0.3 per cent GDP growth in the first quarter of this year was better than many people expected. But it would have been better still if the construction sector hadn’t done so badly, contracting by 2.5 per cent.
As Nicholas Crafts reminds us in the Guardian, there was a time when construction led Britain out of recession:
Nor was this growth “driven by fiscal stimulus; indeed it blossomed at a time of fiscal consolidation.”
In another parallel with the present, the central plank of the government’s economic strategy was “cheap-money policy”:
But if cheap-money produced growth under Mr Chamberlain, then why aren’t we getting similar results from quantitative easing under Mr Osborne?
In order to work, 'monetary activism' has to have a way of getting through to the real economy:
Including “multiplier effects’ it is thought that this building boom accounted for “a third of the increase in GDP between 1932 and 1934.”
This was also a period of rising home ownership, facilitated by the fact that the homes being built were remarkably affordable:
Of course, one enormous difference between then and now was the “almost complete absence of land-use planning restrictions which applied to only about 75,000 acres in 1932”:
In the absence of such elasticity, current efforts to stimulate the market through lending subsidies seem doomed to increase prices rather than construction. As for the wholesale abolition of planning restrictions, that would be an excellent plan… for getting a UKIP MP elected in every rural and suburban constituency in southern England.
But there is an alternative: Massively increase taxes on land banks and other forms of property speculation; then use the proceeds to reduce the tax burden on investment in high quality housing design and to provide investment for urban regeneration. That way we at least have a chance of getting the right houses built in right places at the right prices.