13 April 2008

This Is The Perfect Time For Government To Invest In Construction.

I've been predicting a housing crash / credit crunch / recession since 2001. The longer the economy kept expanding on a credit bubble, the more surprised I was and the more worried I was that the eventual inevitable crash was going to be very hard indeed for the most indebted.

I really didn't see a gradual easing in house prices happening - things never seem to work out like that, even while unemployment and interest rates still seem historically low.

I have never been of the opinion that...
the UK economy was built on sound foundations nor that Labour and Gordon Brown had left 'boom and bust' behind. While the Thatcherite credit bonanza remained in place, another housing crash/recession seemed inevitable.

I remember the tabloid criticism of the European Central Bank and the Euro when it first launched. It scared the hell out of Murdoch and Rothermere that the US laissez faire approach to capitalism should be undermined by a Europe that plans things more long term. It is now the Euro-zone that looks the best poised to survive US credit excesses that the UK also indulged in.

Gordon Brown has never been a favourite of mine and his claim that the UK is 'well placed' to ride a world recession seems laughable to me. Yes, unemployment and interest rates are lower than in the Tory recession of the early nineties, but the financial sector exposure to the US 'sub prime' shock seems far higher than the asymmetric shock exposure of German re-unification in the early nineties that brought down the ERM.

I hope I am wrong but it seems Brown has blown Labour's chance of winning the next general election by bottling his chance in August last year to win an early election. Never has 'its the economy, stupid!' been more relevant. Despite uneasiness about Cameron, Labour are haemorrhaging votes 'hand over fist' before the hard times of this year and possibly next has even got under way.

I know the parliamentary Labour party likes to give its leaders the benefit of the doubt, but surely jittery backbenchers will act if, as seems likely, Labour are trounced in the coming local elections and opinion polls remain very bleak (Livingstone might still pull it off in London despite Labour's unpopularity).

Brown should never have been crowned leader, a leadership election was the least we should have expected. Removing Brown could be bloody, but it is necessary if Labour are going to impress that they are the 'change' the public yearn for. We need a clear, clean break with the 'Tory' leanings of the past Labour hierarchy. We need to get rid of Straw, Brown, Blears, Hutton, et al if we are to stand any chance at all of recovering this dire position.

Once again we face a 1978 situation, the unions are getting restless, the Tory dominated councils (this same dominance caused the 'winter of discontent') are now a majority and are being as disruptive as possible through their dominance of the Local Government Association. Our electoral system gives us this dysfunctionality, when much needed PR would have given us more balanced councils that care about local people rather than playing political games with the government.

Whatever happens in May and the six months that follow, is going to fix Labour's position for the next decade. Brown has dithered, if backbench MPs follow his lead then we can kiss goodbye to any chance of PR or broadcast impartiality under a future of more right-wing Thatcherite government with Cameron.

Labour are promising to build 3m homes in the next ten years, but like the promise to abolish child poverty they will remain historical aspirations without a Labout government to at least try to achieve them.

There has never been a better time to pour investment into housing and rescue the construction workers that are being laid off as private sector housebuilding is reduced. Only government can kick start this sector and save us all from a recession and housing problem.

6 comments:

  1. "I have never been of the opinion that...the UK economy was built on sound foundations nor that Labour and Gordon Brown had left 'boom and bust"

    99% of LabourHome visitors would seem to agree!

    Beware - TimW has linked to this, pointing out that increasing construction would push house prices down even faster. Which I see as A Good Thing, AIH, how about you?

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  2. Mark, I agree, house prices need to come down. Demand is fairly inelastic (once you take out the speculators) because everyone needs somewhere to live.

    Increasing supply (by more public sector building) to meet demand for housing is not the same as oversupply of MP3 players - this is a commodity everybody has to have and therefore too precious to leave to the vagaries and injustice of unrestricted laissez faire capitalism. I mean, it really makes economic sense to have construction workers lying idle while there is a shortage of housing doesn't it?

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  3. Demand is fairly inelastic

    Not really, Neil. Make housing more expensive, and people stay with their parents longer. Make housing more expensive, and I'll rent the studio flat that I could squeeze in to, rather than the spacious 3-bed house with garden that I'd quite like.

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  4. "Demand is fairly inelastic"

    Anon ... if demand were price-elastic, then a 200% increase in price over the last ten years would have meant that the number of buyers would have shrunk to less than a third and that huge amounts of homes would be standing empty.

    Neither of these is true, ergo, demand is price-inelastic.

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  5. Neil,

    Have you always been an enthusiastic proponent of the Euro ?

    Given Brown's failings who would you see as the next leader and in what way would they differ from the Blair administrations?

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  6. I think my anti-Europe phase disappeared in the early Eighties. The Euro for me makes common sense. How could a Europe wide currency be less efficient that all the currency dealers making billions for doing nothing productive at all?

    As for leader, Ken Livingstone might be available soon...but short of that I have always been a fan of John Denham.

    What matters to me is electoral reform - change that and the whole nature of government changes. Electoral reform for Westminster is the one thing that will end ALL new Labour AND right-wing Thatcherite governments and give the majority what they want - what they actually vote for. That is all Labour needs to do to have a real worthwhile legacy (beyond temporary things like increased spending on public services and minimum wages that can be quickly reversed by Thatcherite Tory governments).

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