Room for Optimism
As an ex-Conservative Party member who works in the development industry and is passionate about politics, you can probably guess I am pretty downbeat at the moment. It explains why I am an ex-Conservative Party member rather than a current one.
The messages delivered in yesterday’s Autumn Statement and in all of the leaks and hints that preceded it, leave little scope for optimism, but I do have a slightly optimistic view about the industry I work in and have spent the last 24 hours trying to consider the best and worst scenarios, looking at how the next two years might pan out, with a focus on what it means for housebuilding.
The pessimistic view is that the industry is going to suffer for the whole two years of the recession; this seems to be what the Office for Budget Responsibility think – something that was mentioned by the PM yesterday. This would mean it will take some considerable time for house sales to pick up from the emerging slump and, as a result, investment in new sites for housing will also slow down. It is also possible that the debate about the need for fiscal responsibility is not over; most of the public service cuts detailed by Jeremy Hunt yesterday are not going to take effect until after the next General Election. Yesterday, he protected planned departmental spending for the next two years, but with departments having to find efficiency savings to deal with inflation. The real impact comes after the next General Election, so we face the real possibility of a General Election being fought in 2025 with the reversal of proposed cuts as the main agenda item, putting paid to the fiscal responsibility that Hunt is espousing and perhaps meaning a repeat of the same problems further down the line.
My hope about where we are headed, of course, leans towards a short-term blip. Whilst people are rightly hesitant about buying a new home at the moment, the uncertainty that has caused this will end when inflation peaks and potential buyers can see the end to rising interest rates. The increased cost of high interest rates will be counterbalanced by a drop in house prices and an understanding that prices will soon recover to previous levels meaning a quick move to positive equity. This is the point from which I can see people feeling more certain and taking that first step into the market, and I think will come in the second quarter of 2023. When things do pick up, I suspect they will pick up quickly. I also hope that the next General Election will be focussed on how we deliver the necessary public service cuts, not on whether we do them at all.
As ever, I suspect the reality will end up somewhere in the middle of those two views – not helped by the fact that we are about to see a big drop in standards of living. But, there is still an underlying fact that as a country we have massively underdelivered on housebuilding for the last generation and the aspiration to own your own home is still a big part of UK culture; that aspiration has been a key reason the development industry has led the country out of the last two recessions and I expect that to happen this time around as well.
