https://cpes.org.uk/om/files/original/76c9a78b9e0fad4eea3f00e277caa5f6.pdf 79926b909c307f22c828afc761d8d793 Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Title A name given to the resource Prospects for Economic Management 1973 - 77 Text A resource consisting primarily of words for reading. Examples include books, letters, dissertations, poems, newspapers, articles, archives of mailing lists. Note that facsimiles or images of texts are still of the genre Text. Text Any textual data included in the document Chapter 5 Private Investment by Barry Moore and John Rhodes L Our approach is to divide private investment into two parts 5 housing and non-housing, The main components of private non-housing investment are Manufacturing (excluding iron and steel)(l) and Shipping, Distribution and Services. The relative importance of investment in these selected categories in 1972 was as follows~ Expenditure in 1972 £m. at 1970 pr1ce! % Housing Manufacturing (excluding iron and steel) Shipping~ distribution and services Other Total .pri'l7ate investment (excluding iron and steel) 983 1567 2311 547 5408 18.2 42.7 10.1 100.0 2. The outstanding features of the changing composition of the total in the last decade has been the declining share of manufacturing investment and the increasing share of commercial investment. 3. The composition of private investment as a share of G.D,P. is shown in the Chart" Total private investment (excluding iron and steel) has increased from about 10% in 1961 to just over 12% in 1972" By far the largest part of this increase is to be found in the growth of commercial investment (Shipping, Distribution and Services). Even if we take the view that the cyclical downturn in manufacturing investment in 1971 and 1972 was abnormally severe it is nevertheless still true that commercial investment was considerably more buoyant in the 1960s than manufacturing investment, (a) Private Dwelling Investment 4. Changes in the demand for private housebuilding are the result of the complex interaction of a number of factors. An ideal framework for analysis should take into account variations in housing needs arising from such factors as changes in the population of household-forming groups in relation to the stock of dwellings (1) The private investment figures have been analysed after excluding iron and steel. This is because of the steel boom of 1961 and the subsequent nationalisation of a large part of the industry in 1967. 1 5-2 Chart: Private Investment Expenditure expressed as a p·rcentage of C.D.P. 13. % of CDP 12. % of c.o.P. Total (excluding iron and steel) 11. 10. ~. s. 4. 3. \ 2. 1. 9. Shipping D,i_s_tr_i_bu_,ti,o,n,,aDd-~vicea ,,, Manufacturing (excluding iron and steel) Private Housing o. ~....-~--~....---~--_.----~--~--~----~--_.____._·--~--~~~' 1961 62 63 64 65 66 67 68 69 71) 71 72 73 5-3 (both regionally and nationally)o These "demographic" factors shauld allow for the changing pattern ef inter=regional migration and the rate of slum clearances. But in addition a satisfactory explanation of private housebuilding would require an analysis of the effects of "financial factors" such as increasing real incomes, the cost and availability of mortgage financei government policy (in the private and public sector- eog. tax reliefp rent controls); the preference for different forms of tenure is also likely to be a further relevant factor. 5o In seeking an explanation of the behaviour of private housebuilding we have adopted a Iess than ideal model relating it to G.D.Po~ the mortgage interest rate, and a measure of the net inflow cof funds into the Building Societies - namely net changes in Building Society shares and depasits outstanding. Net changes in Building Soc.iety shares and assets outstanding were in turn explained by relative movements of the Bank Rate and the. Building Society borrowing rate and a time ( 1) trend. ' / 6o Pr:tvate housebuilding over the period 1960=1972 was explained reasonably well by these factorso GoDoPo was significant when lagged one year. Increasing real incomes enable households living in rented private and public accommodation to satisfy their desire to oi,m their olvn house~ and also enable existing owner occupiers to purchase imp¥oved homes. Not surprisingly the net inflow of funds to Building Societies was a very important factor explaining new housebuilcling; as expected on a priori grounds~ it proved significant when lagged one year. 7. The net inflow of funds was itself satisfactorily explained by the Building Societiesv own interest rate relative to competing financial yields (for which the Bank Rate was chosen as a useful proxy). 