Economic growth is a key part of Rishi Sunak's priorities for 2023.
Real estate developers, senior Conservative MPs and economists say the fall could end fragile growth, leaving the government with even less financial room to pursue voter-focused policies.
Later this year, the Office of Budget Responsibility (OBR) will release an updated economic forecast to help inform Mr. Hunt on tax and spending measures in the Fall Report.
The overall forecast is based on a wealth of information, including forecasts for the housing market, which has worsened since the last OBR data set in March.
“Maybe not pessimistic enough”
Julian Jessop, a fellow at the Institute of Economics, said the OBR had been “pretty bearish” on the housing and housing market already in the spring, predicting that the “housing investment” component of GDP would fall more than 7 percent this year. 2023, which is 15% lower than the average for the quarter of 2022
Although new housing construction is only about 2% of total GDP, Mr. Jessop said that with projected growth “close to zero, an additional 10% drop in housing construction, which would reduce GDP by 0.2%, could make a difference between boom and recession.”
“And that's without taking into account the indirect effects on the economy as a whole, from reduced tax revenues to reduced labor mobility,” he added.
“The fall will have a huge impact”
The Federation of Home Builders, which represents the construction industry, has written to OBR urging it to factor in the risks of falling housing supply in its forecasts.
Stuart Baisley, Executive Chairman of HBF, said: “As we have pointed out to Ministers and OBR, in addition to the social impact, the fall in output will have a huge impact on UK PLC.”
The former cabinet minister agreed that the downturn in the housing market could affect growth forecasts. “There is a point where the OBR will say that this will affect the government's numbers and we have to take that into account,” they said.
A government spokesman said: “We are doing well in housing construction, with over 2.2 million completed since 2010. Just last month, we announced we were on track to meet our £11.5bn Affordable Housing goal of 250,000 homes built.
“We know we have to go further, so we are amending the Leveling and Rehabilitation Act to end outdated practices that slow recovery so we can build and deliver more homes.”
Measuring the long-term impact of housing.
Measuring the long-term impact of housing Growth will be a priority for the newly formed Development Commission, which includes Mr. Jessop.
The task force was convened by former Prime Minister Liz Truss to examine the causes of sluggish growth in the West.
Douglas McWilliams, chairman of the commission, said the undersupply of housing was “extremely bad” for the economy, as it limited people's ability to move to parts of the country desperately in need of labor.
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