Ann Pettifor: the Treasury's fiscal orthodoxy is fuelling England's housing emergency and strangling growth

Ahead of the Spending Review on 11 June, leading economist Ann Pettifor has written an op–ed on why major government investment is needed to address the housing emergency:

England is facing the worst housing emergency since the Second World War. The number of children in temporary accommodation has reached yet another record of 165,500, while local authorities are on the brink of collapse, spending three times more on temporary accommodation than a decade ago, with a further rise of 71% projected by the end of this Parliament if nothing changes. With the chancellor's June Spending Review just a couple of days away, there is growing pressure on the government to abandon failed fiscal rules and work with the Bank of England to invest in genuinely affordable social rent homes at scale.

To be clear the problem is not planning policy or supply-side issues. The government's straitjacket is home-made; it is its orthodox fiscal and monetary policy. George Osborne's austerity shadow looms large over a British economy that has still not fully recovered from the 2007–9 global financial crisis, and is crawling along at sub 1% growth. The refusal by successive governments to invest in social housing is due in part to a persistent misreading of the role of public finances in stimulating both public and private economic activity. From 2010 onwards, political leaders chose austerity over investment, despite historically low interest rates, spare capacity and ample fiscal space. The results are now painfully clear: a weakened economy and its inevitable counterpart, the budget deficit, compounded by spiralling housing benefit costs, rising private rents, growing inequality, and stagnant productivity.

For too long the Treasury has insisted that public spending must be tightly constrained by current tax receipts. This is a misunderstanding of how modern economies function. Government financing does not depend on tax revenues for investment. As many of us know from our own experience of employment, tax revenues are a consequence of investment. Treasury intransigence is matched by the Bank of England's aggressive use of Quantitative Tightening to burden the government with costs amounting to £20 billion over 2.5 years. In other words, monetary policy is actively interfering in and undermining fiscal policy. Furthermore, the Bank ignores its mandate under Part 2, Section 11 of the 1998 Bank of England Act: to maintain price stability, and to support the economic policy of Her Majesty's Government, including its objectives for growth and employment.

As Keynes taught, public investment at a time of private sector weakness drives both private and public investment, employment, income and tax receipts. If targeted at the creation of new assets that are revenue generating, the spending will pay for itself.

Social housing is a prime example. Shelter's call for the creation of 90,000 new public assets – social rent homes – a year, costing just over 1% of GDP, would not only address urgent need, but would create hundreds of thousands of jobs, boost private supply chains and generate tax revenues. Kept as assets on the state's balance sheet, the social housing stock will continue to reduce public debt. Furthermore, investment in housing would increase the skills, the stability and the mobility of labour. Research shows such investment would begin returning a profit to the Exchequer within 11 years, while reducing demand for housing benefit and temporary accommodation.

By contrast, Britain's current policy is to prioritise day-to-day spending on private market subsidies over capital investment in public assets. No wonder the housing benefit bill has surged, transferring public money into inflated private rents, rather than in long-term, income-generating public assets.

Without a bold, state-led programme of social housebuilding, those missing homes won't just be a number, they'll directly translate into greater hardship and homelessness for families and higher public costs.

If the chancellor is serious about addressing both the housing emergency and the country's sluggish economic performance, she must finally break with the Osborne legacy of the past 15 years.

Investment in social housing is not a cost, but a strategic choice that strengthens public finances over time. Failing to act now will only compound the problem for families, councils and the wider economy. The opportunity is clear. The question is whether the chancellor will seize it.

It's never been more urgent to fight for social homes. Join the campaign for social housing.

Ann Pettifor is a political economist best known for predicting the Global Financial Crisis of 2007–9 with her book: The Coming First World Debt Crisis  (Palgrave, 2006). She is the author of The Production of Money  (2017) and co-authored the original Green New Deal report in 2008. She has written extensively on the power and politics of the international financial system and its impact on the world's people and ecosystem. 

She is a member of the Scottish Government's Just Transition Commission. 

She has published widely and was awarded honorary doctorates by Newcastle University, Helsinki University and the School of Oriental and African Studies (SOAS).