JUST HOW bad is the current situation and do you expect it to get worse before it gets better?

Jonathan Fair: In terms of scale and speed this has been an unprecedented reaction to an equally unprecedented change in the economic climate, and in consumer confidence. We see conditions remaining very difficult. The rate of decline in consumer confidence has eased up, and we are now bouncing along the bottom.

This is not a short-term market correction that cuts away excess fat: it is the bone, muscle and tissue of the industry that is being cut away. Some businesses are being very seriously hurt by what's happening and will struggle to recover. It will be very difficult for us to respond in the future once market conditions recover, as they surely will.

To what extent do you share the criticism by the STUC and others that the banks are to blame for this crisis?

JF: It is not unequivocally the banks' fault. They have a constrained resource. There is no money in the system and they have to respond to that. If the banks could do something about this they would. Banks make money by lending money and they know that absolutely in clear and unequivocal terms, however they can't get access to wholesale funding within that market. That's more about the approach taken by the Treasury and the Bank of England. They are the ones that hold the strings and have the ability to open those markets.

We have been saying consistently since April of this year that the government must do something more than its special liquidity scheme. They need to find ways to improve the trading of mortgage-backed securities between banks and the Bank of England. Only by doing this will they reopen the wholesale funding markets and therefore allow the banks to offer a greater range and number of mortgage products in the marketplace. A more normalised supply of funding into the system is required if we are going to see the housing market recover.

We, along with the Council of Mortgage Lenders, are urging early action on the findings of the Crosby Review, which contains a number of ways to address the issues. This means that the Treasury and the Bank of England will need to do something quite unprecedented, and they are clearly concerned about the risks associated with that. But we believe that the risks of doing nothing far outweigh any potential downsides of these new and innovative approaches, so I would point to the Crosby Review and the outcomes from that being of fundamental importance to what happens in our sector.

Are you satisfied that the political class, and the public at large, appreciate the problems your industry faces?

JF: If any industry lost 15,000 people within three months you would expect a bit more in the way of political response. The analogy that I use is of Ravenscraig. I can distinctly recall the reaction of government when that closed in 1992, though there were actually "only" 1500 directly employed people affected by that closure.

In our industry we are seeing redundancies at 10 times that level and there is nothing like the same level of response.

The Scottish government has done all it can reasonably be expected to do at this particular time, and its investment in affordable housing is a welcome step because it keeps capacity going within our member companies. Nevertheless, bringing forward £100 million of investment in the context of a £6 billion-a-year industry is still a very small drop in the ocean. It's an important step in the right direction and sends a key message to consumers but we need something much more fundamental and that's about consumer confidence. It's only when those two things return that you will see a recovery in our sector.

None of the measures that the chancellor announced last week are likely to make a significant difference. We continue to struggle with the basic problem of lack of mortgage availability and severe constraints on the banking system, because the wholesale funding markets remain shut. Until the Treasury and the Bank of England address this problem, you won't see any good effects. Whether or not you are paying stamp duty is irrelevant if you can't get a mortgage.

Why has the jobs meltdown not attracted more public attention?

JF: I think it is to do with the structure and style of our industry. Those job losses have taken place across a wide range of companies and a wide range of locations, so there are 50 people here, 20 people there and 10 somewhere else 200 miles away. The visibility is diluted, but the effects aren't.

It's much harder for people to grasp than when you see a high-profile industrial plant shut down. The public isn't yet fully attuned to the impact that these kind of job losses have on the economy of Scotland. I'm not expecting anyone to cry tears over my members' businesses, but all of these people have families, all of these people spend their income in a local community, all of these people pay income tax, and the companies that employ them contribute - through employer contributions, VAT and corporation tax - to the sustainable economic growth of Scotland.

Without a vibrant, positive and healthy housebuilding sector, growing Scotland's economy and protecting the social fabric of the country becomes very difficult.

Given that the urgent demand for new housing has not gone away, what should the industry be doing to prepare for the end of this credit drought?

JF: In past downturns we have had problems in the economy leading to high unemployment, high interest rates and high inflation. This has meant that people were unable to afford their homes, which then led to a housing crash. The current situation is the exact inverse of that.

Demand for new homes hasn't gone away as a result of what's happening just now, and once people's confidence in the markets returns there will be some level of pent-up demand that has to be met. The difficulty is that at that very point in time the industry will have battened down its hatches for some considerable time. It will have lost 25% of its workforce. It will have to trade out and sell completed but unsold homes before a recovery phase can begin.

So we may have a situation where those pressures of demand lead to quite significant increases in the average house price because it's a constrained resource. That would seem almost perverse, to have had the cycle we are going through and then have rampant house-price inflation.

How will the housebuilders' woes impact on vital public infrastructure improvements?

JF: In the last decade, local authorities have been heavily reliant on developer contributions to fund investment in public amenities like roads and schools. If the housing sector is significantly reduced then the level of contributions for those projects will be significantly reduced. That creates a problem for local government infrastructure investment plans. They won't be able to spend the money they think they can, they will have to find someone else to provide that funding or pare back their levels of activity.

The need for investment in schools and community facilities won't necessarily go away just because the housing market is only operating at half its capacity. Cosla and the Scottish government are beginning to wake up to that problem What do you think the long-term effects of this crisis will be?

JF: We need to think very carefully about the effects on any industry where a quarter of the workforce has been jettisoned. The directly employed workforce in housebuilding is 52,500 people, and 15,000 have gone. If someone axed one in four people from your business, there are many things that you did before you wouldn't be able to do. It's much harder to attract those people back into the industry when market conditions improve: they will go and do something else; they will move abroad; they will be very reluctant to come back into the very industry that has just bitten them.

In the past, it's only been possible for the industry to grow a maximum of 5% per annum after you have had a market correction of this kind. If housing output is halved in the current year and you then apply a 5% per annum increase to that figure, you have several decades before you get back to where we were in 2007. That will mean fundamental changes to the industry, so I can see a couple of things happening. One is that the industry will look much more closely at modern methods of construction and off-site (pre-fabricated) construction, because you can build things in a factory and shift them to the site without the same skill base, and you can do it much more quickly.

I can see a far more significant proportion of the houses built in Scotland going for private rent. I'm talking about a managed professional service for mid or upper-market rental, rather than bargain-basement stuff - quality homes, professionally managed and delivered as part of a portfolio, because if people can't get mortgages what are they going to do? They will automatically rent a house until things get better. That's not just first-time buyers or key workers on low incomes, but people in the middle class and higher levels of income.

This will take us more in line with what happens in places such as Germany, Austria and Scandinavia, where a far larger proportion of homes are private rentals. This will represent a complete change to the profile of the householders in Scotland. We will not be the same property-owning democracy that we once were.