A budget of growth or diversion?

With the international events in the past few weeks, the dust settled on Chancellor George Osborne’s Budget speech rather quicker than perhaps it deserved to. Things are looking bleak across Britain, and apart from the 1p off petrol to grab headlines there was little in the Budget to cheer anyone up. On the face of it, property got one of the better packages of reforms. Yet measures outlined simply won’t achieve what they need to.

The relaxing of planning constraints is probably a key measure. Cutting red tape – by which one should probably read ‘local planning jobs’ – is intended to stimulate activity in the market, in particular activities such as commercial-to-residential property. This is intended to tackle issues of housing shortages, long-term vacancy in commercial properties and the lack of activity in construction industry. It will likely fail to address any of these points.

To begin with, the chronic lack of housing and social housing cannot be addressed by converting old commercial properties, many of which deserve to be knocked down.

Indeed, it will not even scratch the surface on a problem set in place by Thatcher’s council house purchase policy. It will require decades of concerted investment effort to address this problem. And with cuts going on, George Osborne simply won’t commit to this out of the public purse.

On the reverse side of the coin, conversion will have little benefit for the commercial property industry either. Though conversion might offer some B-grade stock holders a way out of the commercial market, it will only further compress a market low on stock and with very little new building going on. The crucial point in the matter is that many of the commercial properties that are vacant are that way for a reason. They’re outdated, poorly constructed and inefficient in terms of energy. There’s no money to knock down and start again, so will people really want to live in such buildings if businesses are reluctant to work in them?

Finally, the idea that that easing planning requirements will kick-start the construction industry and generate jobs has the same merit as saying a race car will go faster if you paint it red. Planning permission is not the reason why there is mass unemployment in the construction industry – cuts to public sector construction are.

And do we really want to try and bring the construction industry back to where it was before, where its success contributed to the property bubble that derailed the economy? This is a wider question that Coalition policy makers must address.

The 21 Enterprise Zones announced in the Budget and to be established in locations around the country (all but one are ) will equally have little impact. Dropping business rates by up to 100 percent in areas of the Midlands, North East and North West might help stimulate business and new development in some post codes, yet this will most likely only be from businesses relocating from a neighbouring post code. This is not so much solving the problem as moving it around. It’s also hard not to notice that several of the Enterprise Zones (Middlesbrough, Hull and Leeds) are those where the worst effects of public sector cuts have hit. George giveth and George taketh away.

From a budget of false dreams, let’s get back to reality. For all the Chancellor’s hopes of a private sector revival, there is little chance of it actually happening while the public feels so squeezed. With the ONS announcing the first fall in household disposable income for 30 years and inflation rising unabated, the public certainly does feel squeezed.

This is already impacting on the retail sector which, regardless of the wider economy, looks primed for a double-dip recession (and that’s not to say it won’t happen for the economy as a whole). Many of the same stores feeling the pinch at the start of the recession are once again in trouble. The Officer’s Club for example entered administration in December 2008. It has again announced the appointment of administrators as of late March 2011.

More worrying news is that of store closures by media retailer HMV. Though the company faces its own unique challenges – notably the challenge of online retailers selling from tax havens – it more or less holds the position as the last media retailer on the high street. Now closures are planned for even prime locations such as London’s Brent Cross shopping centre. Once again the high street will suffer and once again, retail property owners will feel the blow. This may perhaps be the hardest hit sector of the property industry, yet it’s symptomatic of the pain felt across the board.

So, while the Budget’s measures might well be designed to stimulate growth in the property industry, they pale in comparison to the effects of the Coalition’s wider economic policy. It now remains to be seen just how badly attempts to cut long-term national debt will impact on a recovering economy and a property industry that’s needs more than a few token gestures.