What did anyone think would happen with a higher minimum wage?
That the Chancellor insisted that the national living wage came into being is true. That this is a rise in the minimum wage for those over 25 is also true. And that there will be some adaptation in the labour market to this is also blindingly obviously true. How could it be otherwise? It is thus with some astonishment that we see people who in general would support a higher minimum wage complaining about the effects of a higher minimum wage. For example, this letter from Liz Kendal MP:
That the Chancellor insisted that the national living wage came into being is true. That this is a rise in the minimum wage for those over 25 is also true. And that there will be some adaptation in the labour market to this is also blindingly obviously true. How could it be otherwise? It is thus with some astonishment that we see people who in general would support a higher minimum wage complaining about the effects of a higher minimum wage. For example, this letter from Liz Kendal MP:
The workers told me that the premium rates for night shifts, weekend and bank holiday working and overtime have been cut and in some cases would ultimately be phased out. Each and every one of the workers present was deeply concerned that they would end up worse off as a result of these changes, despite recent increases in the national minimum wage.
It's not despite such increases, it's because of such increases. The employers gain some amount of value from employing that labour. If they must pay more in direct cash wages for said value then they will attempt to cut back on less direct payments, those which go to make up total compensation even if not direct wages, to compensate. For the value of the labour to the employer has not changed: thus that same total compensation is still the amount they are willing to pay in total for that labour.
Surely there's nothing very difficult about this?
At the meeting Mr Davey and Mr Fletcher did not deny that the the changes to employee contracts were at least in part influenced by the impact of the higher minimum wage. They confirmed that around 15% of the 2000 people who work at you Bradgate Bakery will be worse off - that is 300 people in total.
Yes, who thought it would be different?
I want to emphasise how extremely concerned I am that at least 300 people who work for Samworth Brothers in my constituency will be worse off, when they should be getting a pay rise because of increases in the national minimum wage.
But there's the thing eh? They are getting a pay rise as a result of the national minimum wage. It's just that the combined effects of the pay rise and the reactions to it leave them worse off. Which is rather what we've been saying all along about minimum wages, is it not?
You'll not make everyone better off by forcing employers to raise wages.
Lenny Henry's plan for BBC privatisation
This isn't quite what Lenny Henry has said about the BBC. But it is what he means about the BBC. The organisation needs to be punted off into the private sector as soon as possible. For what he says here is entirely true:
This isn't quite what Lenny Henry has said about the BBC. But it is what he means about the BBC. The organisation needs to be punted off into the private sector as soon as possible. For what he says here is entirely true:
On Sunday night at the Bafta TV awards we all heard impassioned pleas to protect the BBC from government intervention – let the TV people make great, award-winning programmes, while the politicians can do politics. We don’t want politicians interfering with Saturday TV scheduling. We don’t want the government deciding the running order of the Today programme.
Quite so, we don't want politicians involved in any of those things. And yet the BBC is funded by a tax upon us: yes, Gordon Brown finally admitted that the licence fee is indeed a tax. And politicians will always insist that they should be allowed to determine, indeed that they must determine, how tax money is spent. Thus, as long as the BBC is funded by taxation politicians will keep sticking their oar in.
The inevitable conclusion of Henry's demand is therefore that the BBC must be privatised in some manner. And how glorious it is to see that all the assembled luvvies agree with him. This might be the first time that both the ASI and the arts establishment have ever been in agreement.
It's really very simple: if you don't want politicians telling you what to do then you cannot have politicians telling you how much money you've got to do things with.
Immigration is no reason to leave the EU
I’ve become extremely pessimistic about the Leave campaign lately as it has latched on to Faragist arguments about immigration as a major reason to get out of the EU. This is not just naïve liberalism – on virtually every count, the critics of EU immigration are wrong.
A new paper from the LSE’s John Van Reenen and others summarises the existing research.
Jobs
In normal times we wouldn’t expect immigrants to take natives’ jobs. But what about during and after the Great Recession?
Nope. Well, it doesn’t look like it anyway. None of the other more sophisticated studies from before the crash show a relationship between immigration and native unemployment, and certainly an eyeballing of the post-crash data doesn’t suggest that that’s changed.
Local authorities also don't show any statistically significant association between immigration and native unemployment.
