Effects on the local economy with a house building slow down

The local media are viewing the credit crunch and resulting slow down on the economy with significant interest over the last nine months, but what does this actually mean for local economies and what are the impacts for people in their different communities?

Redrow and Bovis homes have followed other house builders in announcing job cuts after house sales reduced in July 2008 taking the total loss of jobs to over 5,000 nationally within the industry. Other house builders are slowing down or mothballing their operations in line with the slow down in purchases. Ultimately purchases are aligned to the availability of mortgages and credit and with the withdrawal of one hundred and one hundred and twenty five percent mortgages the life blood of the property market, the first time buyers, are ceasing to acquire property.

Most house builders are not informing locally whether or not they are cutting back on jobs or slowing down their developments. In the East Midlands common responses have been that they are now building houses to order or are cutting back on contractors labour. This in turn creates less jobs at the skilled and semi skilled labour meaning a reduction in working hours and business for major contracts. The creation of more available labour creates an increasing competitive environment for that available labour at a time when costs are increasing and businesses are struggling to secure work.

Secondary impacts at the local level include a reduction in the number of estate agents, charted surveyors, and finance and banking jobs, employment typically catagorised as "white collar" and generally better paid, with more potential for disposable income. The Local Government Association have recently published a paper titled "Councils and the Housing Crisis" stating the impacts of the housing crash on communities as being: Lower consumer confidence, precautionary saving, curtailed ability to borrow, finance for development harder to source, lenders face losses, weaker economic environment, higher unemployment, increase in bankruptcies, increased demand on rental properties, lack of confidence in long term investments, negative equity, lower land values, and reduction in private sector house building.

So how does this economic picture of 2008 fair against past incidents or crashes? In 1971-1973 house prices grew by almost 40%, and unemployment was around 2% before the crash, interest rates grew from 7% to 12% through the 1970s, and inflation grew rapidly along with unemployment creating a period of stagflation. In the early 1990s house process fell by around 10% between 1990-1995 on average, unemployment grew from around 6% in the late 1980s to 10-12% in 1991 with London fairing worse than the UK. Interest rates in the early 1990s were as high as 17% and inflation was between 7-8%. In 2000s there has been rapid growth, which has been higher in London and the South East. Unemployment is currently at its lowest level since 1975, interest rates are between 5-6% and inflation is just over 3%.

So what does the future hold? No doubt that the Bank of England, and other financial institutions are more risk adverse, coupled with the ongoing media campaign to show the state of the British economy, there is a degree of uncertainty. Economic Development practitioners may find that there is a greater call for work to be done at the regional and local level to remedy the impacts and reactions of the economy.