George Osborne came out in his recent spending review in the Autumn Statement with a promise to build roughly 400,000 more homes over the current parliament. This has been done to alleviate the current housing crisis, which is a crisis of supply above all else. If we leave aside the debate about whether or not these are enough to sort out the problem, which is going to have to take place somewhere else, we still have questions left over on how this is going to impact house prices, and what impact that is going to have on the construction industry.
Like with anything in the economy, price is mainly determined by the principles of supply and demand. The main feature of this new house building scheme is to massively increase supply, which almost definitely means that price will go down; it is mainly a question of by how much, which will be determined by how quickly this increase in supply can be absorbed by the record high levels of demand. Of course, the record high housing prices has priced many people out of the buying market as it is, so prices may need to come down as a necessity anyway.
Another side to the economics of this is that the decrease in value of homes is likely to have a negative impact on some businesses in the construction industry. The fact that there is going to be a massive push towards building homes means that there will be more building projects on-going over the coming years than there have been in the last few decades, which will mean growth for the industry and more work for the workers. The downside to this is that the construction companies that have invested in building projects already, with the expectation that housing prices will sit at a certain level, may find that their expectations were misplaced.
