On more occasions than I can count, we have advocated on Red Brick (for example here and here and here) that the most effective way of boosting growth in the economy is to get some money, public or private, into housing construction.
We have also commented on the extraordinary process of quantitative easing (QE) and how hundreds of billions of pounds have been flushed into the economy without any clear idea of where the money will end up and what benefit it would bring in terms of lending in the productive economy.
Finding a way of diverting some QE money into housing seems a sensible use of time in the Treasury – a tiny fraction would be megabucks in the housing context. It had looked as if the boat had sailed past and that no more QE would be undertaken, but it is back on the agenda as the economy has stuttered into recession again. Amongst others, Christine Lagard of the IMF said further QE might be necessary.
So it has been good to see reports in the Financial Times that the idea of using QE for housing has been gaining some traction, at least in the LibDem part of the Treasury (Chief Secretary Danny Alexander met housing association chiefs last week).
Jim Pickard et al of the FT noted last week that Nick Clegg’s promise of a massive increase in investment in housing and infrastructure had rightly been met with huge scepticism, but that behind the scenes the Treasury had been asked to come up with schemes that might increase investment without a major public outlay.
Reducing the cost of borrowing by housing associations, by using QE to buy social housing bonds, might be one such avenue. This, according to Pickard, has become an issue partly because talks to increase pension fund investment have yet to bear fruit, partly because banks are leaving the social housing sector and associations are increasingly having to go direct to the capital markets – raising £5.4bn with bonds since 2008 – and partly because progress towards setting up social housing REITs (Real Estate Investment Trusts) is also slow.
Brian Green, on his excellent Brickonomics blog, has tried to spell out what QE for housing might involve. He posits the idea of a new QE housing company being set up to fund development, selling housing bonds to the Bank of England using QE resources (‘a few tens of billions’ says Brian).
Vince Cable, in his leaked letter last month to George Osborne, made a strong case for ‘galvanising’ housing construction, pointing out where he thought the problem lay: ‘There is a particular problem with financing; housing associations, which could drive recovery, are unable to mobilise funds on any scale. We should have the same level of commitment across Government to getting housing moving as is beginning to happen for infrastructure.’
If Clegg, Cable and Alexander have real influence in Government, as they claim, this might be a good cause to pursue, and one that will help mollify their increasingly rebellious grass roots.