8. The role of the mortgage interest rate proved more problematical. A priori one might expect changes in the mortgage rate to influence the rate of new housebuilding with a lag of about one year because changes in the mortgage rate determine the level of monthly repayments for potential and existing house purchasers. However» the mortgage :ra~e was feund to affect new house building without a lag. One possible explan.ation'~of this is that ch·anges in the mortgage rate took place as a lagged response to other factors which earlier caused the Building Societies to ration mortgages. (2) (1) For a recent attempt to explain Building Society operations see Building Societiesv Behaviour 1955~1970 NoloE,R. August 1972 by C. St. J. Oherlily and J.Eo Spencerc (2) The rationing of mortgages depends on the reserve position of the Building Societies. The societies first response to a difficult reserve position is to ration mortgages. The next stage is to come together to try to agree on an increase in the share and deposit interest rates. A change in these rates affects the mortgage rate after a lag of six months to one year. 5-:4·. 9. Although private housebuilding remaine~ fairly stable as a share of GoDoPo (fluctuating slightly about 2% of GaDoPo throughout the 1960s) it dropped sharply in 1969 and 1970, and increased sharply between 1970 and 1973o This unusually strong upsurge was the result of an increase in the net inflow of funds to Building Societies in 1970 and 1971 (more than double the average level for t~e pe+iod 1963 to 1969) combined with an acceleration of money incomes in relation to hous~ prices prevailing in 1970 and 197L These two factors provided the necessary conditions for a strong increase in the demand for new housins which was met partly by a boom in housebuilding and partly by rapidly spiralling house .priceso The earlier upswing in housebuilding which occurred between 1963 and 1965 also took place under similar circumstanceso 10. Although 1973 saw a continuation of the upsurge of investment in private housing which began in 1971 there are significant indications that housebuilding will slow down sharply in 1974o The number of starts in the last quarter of 1973 shows a decline of about 20% over the same period in 1972o (l) The time lag between start and c~letion has been steadily lengthening and Building Society statistics show that the numDer of new mortgages being taken out has been declining throughout 1'73o The explanation of this slow=down in activity in the private housinc sector is to be found partly in the decline in the net inflow of funds to the !uilding Societies from the peak of 1971; in the dramatic increase in the price of new houses (up over 50% between June 1972 and June 1973) relative to the increase in money incomes, and in the present high mortgage rateso But one offsetting factor is the rapid growth of modernisation and house improvement programmeso Improvement grants. approved to the private sector~ although now falling back~ are still considerably up on 1972, For these reasons we expect a sharp downturn of private housebuilding in 1974~ with recovery to 1972/3 levels possibly delayed until 1976o 11. In conclusion if we examine the deviations of actual private housebuilding from par it is clear that they coincide closely with the extent of mortgage rationing by the Building Societieso For example in 1~69 and 1970 actual expenditure fell below par expenditure as a result of the mortgage famine of 19-68 and 1969o In 1972 and 1973 actual exceeded par as a consequence of liberal lending by the Building Societies o Between 1974 and 1977 we expect actual to fall below par, again largely due to cred'it restrictions o (1) A sample enquiry by the De,artment of the Environment in November 1973 .showed that builders expected to start 190~000 private houses in 1974 a fall of 13% compared with 1973o r""'""- s-s (b) Private Non-Dwelling Invest.ent 12. We chose a simple accelerator model of private non-dwelling investment incorporating current and lagged values of Gross Domestic Producto Investment in iron and steel was treated separatelyo An attempt was made to introduce investment incentives as separate explanatory variables but the results were not encouraging and our preferred explanation was formulated solely in terms of GoDoPo This model gave a satisfactory interpretation of variations throughout the period 1960 to 1973. 