Most politicians think investment is a good thing. Indeed, Tony Blair and Gordon Brown thought it was such a good thing the redefined a large amount of current public spending as investment to justify their large increases in spending.
Today politicians urge more investment on the more conventional definition that investment is buying something that can be used for more than a year. A new railway line, extra equipment for a hospital or a new school is on this definition an investment, as is a new private sector house, a new piece of machinery for a factory and a new business vehicle.
At the same time it is also fashionable amongst many to decry investing too much in property in general, and in houses in particular. Banks have for sometime since the crash been under regulatory constraints to cut the proportion of their lending that finances property.
Some Commentators and bloggers urge on us the “continental model” of more people renting their own home, to cut the amount we “waste” by investing in property. Presumably they wish by this to have people living in cheaper and meaner properties, as the amount invested in residential property would remain the same if we simply shifted from owning to renting, as someone has to own the homes we would rent. The construction and improvement of the rented homes will still count as investment. I have never understood the impulse to recreate a nation of tenants dependent on rich landlords or the state as the richest landlord of them all like some medieval King dishing out property favours to his supporters.
If you examine the patterns of investment, you soon discover that investment in new and improved housing, and investment in buildings and structures by business has always comprised a large element of total investment. Those who see the construction of a new hospital or school as a good investment in the public sector should not begrudge the private sector its equivalent investment in a better home or smarter factory building. Investment in buildings is typically more than a third of total business investment in this country or one fifth of total investment, and investment in housing is another one fifth of total investment as well.
Not all investment is productive. Some investments turn out to be a bad idea, bankrupting their makers. State “investments” are especially difficult to evaluate, as in a free at the point of use or heavily subsidised service there will be no profit on the investment. The case has to be made for the investment on the basis that it will raise the quality, or cut the cost or increase the capacity of the service in a way which is needed.
If we wish to see total investment in our economy expand then we need to welcome more new buildings, and be ready to finance a new generation of better homes and more modern business buildings. Our banking system needs to be freed to finance these on a sensible and sustainable basis. The new bias against property is both unrealistic and cramping.