Wages
The national figures don’t seem to suggest a wage depression effect, but it’s less clear – since the Recession immigration has been rising and wages have not. So let’s look at local authorities and see whether areas with high levels of immigration have had lower wage growth.
Again, no. There’s a very mild downward slope that is statistically insignificant (indistinguishable from zero). The same trend exists at the local level for jobs too, and for “NEETs” (young people Not in Employment, Education or Training).
Even unskilled Brits, who some previous studies have shown suffering a small negative wage effect from immigration, don’t seem to have clearly suffered since 2008 because of immigration.
This isn’t terribly surprising, even if we take a fairly simplistic supply and demand view of things. Immigrants supply labour, yes, but they also demand labour – they spend their incomes on groceries and other things, creating about as many jobs as they’ve taken. That’s a very crude way of putting it, but it might help us to understand why the empirics look so benign.
In both jobs and wages you can correctly say that these don't tell us what the counterfactual is – maybe unemployment would have been even lower without those immigrants. Maybe, though the local authority data undermines that. But there's certainly nothing here that suggests that this is the case.
Taxes and the welfare state
I think most readers of this blog will be unsurprised to hear that EU immigrants make a fairly significant positive contribution to the public purse – most enlightened free marketeers realise that the big costs to the state are of looking after old people, not benefit scroungers.
But the actual contribution of £15bn in the decade up to 2011 (ie £1.5bn/year) is quite something, especially when you consider that we had a hefty deficit for much of that period, so the average person in Britain was a net drain on the public finances.
In other words, as the paper points out, EU immigrants are subsidizing the welfare state, allowing the deficit to be a little bit lower now than it would be otherwise. They don’t increase NHS waiting times, don’t slow down the education of native British kids (poor language skills are offset overall by good old fashioned hard work and determination), haven’t driven up crime disproportionately, and are less likely to be in social housing than native Brits, though that last finding might control for too much.
One area where EU immigrants may make things worse is house prices. (And a plague on yours if you think higher house prices are a good thing.) In fact, even though they add to pressure on aggregate they don't drive prices up locally, but only because natives move away, which certainly isn't a good thing. But readers of this blog, again, know the real cause of, and answer, to the overall problem: build more bloody houses.
Of course, none of this matters
The paper is worth reading in full, and as a comprehensive guide to what we know about EU immigration it’s incredibly useful. In particular its discussion of the impact of immigration on productivity is useful and clear.
I doubt this will change anybody’s mind, though, because anti-immigration types have a very annoying tendency to employ motte and bailey arguments about immigration: they make strong, testable claims that immigrants hurt the poor, are a drain on the state, etc, but when you show them that they’re wrong they retreat to woolly arguments about the social impact of immigration.
Those social impacts are very important too, but if those are what anti-immigration people care about, then they should stop making false claims about the economics! As it is I can only assume that they don’t care about the truth and see themselves as fighting a war where dirty tricks are acceptable.
Many also seem to conflate the social problems we have with, say, Eritrean refugees with the social costs of EU immigration. As Ed West reminds us, that’s silly. And although most people imagine that Eastern European immigrants dominate EU immigration, they actually account for less than half of EU immigrants in the UK; and around half of current inflows from the EU. Your social case against EU immigrants had better be as much about the harm caused by Spanish university graduates as by Polish builders.
As for the people saying that we simply need ‘control over our borders’ in principle, that would preclude us from ever signing any free movement treaty with any country, and tearing up the ones we have with Ireland, the Channel Islands and the Isle of Man in order to protect this principle.
On this front at least the Leavers are barking up the wrong tree. There are many good reasons to want to leave the EU. Curbing immigration isn't one of them.
This isn't quite how this democracy thing works Mr. Romney
We are not, to put it mildly, supporters of Donald Trump nor of many to most of his policies. We are enjoying the shellacking he's giving to the political establishment and that enjoyment extends to that on offer from Bernie Sanders too. But to enjoy the show is not to endorse the specifics on offer. However, we do think we need to correct Mitt Romney on a point here. There is very little that disqualifies The Donald (or Bernie) from the Presidency. And tax returns definitely aren't it:
Donald Trump is under growing pressure to release his tax returns after Mitt Romney, the Republicans 2012 presidential candidate, said failure to do so disqualified him as president.
The issue threatened to become overshadow Mr Trump’s scheduled meeting with senior Republicans on Capitol Hill on Thursday after the candidate backtracked on a previous pledge to make his returns public, as is traditional for presidential nominees.
