformly awful with turnover tumbling and profits all but obliterated.

To be fair, those companies have started to look at buying land again, which could be seen as a hopeful sign. Trouble is, their activities have all but ground to a halt. Existing developments have been slowly finished, but new ones haven't been started. The degree of de-stocking has been such that it will take an awfully long time for the level of new housing coming on stream to even approach normal levels.

Yet, if the demographers are to be believed (admittedly, these are people who make economists look good at predicting the future) the British population is continuing to rise.

There was already an under-supply of housing during the good times. The problem is going to get much, much worse over the next few years. We are facing the very real prospect of a supply squeeze.

Where Britain is going to start to resemble Japan is that in that country it is not so unusual for several generations to share the same home.

The effect can only be exacerbated by the fact that young people are finishing their education with very limited job prospects and debts that it will take them years to pay off. It will be an awfully long time before they can even begin to think about saving for the substantial deposits the banks are now demanding from first-time buyers if they want to be considered for a mortgage.

With acceptable rental accommodation also in short supply the trend of children returning to the nest and staying into their late 20s and even their 30s can only accelerate.

The other way this country resembles Japan is that land is in desperately short supply. There's just not enough of it to go around.

To address these issues, not only should we have been building more, but we should have been building differently, with more of the Manhattan or Parisian-style apartment blocks and fewer of the traditional-style housing developments.

This is happening in certain parts of London – take a walk around parts of Docklands and Bow, where plenty of them can be seen. There are even one or two new ones being built.

But they are not coming on stream at anything like the speed that they need to and they remain the exception, not the rule.

All this adds up to a quite spectacular failure of housing policy and it is by no means clear that any action is being taken to address it.

We have become used to the idea of a property-owning democracy made up of comfortable semis in the shires. It is a relatively recent conceit, however. In the 1970s it wasn't all that unusual for the Japanese model of families living on top of each other to be true here.

That was the time of the secondary banking crisis, the three-day-week, energy shortgages and Britain being labelled the economic "sick man of Europe" while France and Germany leapt ahead. Does this sound at all familiar? If you want a real scare, remember that it all culminated in widespread strikes and a Labour Government being hustled out of office by a woman called Margaret Thatcher.

Of course, we are a lot richer than we were then, and the recession might be coming to an end (while she arguably tipped the country into one). Fortunately, history is not always doomed to repeat itself. All the same, perhaps it is not the resemblance to Japan that we should be worrying about.