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The foundations of a recovery

It is said that one of the surest early indicators of the health of the economy is the DIY and homeware sector.

Commercial property players know a downturn is coming when stores such as B&Q and Homebase start demanding smaller units. Only people infused with optimism bother to upgrade their front door or replace their patio furniture.

Philip Hogg, chief executive of housebuilders' organisation Homes for Scotland, cites the "kettle index" - apparently these outlets can tell things are picking up when they begin to shift a lot of kettles.

"Homebase have said they can measure economic activity as the first thing you do when you move into a new home, even before you buy furniture, is to buy a kettle to make a cup of tea. It's a good indicator of housing activity."

In a property-obsessed Britain, housing activity stands for a whole load more. As Homes for Scotland likes to point out, the industry affects a vast supply chain and determines the existence or not of a huge repository of skills.

It is far too early to say that the sector - and therefore the Scottish economy - is on the boil, but according to Hogg, things are warming up nicely: "We spotted signs of improvement around about the halfway point of last year, for no discernible reason. It wasn't tied to a particular initiative or an announcement.

"We think the reason was that the Chancellor announced Help to Buy in England which took effect in April. This made a massive impact on the industry and we feel that the positive sentiment and attitude filtered north of the Border.

"It seems as if there was almost a stimulus on the anticipation of a stimulus. Because Help to Buy Scotland didn't arrive until the very end of September last year."

Hogg implies no criticism of the Scottish Government, which, he says, moved as quickly as it could to replicate the UK Government scheme, which helps buyers purchase a new-build home from a participating home builder with a 5% deposit (the Government provides a further 20% deposit that can be repaid on the sale of the home).

Homes for Scotland and the Council of Mortgage Lenders were intimately involved in designing the Scottish scheme - a great team effort" as Hogg describes it.

"Such is the nature of these things that the consequential funding has to come from Westminster, and because in England they were able to introduce Help to Buy pretty much immediately as they already had a delivery system of agents around the country, Scotland had to set it up from ground level. As soon as the industry was aware that Help to Buy was coming, that created a positive atmosphere and a lot of pre-marketing went on, so we were able to hit the ground running from the beginning of October last year."

According to Hogg, Help to Buy has more than just changed the mood. "There are a number of indicators that show the impact this change in sentiment has had. The latest information is that there have been more than 2000 approvals to proceed [decisions to lend] in the first four or five months of the scheme.

"That's taking a good percentage of overall activity. Other indicators such as housing starts and new homes being registered, show there is significant double-digit growth year on year. Whichever indicator you use it's very positive."

Signs of increased demand are mirrored in positive results announcements from the Scottish sector, matched by announced increases in investment and the employment of apprentices and other staff. People, it seems, are making positive investment decisions, the benefit of which is felt along the supply chain. This is, as Hogg says, a long and broad supply chain, also a highly varied one, encompassing the legal profession, the financiers of various types, material suppliers, the professional services, the design and delivery of homes.

"Many people spend hundreds and thousands of pounds in furnishing and fitting out a new home. There is a long tail of positive impact. There's a lot of hard statistics that you can use, also lots of softer indicators that suggest we are in a far better place than we were."

It is worth pausing here to remember the context from which this good news emerges. The housebuilding crash was one of Scotland's worst industrial collapses, intensified by its intimate connection with the disgrace of Scottish banking.

Prior to the onset of the credit crunch in 2008, house building was the largest source of private investment in the Scottish economy, directly and indirectly responsible for the livelihoods of 100,000 people in Scotland.

During the years of crisis, around 26,000 jobs (half of the industry's directly employed workforce) were lost, and the largest source of private investment in schools, roads, infrastructure and other community facilities effectively vanished.

"The industry was structurally damaged by the recession," Hogg says. "The amount of people that were lost, the skills that were lost, the small and medium-sized businesses that were lost … It means that those who are still in business have done well to survive the recession but are probably severely compromised in terms of their ability to deliver.

"Meanwhile, the demand hasn't gone away, in fact it has got higher because of the inability to deliver. There is a massive task for the industry, on the Scottish Government, for all of us to be able to ramp up our efforts to supply that housing need."

In Scotland, output across all sectors slumped by more than 42% from 25,741 completions in 2007 to 14, 877 in 2012, the lowest level since 1947. All of this makes a return to growth in Scottish housebuilding a very big deal. Is that what Hogg believes is happening?

"I think that I have to be negative to then be positive. If we look at housing completions, this is the Scottish Government's own figures,

"My projections are that when full 2013 figures are published we will see an even lower level than in 2012 but I do think we have hit the bottom, and will now bounce upwards. I wouldn't say it's going to be spectacular, and since Help to Buy didn't arrive until the last quarter of last year, that's not going to translate into actual people in homes because obviously there's a lead time from reserving to actually getting the keys and moving in.

"But, yes, I think that starts and the other things are moving solidly in the right direction and I would be extremely surprised if we didn't see a significant, healthy increase in housing completions in 2014."

Hogg guesses that, in 2013, housing completions are likely to be "just short of 15,000 for 2013". To be on course to satisfy demand, that figure would have to be in the region of about 25,000 units. This shortfall, never less than 10,000 units a year in recent years, has been building up steadily.

He considers it interesting that the last UK Budget contained radical plans for new garden cities in the southeast, and he notes that "an extra 20 or 30 units here or there is fine but it's not going to solve a problem.

"You need wholesale large developments to do that. We really need someone who is prepared to grapple with the problem and look at where the investment can come from. It needs big thinking. By not tackling this issue head on, we suffer the indirect results of poor quality or insufficient housing, we know the link between that and attainment, on health, on job aspiration."

But the lack of supply of appropriate housing stock does not just constrain Scotland's poor, it also holds back its success stories.

"If you look at booming economic areas like Aberdeen, the boom is potentially jeopardised by the lack of good quality housing. Oil and gas is a global industry and we know that the workforce is very mobile and very well paid and has a tendency to move around the world.

"You would expect them to say 'If I can't find the type of housing I need for me and my family, maybe there's a job for me in the Middle East or other oil areas'.

"So, you know, that potentially compromises the sustainability of even that very powerful economic stronghold for Scotland. These are social issues, and they are also economic issues, which is why the whole issue of lack of housing needs to be tackled and certainly [regarded] as an important strategic area for Scotland."

As a parting shot I ask Hogg if he thinks that independence would provide opportunities for action to breath new life into a sector

He thinks about it, before stressing his organisation's neutrality. "It's hard to say if becoming a new country would make a difference. I don't know what the Scottish Government vision is to tackle housing in Scotland, but it could be more attractive.

"It could be that an independent Scotland says we are going to tackle this housing crisis and that could be a positive advantage, but equally it may not. I can't guess which way it might go. There's nothing of any detail in the White Paper that you can hang your hat on."

Given that the tentacles of the housebuilding sector, for good or ill, reach into almost every area of the Scottish economy, Hogg seems to be hinting at a vast potential reward for any credible plans for action to put a roof over the head of Scots seeking somewhere affordable, sustainable and life-enhancing to call home.

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