Mr Romney, who has already said Mr Trump should not be the Republicans’ candidate, hit out on Facebook after the property tycoon - who claims to be worth US$10 billion - said he was unlikely to release his returns before November’s election because they are currently being audited by the authorities.
“It is disqualifying for a modern-day presidential nominee to refuse to release tax returns to the voters, especially one who has not been subject to public scrutiny in either military or public service,” Mr Romney wrote.
It's perfectly fine to state "I do not think he should be President because...." but not to throw up some idea that this or that "disqualifies". Because you've got a set of rules about who may or may not be President already:
No Person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President; neither shall any Person be eligible to that Office who shall not have attained to the Age of thirty five Years, and been fourteen Years a Resident within the United States.
Someone who meets that and gets a majority in the Electoral College gets to be President. That's actually what this democracy stuff means. That, subject to those simple rules, whoever the people choose gets the gig. Whether you or other members of the establishment agree or not. It's not just what democracy means it's the entire point and purpose of it. That the people get to choose the ruler free of the constraints of order of birth, membership of a particular class, considerations of race, wealth, and yes, even relationship with the tax or any other form of law. Or, of course the filtration system of the establishment.
We can think of all sorts of reasons why President Trump may or may not be a good idea. But it is absolutely wrong to say that he is disqualified in any manner: until we hear the results back from that Electoral College of course.
We're parking up the wrong tree
With air pollution linked to nearly 40,000 deaths every year, tackling London’s air quality crisis will be one of new Mayor Sadiq Khan’s biggest priorities. It’s a shame then to see that he’s neglected one free market solution on offer. Using market demand to set parking charges could bring emissions down by reducing congestion and encouraging more people to use public transport. It’d also raise more revenue for Borough councils, allowing them to bring council tax rates down.
People often talk about parking spaces as if they were public goods, yet as MarketUrbanism’s Emily Washington points out, parking spaces are not a public good like clean air. By breathing in clean air I don’t diminish the amount of clean air available for you, yet this isn’t the case with parking: every person who parks deprives everyone else of that parking space. Giving away a scarce resource for free should be anathema to conservatives, yet bizarrely it’s often Conservative politicians who make the case for either free or heavily underpriced parking. As UCLA Urban Planning Professor Donald Shoup keenly observed “Staunch conservatives often become ardent communists when it comes to parking”.
For example, last year former Community Secretary (and former ardent communist) Eric Pickles imposed a series of regulations on local councils, making it harder for them to raise revenue from parking charges, with restrictions on parking enforcement and ring-fencing for what the money raised by parking charges can be spent on. Pickles argues that keeping the cost of parking low will benefit both motorists and the high street.
But, the evidence doesn’t stand up. What underpricing parking actually causes is excessive congestion as the scarcity of parking spaces encourages drivers to cruise around looking for an empty space. Prof. Shoup looked at sixteen different studies, which measured cruising behaviour in the central business districts of major cities. He found that they average time spent cruising for a parking space was around 8 minutes, and that at any one time 30% of cars in the traffic flow were cruising for a parking space.
This is no less true when the parking is provided by a council, and not a private landowner or business—we should want government organisations to ape private firms by using prices to clear markets as much as possible.
Cruising isn’t the only way underpriced parking causes congestion. Cheap pricing acts as a subsidy to motorists at the expense of the tax payer. 95% of parking away from home is free to the motorist, and households spend on average £47 a year on parking, a very small fraction of the £1,600 per vehicle spent on fuel each year. Yet Shoup’s research suggests that the value of a parking space in a major city, is something in the range of tens of thousands of pounds. If motorists bore the true costs of car travel, they’d be much less likely to use their car and more likely to switch to public transport, further reducing congestion.
This reduces air pollution in two ways. By reducing both the total number of cars emitting fumes and the amount of fumes each car emits. As cars stuck in slow-moving traffic emit more than those in free-flow.
What about the risk to the high street? Advocates of free parking argue that charging more for parking will hit high street retailers and further contributing to the long term decline in high street retail. But the evidence is weak. Free parking advocates typically rely on surveys of what drivers say they would do if parking prices change, however as economists frequently find out, revealed preferences can differ widely from stated preferences.
