Taking the Hard Road

I was thinking the other day that GCSEs aside, the past couple of months have been quite good for the government. They have not introduced any new stupid policies, nor have they been forced to scrap any existing ones. Compared with the year they have had this seemed quite promising. Then I remembered that they had been on summer holidays for six weeks.

Anyway, today, with the holiday coming to an end, it was time for David Cameron to reappear with another broken light bulb taped to his forehead. The new policy is planning deregulation which will make it easier to build houses in rural areas such as the Green Belt area around London. This, in his own words, is the problem he is trying to solve:

A familiar cry goes up, “Yes we want more housing; but no to every development – and not in my back yard.” The nations we’re competing against don’t stand for this kind of paralysis and neither must we.

The construction sector, according to Cameron, is paralysed due to a lack of places to build houses.

There is no doubt that the construction sector, along with the rest of the economy, is depressed but once again, the government is failing to understand the problem. Example time.

Imagine that Susan runs a shop that sells television sets. Susan opened her business in 2003 and her business grew nicely for four years. In 2007 she tried to get planning approval to double the size of the shop by building an extension on the park next to her. Demand was high for her televisions and by expanding she could sell even more televisions. Her application was rejected though and she had to make do with the floor space she had.

Then in 2008 the economic downturn happened and her sales dropped off a cliff. All thoughts of expanding the business disappeared and instead she had to downsize, making two of her staff redundant and cutting the number of televisions she held in stock.

Then in 2012 the council comes back to her:

Council: About that planning application you filed in 2007 – the rules have changed and you can expand your shop now!

Susan: No thanks. Things aren’t too good with my business right now.

Council: You’d be helping the construction sector.

Susan: <click>

Council: ….Hello? ….Hello?

In a depression, the problem Susan has isn’t that she doesn’t have enough shop space, it is that people are not buying televisions. Increasing the number of televisions she has in her shop won’t help if she can’t sell the few she already has. Similarly, the problem that the construction sector has is the number of people who want to have houses or extensions built has also dropped off a cliff. When people don’t want to pay for new houses or new extensions, there is no benefit in making more land available to build on – the construction industry will only build more houses when they can see there is a demand for them.

Cameron’s policy demonstrates that he either doesn’t understand the relationship between supply and demand or he believes that the construction sector suddenly fell off a cliff in 2008 because they ran out of land to build on and it happened at the same time that the rest of the economy fell off a cliff by coincidence.

I’ve talked a lot on here in the past about how to solve the problem with demand and it’s really not that complicated. But as Cameron boldly pointed out in his article:

At every turn we are taking the hard road over the easy path

Yes David, we certainly are.