The property and construction sectors in the UK will feel the pain of government spending cuts and this is likely to have a knock on effect on the whole economy, according to real estate experts.
The Royal Institution of Chartered Surveyors is warning that when the property sector hurts, the whole economy hurts more.
‘The Government is gambling with the economy by reducing Communities and Local Government capital spending by 74% over the next four years. This will have a significant effect on housing supply, especially social housing, which is already at historically low levels. As well as reducing the number of affordable homes this could have a wider impact on the housing market where continued low supply will create affordability issues, particularly for first time buyers,’ said Mark Goodwin RICS director of external affairs.
‘This comes on top of a 60% reduction in spending on the construction and refurbishment of schools. Cuts like this risk endangering the hugely important construction sector. Every £1 spent by the Government on building projects generates around £3 for the wider economy. Cutting construction spending will have serious negative impacts including long term unemployment, loss of skills and outdated infrastructure preventing economic growth,’ he added.
While welcoming both the new Green Deal scheme and the commitment to increased funding for renewable energy infrastructure, RICS believes plans for a Green Infrastructure Bank will need much more than the £1 billion allocated in the CSR to be successful in leveraging the necessary private sector investment in the low carbon economy.
‘The plans to tackle inefficiency in public sector asset management by creating two new vehicles for the estate in London and Bristol led by the Government Property Unit are welcome. But the really big savings are to be made in the bulk of the estate in the regions. Publication of asset registers should help get this moving,’ said Goodwin.
‘Everyone realises that big cuts are needed to reduce the deficit. The axe has been wielded, but next year’s Budget provides an opportunity to support innovation and growth by making fiscal adjustments that will have a big payback, such as cutting VAT on repair and refurbishment of buildings, supporting investment in carbon reduction measures, reinstating empty commercial property rate relief and changes to the tax system to support greater investment in residential property,’ he added.
Andrew Stanford, Head of Cluttons’ Residential consultancy division, said that the intention to fund the development of 150,000 new homes between now and 2014/5 represents only a small increase.
‘It is therefore apparent that there will continue to be a strong reliance on the private sector for the delivery of new homes, to meet the projected need of 240,000 new homes per annum to keep up with household formation. However, development funding for residential schemes is substantially more limited than has been the case over the last decade and it is therefore very unlikely that the overall delivery of new homes will reach the average for the recent past let alone the stated need. The announcements today will do little to change this situation,’ he explained.
‘This will have a substantial impact on the options available to households going forward. The Government is looking for innovative funding structures, such as bond issues, in order to deliver new homes to house those on lower incomes. But given the economic environment in which we are embarking, there will be a far wider group of households who will be struggling to secure mortgage finance to buy their own homes, a fair proportion of whom would not be considered low income by any statistical measure,’ he added.