One study in the German city of Herford found that when free parking was introduced it had no effect on overall sales, but did increase traffic. Shoup’s own research suggests free parking can actually reduce the number of visitors to an area, as free parking encourages long parking stays restricting the number of visitors who can actually park. In fact, in many cases it’s the local workers who take advantage of the free parking spaces., reducing the number of spaces available for consumers.
Pricing parking based on market demand would encourage a more efficient allocation of a scarce resource. It would mean less congestion, cut air pollution, and reduced taxes for Londoners. It wouldn’t hurt high streets and with new technology, it’s easier than ever before.
Architectural Ivory Tower Blocks
Goethe famously wrote that architecture is frozen music. It is a compelling metaphor but if architecture really was music then we would all be able to choose to inhabit an urban environment composed entirely of buildings of beautiful, picturesque or sublime quality. With all other art forms, you can seek out what is good and shun the rest.... but escaping bad architecture is much more difficult. You may even, if you are unlucky, have to live in it.
If architecture is frozen music, how then might one characterize the architecture that was the concrete ‘muse’ of most European architects in the early post war era and still survives today as the urban environment for millions, especially in poorer areas? Step inside a UK architecture school to pose this question and you might get a shock. Particularly if your question relates to the so-called ‘fathers’ of the International Style in general and Le Corbusier in particular (he of the tabula rasa concept of urban renewal in which everywhere “must” be “totally rebuilt” using only concrete) and their legacy for the UK residential housing stock.
Architectural treasures are to be found across the globe and (in a Western context) from St Petersburg to Manhattan but I have a particular appetite for seeking out the finest frozen music of my own nation that still abounds despite the ravages of mid 20th century architectural vandalism. If UK property prices are any indication of perceived aesthetic value then the mature English suburb is highly prized architecture indeed. But try taking any of this as inspiration for your UK architecture school design project and you can expect an aesthetic dressing down from your tutors.
To be fair to the profession, I would come to the defence of much of more recent public and commercial architecture in the UK - most of it by architects that the public has never heard of but also by famous ones like Norman Foster. (It is Foster’s verbalisations that irritate me, not his buildings.) Granted there are also the misconceived and perversely misplaced alien ‘carbuncles’ complete with impenetrable pseudo-intellectual rationales – the Liverpool Ferry Terminal Building, for example, (‘angular fun’ we are told) or Drakes Circus in Plymouth (just don’t go there!). And the recent past has not been such a bad time either for the UK built environment more generally, all things considered. It is important to remember that building - like art and music - never has been of a uniformly high standard and the search for some aesthetic final solution leads inexorably to something out of the set of a sci fi B movie. The aesthetic and build quality of mass speculative housing – typically‘traditional’ brick-clad boxes with pitched roofs laid out along residential roads and cul de sacs - may fall short of one’s ideal but it is probably as good now as in the 1930’s and certainly infinitely better than the 50’s to 80’s.
Between the pre-war past and the reasonably benign present we had the Blitz – by which I mean the three decade long blitz - as the bombs of Modernism, social engineering and megalomaniac town planning rained down across poor war-weary Europe. At least it’s over now? Well, yes and no. Certainly the arrogant certainties of utopian collectivism mercifully crumbled in course of the 70’s. Almost everyone now understands that to give architects and town planners licence to decide wholesale what society’s ‘needs’ are and then dream up megalomaniac schemes for the wholesale satisfaction of these needs is akin to kitting your small child out with a set of power tools and a bag of cement and setting him loose to decide what your pride and joy home needs. Wiser people, of course, never stopped understanding this in the first place but their warnings were drowned out at the time and dismissed as ‘reactionary’ and insensitive of the supposed brave new 20th century zeitgeist.
Almost everyone now understands that the Le Corbusian legacy was entirely malign, even if they have never heard of the man himself. Everyone, that is, except in the ivory towers of architectural academe; its luminary authors of revered set texts and in the more high brow professional journals. I had first-hand experience of this at architecture school in the 1980’s. In my school, the status of ‘Corb’ (as we were encouraged to affectionately call him) as your ultimate architectural hero was, quite simply, a given and dissenting from this position was risky. Such is the power of group-think which universities are, sadly, no less prone to than anywhere else. To be fair, nobody was still plugging the megalomania aspect of their hero; his knock-down-the-centre-of-Paris side. All those undeniably God awful tower blocks for ‘rationally’ housing ‘the people’ that sprang up all over Europe in his name? Well, we were assured, they could not be blamed on ‘Corb’; it was just that his more pedestrian architectural acolytes hadn’t properly understood what he had meant. Anyway, all must be forgiven on account of him being such an innovative ‘genius’.
