No yellow brick road yet for the builders

It was not that speakers and delegates were gloomy - one could scarcely be surprised at that, given what has happened to the industry in the past 18 months - it was the lack of hope for the future that was chilling. At one point, panellists were asked how many homes they thought would be built next year, and when the number would return to the pre-credit-crunch level. The consensus view for 2010 was between 80,000 and 100,000, which is better than this year but still about half the levels of the peak. But the real shock was how no one though the market would get back to its earlier peak until 2017, another seven years. Some thought even that was optimistic.

The problem is that the industry faces a structural challenge as well as a cyclical one. It could still make money sticking new homes up on greenfield sites if there was sufficient mortgage finance available.

But that is very little of what the industry does these days. So much of the recent boom has been part of the drive for urban regeneration, and that model is broken. There is not a regeneration scheme in the country that would be viable in current conditions.

The basic reason is that whatever the purpose of the regeneration, it was made viable by the residential property element, and in particular by the willingness of buy-to-let buyers to absorb large slices of the development early in the process. This provided the cash flow which made the whole thing work. That is now gone, and is not going to come back. Without it, there is no engine to drive regeneration. To use an appropriate metaphor, the great revival of our inner cities has hit a brick wall.

That, however, is only one small part of a problem that runs much deeper. In the boom years, more and more responsibilities were heaped on housebuilders and developers to provide an element of low-cost housing and in addition to contribute to schools, infrastructure and all sorts of other costs that traditionally the public has assumed were provided by the local authority. In boom conditions, the industry tended not to protest but took on the extra burden.

Now it finds that even the choicest sites and developments become loss-making when it has factored in all these other elements - all of which are in effect taxation. So even if the buyers were waiting for the product, the industry could not afford to build it - and it will not be able to afford to build it unless some way is found to relieve it of all the extra imposts.

The obvious near-term solution would be for local government to lessen its demands and chip in more of the cost itself. But even if the spirit is willing, the flesh is weak. Local government is itself strapped for cash and bracing itself for the cuts it knows will soon be handed down from central government. It is quite unrealistic in this climate to expect it to come up with any more money.

Funding is also the key challenge for social housing - another area that boomed in the good times, but in some parts has been badly damaged having overreached itself and got too deep into speculative development, and in some cases been badly burned.

For many, that would be problem enough. But even those which are still on an even keel draw much of their funding from the public sector - local and central government. Politicians are keen to say ahead of the election that these funds will be protected. After the election, they will probably revert to type and take the axe to capital spending, if only because history proves it is the easiest bit to cut.

These problems will be further compounded by the challenge the industry faces in responding at all when demand does pick up. The number of people employed has been slashed, and the big builders have closed a large proportion of their regional offices. Rebuilding this infrastructure - recruiting the labour and reopening the offices - is a slow and laborious process that takes months, stretching into years. You can't just turn on a tap and expect a stream of new houses immediately to emerge.

All this matters not just for the obvious reason that almost everyone has a vested interest in a healthy housing sector. It matters too because there is a very close correlation between a healthy growing housing sector and a healthy growing economy. If we don't have one, we are unlikely to have the other.