City feeling pinch in credit crunch

Jul 23 2008 by Paul James, The Journal

THE full impact of the credit crunch on Newcastle is revealed today. A detailed report by the city council shows how the global economic slowdown is affecting the city.

It reveals:

:: House sales have halved in a year.

:: Numbers of new houses being built will “fall significantly” this year.

:: Repossessions more than doubled between 2005 and 2007.

:: There are record levels of personal insolvency and bankruptcy.

:: Fuel and energy prices will cost the city council around £1.2m extra per year.

The report concludes that putting regeneration schemes on hold “might be inevitable” and says any new speculative development will be “unviable” in the medium-term.

The authority is considering options to ease the pressure on families and businesses, including help with mortgages and deferring increases to city centre parking charges.

But officers warn their ability to intervene will be reduced by their own cash issues, with rising fuel and energy prices likely to cost around £1.2m extra per year.

And they insist the city’s prospects remain better than many, while business leaders last night said the North East was still “thriving”.

The council’s optimism for the future is based on having a higher proportion of public sector-led schemes like Science City, a lack of over-supply and a “relatively robust demand”. But elsewhere it is considering changes to deals with developers, suggesting it could sell land for less money in exchange for an increased share of profits. The report, which will be discussed by senior councillors today, says this approach could be used in its ambitious plans to revamp Scotswood.

Developers with properties they cannot sell are also approaching social landlords with proposals for converting them into social homes.

The rise in repossessions, from 309 to 730, includes a number of right-to-buy properties.

Officers say this has also led to record levels of personal insolvencies and bankruptcies, though figures were not revealed.

Options put forward for councillors today include putting schemes on hold and allowing more homes to be rented on new estates.

At the same time, they also suggest buying land cheap for future development.

The report warns of difficult choices ahead that could see it paying over the odds, selling under value, or taking too long to act and “missing the moment of influence”.

Last night Ross Smith, head of policy at the North East Chamber of Commerce, said: “It’s important that central and local government recognises the need to be flexible in these times.

“It is crucial that we send out a clear message that Newcastle and the wider North East is an area that has undergone huge redevelopment in recent years. It is still thriving and very much open for business.”

Paul Mooney, chief economist at One NorthEast, said: “Clearly, neither regeneration nor the North East is immune to the effects of the global slowdown, although the region is facing it after a strong and sustained period of growth and with a broader business base.

“This, combined with ongoing work to enable businesses to maximise competitiveness and productivity, will help the regional economy during this time.”

To read the full copy of the credit crunch report, click here