Ed Balls: build 100,000 houses with £6bn


8:50 am - August 31st 2010

by Sunny Hundal    


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Ed Balls writes for Labour List:

We need to show why our ideas will help meet the challenges of the next decade rather than the last one, and will help us win back the voters we lost. And housing, an issue too often neglected, goes to the heart of these challenges.

For a start, housing exemplifies the economic alternative we need right now, and exposes the myth that cuts can somehow produce jobs and growth. For every pound spent on house building an estimated £1.40 in gross output is generated across the economy. Every two homes built create an estimated three full time jobs plus up to four times that number in the supply chain.

The public finances are around £12 billion healthier than forecast at the time of the Budget. The coalition wants to use that extra money to pay down the deficit faster. I think that at a time when the economy is still so fragile and other countries are already tipping back into recession, we should instead use that money to boost construction jobs and build new homes.

By using half of that £12 billion, a £6 billion investment this year and next, we could build 100,000 extra affordable homes which it’s been estimated would create up to 750,000 new jobs, directly in the construction industry and indirectly in the supply chain including thousands of apprenticeships for young people.

Ambitious and very welcome. Read the whole article here.

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Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


Ah finally some proper statements of radical policy… much as I dislike Balls this is, as you say, very welcome indeed.

Err, you cannot build 100,000 houses for £6 billion pounds.

That’s the cost of constructing the houses alone. You’ve also got to go find the land with planning permission.

Which will cost that if not more on its own.

Now, if there is the land for 100,000 houses just lying around out there already, available to be built upon, then we don’t need to spend public money building the houses, do we? You wouldn’t even need private sector building companies. If someone gave me the land and the planning permission I’d happily build myself a house: as would, I would wager, at least 100,000 others.

3. Luis Enrique

I know most will see this as a pedantic point, but you cannot use money (£12bn) to “pay down the deficit”. You can use it to pay off debt. The deficit is the gap between revenue and spending. I’m sure Ed Balls know this, I guess he thinks his audience don’t and prefers not to trouble their misunderstanding.

Does it cost just £60,000 to build a house, ex the land?

@ 4…can do, certainly. I’ve just built a nice 2 bed from a ruin out here for 70,000 euro.

6. astateofdenmark

Tim W

I’ll have one of those houses as well. I’ll even pay a bit more than 60k for the land with planning permission attached. No public money needed, in fact if this land is just lying around, the public owner will make a profit without spending a penny.

Oh dammit – Tim Worstall is right!

Not often you’ll see me writing that, but in this case it’s self evidently true.

The forgotten major variable cost in your average new build is the absorbed cost of the land in that plot.

Major fail, Ed Balls.

#2

wtf? Who’s got £60k lying around? Might there not be people who need housing who don’t have that kind of money? (And the spare time and the knowledge to build it!)

You’ve also entirely missed the point – supposing everyone did have that kind of money lying around, how many jobs would be created if everyone built their own house?

@ 8. Who needs £60k lying around? Ever heard of a mortgage to build?

If given a plot with planning permission (current value in SE England maybe £100,000) then getting a 60k loan (current repayments, maybe £300 a month?) wouldn’t be all that tough really.

Can one of our economists explain this: “For every pound spent on house building an estimated £1.40 in gross output is generated across the economy.”

Is Mr Balls saying that investing a pound in building houses produces £1.40 worth of output, because if so how does the extra 40p arise other than through transactions? From a simple non-expert perspective, I’d like to know how you get an almost 50% return on the investment (in terms of the economy as a whole).

tim f @8,

If I were, as I may want to one day, to build a house, what I actually would mean is hire someone with the requisite skills and tools to do it for me. I think that is normally what you expect.

And it might have the advantage of not having all the building being done by a small number of large developers, which you can bet any government-backed scheme would involve. Instead, it would allow small operators to actually compete in a market.

@2 Tim Worstall: That’s the cost of constructing the houses alone. You’ve also got to go find the land with planning permission. Which will cost that if not more on its own.

Not if you’re the state, which is the body that decides planning permission.

Balls is however talking bollocks; if you use modern technology, houses can be built for £20,000 each, so 6 bn would build 300,000 of them.

Sadly, none of the big parties really understand the 21st century, so they are doomed to talk bollocks.

Phil,

“Not if you’re the state, which is the body that decides planning permission”

No. The Secretary of State has final appeal powers, but all planning including government projects go through the same planning procedures to get there (and that can take so long elections can intervene).

“Can one of our economists explain this: “For every pound spent on house building an estimated £1.40 in gross output is generated across the economy.””

This is the Keynesian multiplier. You spend a pound on housing and some of it goes to the builder, who then spends it on booze and floozies, and the barman spends it on floozies and the floozies spend it on booze and then you add up all of the effects as they impact upon GDP.

