Lack of affordable housing threatening growth, economists warn

Wednesday 09 November 2022

The lack of affordable housing in Jersey is posing a risk to the island’s economic growth and must be “addressed as a priority”, a panel of economic experts has said.

In its annual report released this afternoon, the Fiscal Policy Panel, warned that “there is a risk of reduced migration of key workers as the high cost of housing makes the island less attractive to potential migrants.”

The panel also told government that "interventions which boost short-term housing demand and support prices artificially are not desirable."

Housing was one of several key economic risks highlighted by the panel.

Elsewhere in the report, it warned that additional spending and tax cuts could threaten the sustainability of government finances and fuel inflation, which is expected to peak at 12% this winter before "slowly falling back to a long-run trend of 2.4%".

The economists also repeated their warning that there is insufficient money in the Climate Emergency Fund to cover the transition to net zero, that the Government had overly-ambitious timetables for capital projects, and that a higher retirement age and potential increase in Social Security contributions may have to be considered if the Government continues to pursue a policy of reducing inward migration.

Despite challenges posed by the worsening "global macroeconomic outlook", Panel Chair Dame Kate Barker said that "Jersey's economy is in a good position to weather global shocks."

"Jersey is in an unusual situation – the economy is strong and interest rates rises will drive higher profits in the financial sector which will, with a lag, result in higher tax revenues," she explained.

"At the same time, high inflation and rising interests are likely to create more immediate pressures for some households."

The panel advocates using surpluses to rebuild the Stabilisation Fund and Strategic Reserve, pointing out that the latter fund is below the recommended level.

Dame Janet added: "Additional spending and tax cuts are not prudent given the stage of the economic cycle, posing a concern to the future sustainability of government finances and and potentially adding to inflationary pressures.

"They will also limit the ability of the Government to provide targeted support or fiscal stimulus quickly should the economic outlook deteriorate."

The panel's recommendations include:

• Adopting a fiscal strategy that steers a careful course between avoiding a sharp downturn and not overheating the economy.

• Reacting quickly to provide additional targeted support should it be needed to counter the adverse effects of inflation, which the panel forecasts to peak at 12% by the end of 2022 before falling back.

• Taking care to ensure major capital projects do not overlap, and identifying smaller projects which could be paused, or implemented quickly to support the economy.

• Addressing the cost of housing as a priority, avoiding interventions which would boost short-term demand and support prices.

• Reconsidering the strategy for financing these challenges.

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