The global economy is facing years of uncertainty. The UN has warned of a lost decade as the scarring effects on the economy of covid-19 are worked through. Investors, government and the public sector need to come together to tackle this economic fallout. And there are few easier ways to kick-start economic growth than construction and house-building.
Construction’s economic importance cannot be downplayed. In the UK, it contributes £118bn (6% of overall GNP) and employs one in five either directly or indirectly through its vast supply chain. A flourishing construction sector would help government refill the coffers, starting to meet the bill for the extraordinary fiscal measures implemented to tackle covid-19.
An area of construction that perhaps warrants the most immediate attention is house-building. As a sector, it supports nearly 700,000 jobs and is worth around £38bn to the UK economy each year. And with 1.3 million remaining on housing waiting lists, it remains vastly underserved. But following the challenges of the covid crisis – with a nation navigating lockdowns, ever-increasing demands to work from home or job losses – affordability and supply issues have come to the fore.
Housing and construction are some of the best fiscal multipliers, while representing a long-term investment opportunity backed by social principles
As is being seen in other developed markets, the UK government has already announced some stimulus packages. These include ambitious planning reforms, proposals to deliver 75,000 modular homes each year and a short-term stamp duty cut. While forming the spine of government’s recovery plans, it is important that these fully unlock investor and private sector roles in helping us build our way out of this crisis.
Legal & General, through its partnerships, has made a long-term commitment to help tackle the housing crisis head on. In a climate that requires diversification and long-term thinking, our rationale is simple: demand is constant and the mismatch between demand and supply is unwavering. We can take a 30- or 40-year view on investments, accepting that for some the payback periods may be long. The responsible thing to do, therefore, is to use capital to support impactful building projects and work in partnership with councils, public bodies and other stakeholders to make this happen. Never has this been more important than it is today.
Housing and construction are some of the best fiscal multipliers, while representing a long-term investment opportunity backed by social principles. During the lockdown, many key workers have had to commute long distances to keep our country running. It is important that attention is focused on building homes for these people, and others, that are affordable and centrally located. This will not only deliver housing that reflects our thanks but also help create much-needed employment opportunities. Partnerships and public-private joint ventures have a huge role to play here. Legal & General, for example, is already delivering a £4bn investment programme in Oxford, in partnership with the university, aimed at bringing forward vital housing for the city’s key workers.
Another necessary lever is to encourage overseas investment, particularly from those spooked by uncertainty in retail and offices. Many are particularly keen to plug into UK residential and, if captured, could help further accelerate a building boom. Legal & General’s partnership with Dutch pension fund PGGM, for example, is helping to deliver swathes of much-needed rental housing in urban locations; an area of the market that has remained robust in terms of occupancy and rental growth since the onset of the covid crisis.
We now have an opportunity to ensure
the country is rebuilt in a way that
echoes loudly for decades to come
The UK also needs to focus on growing its modular housing programme. Factory-built homes can fast-track the supply of housing, while creating new jobs at a time when the country needs them most. A potentially £40bn industry in the UK, modular construction offers a large source of multi-skilled employment opportunities. Legal & General’s factory in Yorkshire, for example, brings jobs to the area including design, finance, engineering, procurement, construction and production. As the world looks to tackle the growth climate crisis, modular housing also offers solutions that are sustainable, green and future-proofed.
Consideration is also needed on how to deliver homes – at scale – that can safely and securely house our elderly population. Recent tragedies have brought to light the urgent need for new types of retirement community, with facilities that can support preventative healthcare and ease pressure on local NHS services. Not only will this help protect our elderly friends and family, but it could result in a chain reaction of sales as family housing becomes freed up. With just 0.6% of the over-65s residing in retirement communities in the UK, compared with more than 6% in Australia, the UK’s later-living sector needs immediate attention. Research from Savills shows that this market could grow to £260bn. In 2018, however, only £1bn – out of a potential £62bn – was invested in later-living schemes.
As shown post-war, even a society in the depths of financial ruin can muster quickly and rebuild. We now have an opportunity to ensure the country is rebuilt in a way that echoes loudly for decades to come. As we look to kick-start our economy, while attracting much-needed investment to the UK, carefully tackling our housing crisis is an opportunity neither government nor the private sector can afford to waste.