Sounds strange, I know, but it is the idea that “stimulus spending” relies upon.

“Not if you’re the state, which is the body that decides planning permission.”

Tsk….opportunity cost!

If you’ve just granted planning permission for 100,000 houses then by not selling it for what the market would pay you’ve just lost what the market would pay.

15. Luis Enrique

Note that Keynesian multipliers are short-run phenomenon, that only really work before prices have adjusted. And they don’t really account for how the spending is funded, nor about scarce resource re-allocation, which could have knock-on effects that might negate the multiplier. So the estimate of a 1.4 multiplier is either dodgy, or predicated on the current recessionary conditions (everybody is talking about fiscal multipliers in a recession with unemployment and spare capacity, deflationary pressure and up against the interest rate zero bound. Take away those conditions, take away the multiplier)

If this were not so, and Keynesian multipliers were something that happened all the time, we could generate growth in perpetuity, because ever £1 spent would raise available income by more than £1, meaning we could increase spending by more again, and so on.

@14: Tsk….opportunity cost!

The opportunity cost of building houses on land is that you can’t use the land for other stuff. Agricultural land is worth c. £15,000 a hectare, and you could put a lot of houses on 1 hectare — especially if you built them high.

If you’ve just granted planning permission for 100,000 houses then by not selling it for what the market would pay you’ve just lost what the market would pay.

Are you envisaging the state auctioning off planning permissions to maximise its income, then?

@13 Watchman: The Secretary of State has final appeal powers, but all planning including government projects go through the same planning procedures to get there (and that can take so long elections can intervene).

And who decides what the planning procedures are? Oh yes, the state again.

18. Luis Enrique

(small correction: rather than “they don’t really account for …”, more accurately, intro theory taught to 1st year undergrads doesn’t, more sophisticated theory/estimates may well do)

19. Luis Enrique

Are you envisaging the state auctioning off planning permissions to maximise its income, then?

no, the point is that should the state grant planning permission on a plot of land, it creates an asset worth X. Whilst it might look like it gets to use that asset “for free”, it is foregoing X, and when you get down to it, foregoing X is the same as costing X.

@8 Yeah but if we all built our house and grew our own food we wouldnt need jobs

Phil @17,

“And who decides what the planning procedures are? Oh yes, the state again.”

Hmm. Last time I checked it was the electorate through their representatives. I think that’s slightly different from the ‘state’, which I take to be the mechanism by which government runs the country.

Government could technically ride rough-shod over the whole procedure, but the consequences of doing that would probably be electoral suicide.

10. Watchman

‘ Can one of our economists explain this: “For every pound spent on house building an estimated £1.40 in gross output is generated across the economy.”

Is Mr Balls saying that investing a pound in building houses produces £1.40 worth of output, because if so how does the extra 40p arise other than through transactions? From a simple non-expert perspective, I’d like to know how you get an almost 50% return on the investment (in terms of the economy as a whole). ‘

I would not have used the term ‘ gross output ‘ which appears to be confusing the effects of public spending on output and the effects on government revenue. For example, for every 100 the government spends generates 28 in directly related taxes plus 12 indirectly taxes in the same year. I may be wrong but that 140 sounds like Mr Balls 140. Moreover, over the next 3 years depending on the item 20-30 returns to the government and 20 leaves the economy to pay for imports. On the flip side when the government wants to cut spending by 100 they actually have to cut by at least 128 to achieve 100.

Although one could quibble over the specifics. Mr Balls is correct the government should be taking advantage of low real interest rates to improve the nations infrastructure. We did it when we were in a bigger mess and only ideology is preventing us doing it now. The deficit is on track to be around 10-15 billion less than budget forecasts this year. One-off infrastructure spending improves the supply side of the economy and is not like continual spending like paying teachers or doctors more.

If you look beyond debt hysteria we get into trouble when interest payments are around 12% of GDP. They are currently around 2.5%. Some good charts here which offer some historical perspective.
http://www.ukpublicspending.co.uk/debt_brief.php

This is another good chart where the whole of British history can be seen in government bond yields. Jacobite rebellion, American War of Independence, Napoleonic wars, late nineteenth century deflation, World War 1, World War 2 and the inflation of the 1970s. A good guide for historical perspective.
http://av.r.ftdata.co.uk/files/2010/08/consols_17292009.jpg

@21 Watchman: Government could technically ride rough-shod over the whole procedure, but the consequences of doing that would probably be electoral suicide.

Really?

I am currently standing for election on a platform including building large numbers of affordable homes. Every voter I have spoken to about this has commented positively.

Phil,

Indeed. But you have not committed to ignoring local opinion, building regardless of protest and presumably therefore favouring the building industry over people. Building the houses is not a problem. Putting a policy into effect by changing a system that gives people a say over their local environment (technically) is something different.

