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It is true that what we are seeing is, in essence, nothing new: a boom followed by a bust. The trouble is, this time we have a generation of people who have known nothing other than good times. The early 1990's recession was preceded by a recession in 1980-1981, prior to that one in the mid-1970s, and before that a generation of people brought up on post-war rationing. Thus back in those times most were aware of the good and bad elements of the economic cycle. This time we have a generation that has experienced nothing other than fifteen years of uninterrupted economic and employment growth, a post-war record.
Like a teenager coming to terms with the downside of freedom (responsibility), this generation will have to come to terms with the downside of the economic cycle: what goes up can come down, and often does; one cannot live beyond one’s means forever; everything has a cost (the cost of an economic boom is an economic bust). The alternative - hoping for yesterday, getting it, and ending up in a worse position than now – will hopefully be avoided. |
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We have not seen much comment yet, but we probably will concerning housing equity withdrawal (HEW) and its possible links with consumption. Could it be that while household consumption did not boom that much over 2000-2007 (rising by a modest 5% per annum when measured in current prices), it would not have grown were it not for a rapid rise in housing related debt. For instance, over the years 2002-2007, HEW averaged £46 billion per annum. Although there is no conclusive statistical evidence (yet) to prove this money was used for consumption, the Survey of English Housing 2005-2006, (published by Communities and Local Government in 2006) revealed that close to 650,000 homeowners withdrew an average equity of £33,000 per-annum over the three years to 2005. According to that survey data, home improvement accounted for 56% of equity extraction use, debt repayment 29%, and the purchase of new goods etc. 15%. Meanwhile, Bank of England data show that loans secured on property in the form of expansion of an existing mortgage (loans which according to the Bank of England are typically used for consumption and home renewals), increased from £9 billion in 2000 to £30 billion in 2003. Between 2003 and 2007 those loan values totalled between £25 billion and £30 billion per annum.
Consumption may not have boomed in a traditional sense between 2000 and 2007, but that does not mean there was no link between the boom in housing and consumption: without the boom in housing debt, consumption would perhaps not have increased by the average £35 billion per-annum it did over the years 2000-2007.
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The Government and housebuilding industry continue to get themselves into an awful muddle over housing demand and housing need. Two years ago we were told that 240,000 new houses per-annum were required to meet housing need, and that increasing supply was the only way to relieve the housing shortage and upward pressure on prices. Two years later and sales (demand) are down by over 50%, prices are 20% lower, and housing completions (supply) are set to drop to 120,000 in 2009 compared with 210,000 in 2007. Still, Government and the housing industry cite the need for 240,000 homes per-annum as reasons to be optimistic. Like many, they are confusing need with demand. Certainly, population and household data suggest a need for 240,000 extra houses a year, but demand for housing will not match that unless people can afford houses. On that note matters are not positive, as much of the projected growth (70%) in households over the next decade relates to single households, many of whom are on low wages and will thus be unable to afford a mortgage – unless prices fall much further than the current 20%, and the financial world discovers a new source of funding.
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Most research suggests the UK will need a marked boost in generating capacity in order to meet its growing energy requirements over the next ten years. The combination of rising energy demand, and the closure of nuclear and ageing conventional plant, mean that without new investment the UK faces a near 20,000MW energy shortage by 2016.
The challenges of global warming, combined with concerns over energy security, have led many to believe that nuclear power offers the best means of overcoming this problem. Nuclear power is carbon free, does not involve the UK relying on other countries (such as Russia) for energy supplies, and at this stage has a keen backing from Government and investors. |
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