13. The average annual growth rate of private non~d.welling investment between 1960 and 1969 was about Si%~ but dropped sharply to an average of about 21% in the period 1969 to 1973o 14. To understan~movements in the total it is fruitful to distinguish the two broad sectors - Distribution~ Services and Shipping~ and Manufacturing (excludins iron and steel)o The growth of investment in the commercial sector continued at the rate establishe~ in the 1950s; several additional factors led to sustained growth which persisted throughout the years of slowly srowi~ GoDoPo in the latec l~Oso For example in the early 1960s there was a rapid growth of demand for office accommodation in London and other regional centres which was followed by a period of severe restrictions on new office building with the introduction of Office Development Pendts in Noveaber 1964o When these controls were subsequently relaxed in the period ·after 1969 there followed a strong upsurge of office buildingo This demand for new offices has persisted for the last four years but will soon start to slew down with the reintroduction of office building controls in December 1973o 15. Secondly~ the Government announced a Hotel Development Incentive Scheqe in March 1968 which provided grants for hotel building prGjects started prior to March 197lo The introduction of this scheme combined with the world wide increase in tourism cenerated a boom in hotel building which came to an end in the first part of 1973, The lt:owth of investment in shipping accelerated sharply after 1966 and increased nearly fourfold in real terms between 1966 and 1972o Factors contributing t~ this dramatic incre~se were the rise in the volume of world trade~ technological changes concerned with the trends towards the ·use of specialised vessels such as bulk carriers~ larger oil tankers and container ships~ and the 20% investment grants introduced in 1966o 16. Manufacturing investment grew less rapidly than commercial investment over the period 1960~1973 and unlike commercial inve$tment it fell sharply in 1971 and 1972o .. 5-6 This downturn was of unprecedented severity when compared with previous post war cyclical downturnso (l) Although manufacturing investment has now turned upwards~ the growth of 6% in 1973 was modesto This can be explained in terms of the poor performance of GoD~Po which increased by 2o9% be~een 1971 and 1972~ a significantly lower rate of growth than that associated with the first stages of earlier expansions -· for example 3o8% between 1962 and 1963 and 3"9% between 1958 and 1959" 17" Before the energy crisis and the December 1973 Budget~ the outlook for manufacturing investment in 1974 was buoyant, as the rapid increase in G.D,P" in 1973 was expected to stimulate high manufacturing investment in 1974u The DoToio survey on investment intentions published in October 1973 indicated an increase in manufacturing investment of the order of 15% in 1974~ although a smaller increase was anticipated in distributive and service industryo The same survey published on 7th January 1974 indicated a slight downward revision of these intentions~ but the swrvey was taken before the December Budget and the introduction of the three~day working weeko 18, Overall. therefore, an increase in private non~dwelling investment of something over 10% cculd have been expected in 1974 in the absence of any special factors,· Projections given in the appendix tables( 2) show that if GoDoPo growth slows down to 2% or less, the growth of private investment will also slow down~ but not in proportionv and will therefore absorb a rising share of available resources" (1) The striking decline of about 10% in each of the years 1971 and 1972 of manufacturing investment (at 1970 prices) may be slightly exaggerated by two phenomenao Firstly factory buildings and other assets leased to manufacturing may have increased in this periodo These items are now included in Insurance1l Banking, Finance and Business Services~ rather than in Manufacturing (see National Income and Expenditure Blue Book 1973$ palll)o Secondly» an exaggeration of the downturn may have been caused by the growing tendency of manufacturers to have warehousing financed by the non-manufacturing sector, with the effect that some building activity is no longer included under manufacturing investment. (2) Two adjustments were required to arrive at these projections. One was to add back private steel investment and the other was to make an allowance for investment in the distribution network and refining capacity for North Sea oil. For this we allowed an extra £95m. in 1974 moving to a maximum of £145m. by 1977.  Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Title A name given to the resource Chapter 5 Private Investment Creator An entity primarily responsible for making the resource Barry Moore John Rhodes Source A related resource from which the described resource is derived Prospects for Economic Management 1973 - 77, pages 5-1 to 5-6 Date A point or period of time associated with an event in the lifecycle of the resource 1974