(Bloomberg) -- Britain’s economic growth rate could get a sizable boost if Prime Minister Keir Starmer is successful in delivering 1.5 million new homes in this parliamentary term, according to economists at Nomura.
The bank’s Chief UK Economist George Buckley said delivering 300,000 homes per year could lift the level of gross domestic product by as much as 0.8%.
Such a big increase would help Starmer gain ground on his promise to make the UK the fastest-expanding economy in the Group of Seven and help bring in revenue to the Treasury that could be used to improve public services.
Labour has announced a blitz of reforms to the onerous planning system to improve Britain’s dire growth rates and help more young people struggling to get on the property ladder. Annual GDP growth in the UK slowed to just 0.1% this year and is expected to be below 1% this year.
The government’s housebuilding plans “could drive a significant surge in economic growth,” Buckley said. “But this target looks optimistic, with the private sector likely to shoulder all of the increase.”
Housebuilding has slumped since the post-war peak, failing to keep pace with massive demand as the population has soared. Labour’s target is similar to the Conservatives’ failed 2019 manifesto pledge to build 300,000 homes per year by the mid-2020s.
“There seems little doubt — if the government delivers on its housing promises — that the impact on growth from 100,000 more houses being built per year will be sizeable, possibly around the 0.6% to 0.8% mark based on various estimates,” Buckley said.
However, Buckley also cautioned that the housebuilding drive may prove to be inflationary, potentially forcing the Bank of England to dampen growth with tighter monetary policy.
“As the years of this parliament roll on, the likelihood of delivering on annual targets will surely increase,” Buckley said. “That could raise growth, inflation and mean higher interest rates than would otherwise be the case if higher construction demand outstrips economic supply.”
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