It is fashionable now for people with money to spend to pull down their homes and build new larger ones on the same plots. That counts as investment in the national accounts. Good luck to most of them, I say. If that is how they wish to spend their money and enjoy the product of their labours they should be free to do so unless their aims violate planning laws or upset the neighbours because the new structure is unreasonable. In London it is common for people to tear a house down from behind the terraced front wall, and build as big a new home as the planners will allow.
But is this an investment? Some will say we spend too much on our homes in the UK. Some argue that this type of investment is unproductive. After all, at the end of the rebuilding the same family lives in the same place. In accounting terms, however, something real has occurred. A less valuable home has been replaced by a more valuable one. Lots of people have earned money out of the process of construction and demolition. The country is a bit richer as a result. The government has collected more tax revenue on the project. The bigger better home is there for future use, and may be used later by a larger family who need the extra space when they buy it off the owner who paid for its construction.
It is difficult to see this is less productive than the state’s investment in a new school building on the site of an existing school. The same considerations apply. The users would like something more modern, with better facilities and maybe more space. The same people may receive the same education after the rebuild as before. Lots of jobs are created by the process of construction. The state ends up with a building with greater ascribed value, though selling it on might be as difficult as it would be unlikely.
Some commentators and bloggers say the UK invests too much in housing, and should go over to the German model of many more of us renting. This could only reduce the amount of investment we make as a country in housing if at the same time people accepted they would live in older, or cheaper, or meaner homes. We discussed the fallacy yesterday that moving to renting would prevent us “investing too much” in housing. Shifting to rent merely changes the ownership, but does not reduce the amount invested. As some of you wrote, what people want in the UK is cheaper housing either to buy or to rent. High prices stem from past monetary policy, and from the balance of supply and demand for new homes.
Switching to more rented homes would remove much of the impulse of people today to undertake lots of work on their own homes for no pay, as they seek improvement to their lives and to their property values through DIY. How is that progress?
Buying a home is often the largest financial decision an individual makes. In a free society being able to choose your home and improve it as your resources permit is an important part of the lifestyle on offer. People’s passion for their homes is visible in the media’s enthusiasm for home improvement programmes. It generates big industries in supplying the new kitchens, bathrooms, the tiles and paint, the patios and extensions which proud homeowners want. One of the most obvious signs of London’s current buoyancy and economic success is the endless parked skips outside houses, as the continuous and relentless drive for improvement is undertaken.
There are many cheaper houses and flats around the country. The dear homes are in the employment, business and city high spots, especially in London. The government is going to have to live with some more upward movement in London prices as it wants the economic recovery to fan out to parts of the country with more depressed housing markets and with much cheaper property prices. London prices getting dearer relative to everywhere else is part of the process of adjustment which should encourage more people to take advantage of the cheaper prices elsewhere, setting up businesses, creating jobs and finding jobs outside the capital.