Wednesday, September 19, 2007

Do we need new housing?

Here in the East of England we are well used to seeing plans put forward for mega amounts of new housing. The usual justification for this is that the economy is expanding fast and that we need new housing to provide space for all the new jobs being created in the region. That, plus the hope that more new homes will keep a lid on ever increasing house prices.

There is, perhaps not unsurprisingly, a close correlation between the number of new jobs being created and the number of new homes required. The ratio seems to be set at around 9 jobs to 10 new homes. The East of England Plan, now two years old, suggested that we would be creating 421,000 new jobs by 2021 and that we would be needing 488,000 new homes to meet the demand created by these new jobs. Since then the numbers have been slowly rising and today we have a report circulating, as reported in the Cambridge Evening News, that the number of new homes we need in eastern England has shot up to 613,000, presumably extrapolated up from 550,000 new jobs.

What no one ever talks about is just what these projections are based on. The East of England is a prosperous area and it’s enjoyed good rates of economic growth for decades. Presumably, these rates are being projected into the future and a percentage point here or there in the projected growth rate results in there being x thousand more jobs and x+0.1 thousand more homes. What you never see discussed is the fact that new houses are themselves creators of new jobs, and hence economic growth.

How can this be? Most new jobs in Britain are in the service sector. As the population grows, the service sector has to expand to keep pace. Each new household brings with it demands for teachers, doctors, nurses, shop assistants, bus drivers, car mechanics, gardeners, jobbing builders, estate agents, hairdressers, office cleaners, you name it.

Another way of looking at this thorny issue is to realise that whilst new housing is an engine of economic growth, it’s an incredibly inefficient one. Let’s hazard a guess here. I reckon ten new homes are needed to fill the vacancies created by just two new jobs resulting from local businesses expanding, and the other seven new jobs result from looking after the residents of the ten new homes. Consequently, the bulk of our economic growth results from drawing people into the region, not from newly-won business deals.

It’s time we took a long deep look at the methodology used to make these projections for both new jobs and new housing. Our aim in the 21st century ought to be to make the existing economy function better, not just expand it for the sake of expansion.

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