The Green Homes Grant recognises that we need better homes. But is it anywhere near enough to combat the post-Covid recession?
It’s a bit worrying when The World Bank puts out a press release headlined ‘Covid-19 to Plunge Global Economy into Worst Recession since World War II’. Certainly, architects and builders know economic downturns hit construction particularly hard.
So it’s no surprise that industry leaders are formulating policies that might boost construction activity. Inevitably, sectoral interests will infect discussions over what should be promoted ahead of what. But the most obvious answer is private housing RMI (repair, maintenance, and improvement), especially if the aim is to preserve jobs.
In policy terms, there are at least four good reasons to focus on improving private homes above other construction right now.
The UK has the oldest housing stock of any major nation; 20% is over 100 years old and about half built before 1960. They leak heat and need a huge backlog of work to meet climate change targets. The private sector is worse: the business department BEIS estimates that around 15% of UK CO2 emissions came from residential buildings in 2018.
The pandemic has both increased awareness of our need for better homes and accelerated a trend towards working from home.
Home improvement is labour intensive; it tends to generate twice as much employment for a given amount spent on construction.
This work is widespread across the country, so can be targeted to where a boost is most needed. Fortunately, the government’s announcements on a Green Homes Grant for England show that it recognises some of this.
Admittedly, its planning of the scheme reflects a government out of touch with the real world. The timing of announcing ‘free money for home improvements’ was naively botched and the scheduling is weird. But it does mean work. And, importantly, it shows the government’s willingness to support a subsector that accounts for about an eighth of all construction work and a larger share of jobs – a sector that can swell to widening gaps in workload forming elsewhere.
The government’s intervention to improve private sector homes raises important questions. How hard and in what direction should the industry be pushing private home improvement? Are we missing a trick?
Clearly, architects would want to seize an opportunity to go a lot further. The Green Homes Grant has merit, but much of the work is specialist. The wider home improvement market – including extensions and loft conversions – on the other hand is bread-and-butter work that supports numerous architects across the country.
Here there’s cause for concern if the government doesn’t back home improvement further. The private housing RMI sector has been drifting gently downward for two years, and even before the pandemic this trend looked set to continue.
Research by Barbour ABI shows that, while there may be a huge need for private housing RMI, spending tends to be driven by solid overall economic activity, a vibrant housing market and consumer confidence. Activity throughout the economy and within the housing market appears to have been held back by uncertainty created by Brexit. This in turn has dampened appetites for spending on home improvement.
As Chart 1 shows, already slowing planning applications for home improvement accelerated at the start of 2018. On past performance this would be expected to herald falls in private housing RMI about a year later.
The onset of recession caused by Covid-19 will further speed this trend. Work in the pipeline held back by the lockdown will inevitably create a surge in activity on the ground. But as this fades the likelihood is that we will see a deeper softening of the market.
The Office for Budget Responsibility (OBR) suggested in July in its ‘central scenario’ that GDP would fall 12.4% this year, bouncing back in 2021 but to a level almost 5% down on that in 2019. This compares starkly with its forecast in February that suggested growth in both years would be close to 1.5%. And the unpredictable path of the pandemic makes any forecasts of future economic activity extremely uncertain. But while assessments may vary, the fact is the economy is taking a huge hit and the worst is yet to come, certainly in terms of unemployment.
So we should expect a big fall in annual home improvement work in 2020. The latest scenarios for future activity from the Construction Products Association (CPA) suggest that, with the lockdown having halted a large slice of work for an extended period, this year we should expect to see a fall of close to 20%. It indicates a bounce back in 2021 of a bit above 10%, but this would still mean about 10% less work in 2021 than in 2019 (Chart 2).
This means a lot of job losses at a time when the construction sector is desperate to recruit talent for the future. And these job losses will add to a wider surge. OBR expects unemployment to rise close to 12% this year, falling slightly next year to 8.8%. This compares with its expectations in February of unemployment holding level at 4.1%.
Nothing in the economic crystal ball suggests vibrancy or growing consumer confidence to encourage big ticket purchases. As for house prices, it is hard to know. They tend to be very sticky with vendors withdrawing if offers don’t match their desired price, which is often anchored close to the peak. It is hard to imagine strong price growth.
However you look at it, prospects for private sector home improvement look precarious. The £2 billion earmarked for the Green Homes Grant may seem like a lot. But with inefficiencies and out of sector activities taking a slice, not all of that will go into construction. Set beside 2019’s £21.4 billion of construction output in private housing RMI it might just take an edge off a painful fall. But it is a short-term measure and the funding is likely to dry up as the industry begins to feel the greatest pain from a shrinking market. Indeed, it is hard not to fear that it may give false hope and disguise what by next spring may be more worrying problems.
Boosting home improvement is probably the most effective way to retain a wide range of essential construction jobs. It is also vital that homes are made more energy efficient. And, if we are to be spending more time working from home, there will be a need to expand the capacity of many dwellings.
The case for wider support for home improvement is strong – and with the economic shadow cast by Covid-19 it will seldom be stronger. It seems architects will need to push this message vigorously if they are not to witness sublimation in a vital market sector.