Returning to growth in the UK: Policy lessons from history

25 10 2012

 

That’s the title of a recent lecture and now blog post by Nick Crafts, an economic historian at the University of Warwick. There’s loads of good stuff about macroeconomic policy here, but I think his most important point relates to housing. The UK escaped from the Great Depression of the early 1930s by building massive numbers of houses. Maybe it can replicate this feat by scrapping some of the existing planning rules.
Abstract: A return to growth is urgently needed in the UK. Recovery from severe recessions was achieved in the 1930s and the 1980s in the presence of fiscal consolidation. This column examines the lessons from those experiences for today’s policymakers.
Bottom Line: If there is one area that could deliver short-term stimulus and long-term efficiency gains, as in the 1930s, it is surely private house building. The evidence suggests that draconian planning restrictions mean that the stock of houses is three million below and real prices are 35% above the long-run free market equilibrium (Hilber and Vermeulen 2012). The welfare gains from some relaxation of these planning rules are huge and the employment implications of steadily addressing the housing shortfall could be considerable – building 200,000 extra houses per year might employ 800,000. This would require addressing issues of housing finance and incentivising local communities to want development because they can benefit from it and builders to believe that delaying construction would not be profitable (Besley and Leunig 2012).

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