Richard W,

Thanks. I am still intrigued as to how it works that Mr Balls gives £100, receives back £40 and leaves £100? If I have £100 and pay £40 tax that leaves £60. There may be a multiplier, but I can’t see taxation serving that function.

#9 Again, you don’t seem to realise that many of the people who the housing would be built for will not be able to get a mortgage.

@26: many of the people who the housing would be built for will not be able to get a mortgage

A single person flat could be built for £10,000; a 2 or 3 bedroom one for £20,000. I’m sure most people would be able to afford a mortgage on 10 grand, which would work out something like a tenner a week.

The fact that people have to pay more than this for housing means they are being ripped off. Of course, the Liblabservative parties all want people to be ripped off; this is because they are all scum.

tim f,

Is the proposed housing social housing then?

29. Luis Enrique

The fact that people have to pay more than this for housing means they are being ripped off. Of course, the Liblabservative parties all want people to be ripped off; this is because they are all scum.

umm, what? taken literally, you seem to be saying that anything over selling at cost is a rip off … I’ll ignore that because it’s a side issue (there could be a ‘fair’ profit margin to cover risk and cost of capital) … the significant claim you appear to be making is that paying for the land (as opposed to the building costs) constitutes a rip off. And you are standing for election? Do I gather your proposal is to build on government owned land and sell or rent the property at a price that merely covers the build cost?

See this is, perhaps an extreme, example of why politicians say different things before they are elected than afterwards, because Phil Hunt if you were to get elected I expect you would have it explained to you in short order just how that would constitute giving away ££££ of land owned by every citizen to the favored few who get to own/buy those flats.

#28 I don’t know; I suspect it’s a mix but including a fair whack of social housing. The quote above says “affordable housing”.

31. Luis Enrique

Phil,

hah, oh I see, silly me. The Pirate Party. OK then.

@29,

I have already posted the URL for my proposals for housing on this thread. But since you seem to have missed it, they are here.

33. Charlieman

More on the numbers.

Ed Balls proposes that a house costs £60,000 to build. Two houses for £120,000. Then apply his 1.4 multiplier on GDP growth, which gives an output of £168,000.

From this, he further projects: “Every two homes built create an estimated three full time jobs plus up to four times that number in the supply chain.” 15 jobs in total sounds somewhat generous, so let’s assume that he means nine jobs.

Assuming that bricks and timber are free, that is nine jobs for £168,000. Really?

Ah, the British ecosystem has been rapidly diminishing for decades now, due to proliferation of homo sapiens, our pollinating insects which do millions of pounds of irreplaceable work for free, are on the way to extinction, there are beginnings of awareness of growing food insecurity necessitating more growing of food for the ubiquitous human being, and what does the left want to do with the surface of the earth? Yes, cover it in houses and roads. Besides which, building creates more carbon emissions. Something against which your LC columnists fulminate elsewhere. Radical approach needed: fit the population to the number of existing houses, rather than fit the number of houses to the ever-expanding population. Over 2 million people came to live in London over the past 15 years. It’s only fair that they should build those houses in London to accommodate those incomers, rather than displace Londoners who we have to absorb. You make your bed, you lie on it. Thank Christ, the so-called regional spatial strategy has been abolished by the coalition. Rejoicing all over Britain, bar London. Why should we have to house all your displaced Londoners? Failing that, if they insist on building them, there is loads of room in Caithness and Ross and Cromarty.
And anyway, 100,000 houses? say 4 people to a house. That’s 400,000 people? Are there really 400,000 homeless people in the UK?


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    Ed Balls: build 100,000 houses with £6bn http://bit.ly/dwHzko

  2. Don Paskini

    RT @libcon: Ed Balls: build 100,000 houses with £6bn http://bit.ly/dwHzko

  3. Joe Freeman

    http://bit.ly/diO71L /via @DMiliband compared with http://liberalconspiracy.org/2010/08/31/ed-balls-build-100000-houses-with-6bn/

  4. Balls talks bollocks on housing | Phil Hunt for Liberton/Gilmerton

    […] for the Labour leadership,proposes to spend £6 billion to build 100,000 affordable homes (via Liberal Conspiracy): By using half of that £12 billion, a £6 billion investment this year and next, we could build […]

  5. Balls the Builder « If You Tolerate This…

    […] Liberal Conspiracy highlights housing policy proposals from the Ed Balls leadership team – perhaps the first concrete (pardon the pun) proposals put forward by any candidate despite the fact that Labour Party members will soon be receiving ballot papers. Balls points out that the public finances are in a healthier state than previously thought, and that some of this extra money should be invested into a house building program. […]

  6. Paddy Duncan

    Thank god one of them has had a good idea. Ed Balls: build 100,000 houses with £6bn | Liberal Conspiracy http://t.co/J0CIIzf via @libcon





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