Martin Flanagan: Housing market uninspired by rapid rise in construction

Published on Wednesday 2 June 2010 19:55

THE construction sector expanded in May at its quickest rate since September 2007 – but the latest data shows the housing market is still likely to lag the wider industry for some time to come.

The Markit/Chartered Institute of Purchasing and Supply construction purchasing managers index rose to 58.5 in May from 58.2 in April, with any figure above 50 denoting growth.

Given it was the third consecutive reading above the 50 mark for the construction industry – embracing housing, commercial and civil – it is fair to say there is now some hope that the sector has turned the recessionary corner.

However, there are a couple of things taking the icing off the construction cake, which normally accounts for 6 per cent of Britain's GDP.

First, the impending public-spending squeeze to bring down Britain's 157 billion fiscal debt mountain makes it virtually certain that current rates of construction growth will not be maintained.

There may still be growth, but it is likely to be more modest as spending on everything from motorways to new hospitals is sharply cut back.

Meanwhile, the latest the data from the Bank of England on mortgages reinforces what many house-builders have been saying for some time: that the housing market has pulled out of the dive, but sustainable recovery is still some way off.

Actual mortgage approvals rose slightly more than expected in April to 49,871 from 49,008 in March, the Bank said. This was above analysts' forecasts for a reading of 49,250 but still 15 per cent below their November peak, which was swelled as home-buyers rushed to beat the end of the stamp duty holiday.

Net mortgage lending disappointed, up 490 million in April from 168m in March, but well below the consensus forecast rise of 700m.

It clearly suggests that the housing market will tread water at best for the rest of this year. House prices have rebounded by 9 per cent since their nadir in the spring of 2009 in the depths of the recession.

But that rebound was from a very depressed threshold, and also benefited from fewer properties being put on the market last year.

As more properties gradually come on to the market, going forward house-price growth should moderate.

A further headwind is that, just with the wider construction sector, prospects for the housing market cannot avoid being hit by deep public spending cuts that will militate against would-be homebuyers taking on big new spending commitments.

Red-tape regulating formula can only be good for business

I LIKE the sound of this "one in, one out" approach to new red tape for business that Business Secretary Vince Cable unveiled yesterday.

It is designed to ensure that new regulatory burdens on business are only introduced when reductions can be made to existing red tape, a sort of quid quo pro on bureaucracy between Whitehall and the business world.

If successfully implemented, the policy would be the antithesis of the "regulatory creep" of the past decade and more, when remorselessly incremental increases in red tape stifled corporate growth.

It has been a tale of stultifyingly banked-up bureaucracy that has been particularly damaging to small businesses, the main job creators in the country.

Cable indicates that his action plan will involve creating a sort of inquisitorial cabinet "star chamber" – or the less flamboyantly-titled reducing regulation committee – to specifically address the costs of any new laws and regulations for business.

It is to be welcomed. Britain is struggling under a 157bn fiscal deficit. One of the main ways out of it – over a substantial period of time – will be economic growth. That, given the public spending axe, will depend on private-sector business growth and that sector needs all the relief it can get from burdensome regulation to help the economy and the country recover.

As part of the action plan there will also be an immediate review of all forthcoming "legacy" regulation in the pipeline from the previous government.

Again, a positive. In addition, there will be a "challenge group" charged with devising innovative non-regulatory solutions to achieve social and environmental goals.

The CBI, British Chambers of Commerce and Forum of Private Business have all welcomed the initiative. Let's hope it enjoys success.