The mind-boggling power and reach of the totalitarian intellectual mindset in academia in the middle decades of the 20th century is hard to overstate. The literature - in the field of architecture alone - is as vast as it is dispiriting; the pompous, vacuous theorising, the ‘we must totally and utterly’ manifestos, the arrogant, ivory tower intellectuals casting themselves as champions of ‘the people’.
Unless you have - as I was at architecture school - been force-fed the Le Corbusier mythology, you might well struggle to comprehend just how bizarre is the basis of his iconic status. The man himself - according to a fairly typical 1988 assessment in the architectural literary canon - "ranks with Darwin, Freud (and) Einstein among major figures who have ever affected the world to which we belong.”
So here are a few snippets of the great man’s thinking:
“the plan must rule, the street must disappear” (especially all those Parisian street cafes)
“we must create a state of mind for living in mass production housing”,
“man must be built upon this axis....in perfect agreement with nature and probably, the universe.”
......Come again??
The fallacious nature of all such prescriptive moralising about architecture was laid bare in David Watkin’s seminal work: Morality and Architecture (1977); a ground breaking scholarly analysis of its whole history, from Pugin, to Le Corbusier and Pevsner.
The Modernist utopian, collectivist fallacy may have eventually been debunked in the course of the 1970s but – in addition to the ‘Corb’ hero worship - two related and cancerous aspects of the faux radical mindset have survived intact in our schools of architecture. One of them is the idea that an architect aspiring to greatness must also aspire to novelty. The other is the idea that building design has sociological, psychological and macro-economic dimensions which the architect – simply by virtue of his being an architect – is competent to judge. What really matters to your average architecture student is drawing - but they are emphatically not deep-thinking psychologists, not economists and not sociologists and never will be because, for the most part, they are not really that interested in these disciplines. Which is fine and just as it should be until, that is, the idea is implanted that their drawings represent some kind of implicit vision for mankind. If architects are in need of a statement of their mission they need look no further than Vitruvius’s ancient and eloquent aphorism - Firmness, Commodity and Delight – which still stands as a sufficient theoretical basis for any architectural project. But a required part of any architecture student’s design presentation, these days, mustinclude a verbal rationale – often post hoc and invariably half-baked - of how the form, massing and materials of the design are expressive of such imponderables as the supposed psychological ‘needs’ and ‘aspirations’ of the users and the wider ‘community’ which the building is to serve. I wish I could recall some of these comically glib and shallow rationales from my own student days but, of course, the memory has a natural tendency to consign trash to its trash can. The students were, in any case, simply reciting the bogus language of their tutors - in which buildings might be said to be ‘fun’, ‘thought provoking’, ‘democratic’, ‘inclusive’ and other such nonsense.
In a similarly glib fashion, tradition was, by the late 1980’s, once again recognised as an important aspect of an architect’s education – at least in theory. Of course, by then had come a visceral reaction in society against crass modernity – especially tower block utopia – and Conservation was fast becoming the new vogue. In architecture-school-speak, however, respect for tradition does not mean quite what you might imagine; it might mean, for example, that you still propose to insert some manifestly alien infill development into a gap in a row of period terraced houses - perhaps even the proverbial upended shark, at least metaphorically if not literally. But crucially now, instead of bragging of your iconoclasm, you would go to equally verbose lengths to demonstrate that you were merely respectfully ‘reinterpreting’ the traditional forms. Architects now ‘must’ reinterpret tradition, with ‘must’ being the operative word. I have known of architects who feel compelled to add ‘contemporary’ sticky-on-bits (onto what are, in all other respects, traditional pitched-roof, brick-walled dwellings), for no better reason than their belief that this somehow lifts them above the level of mere speculative housing and into the more rarefied realm of ‘contemporary architecture’. There is of course nothing wrong with innovation per se; it is the knee jerk compulsion to innovate, or ‘reinterpret’ - as a kind of moral imperative - that is the malign 20th century aesthetic legacy. So beware of architectural academics espousing ‘tradition’.
You might think architectural academia’s saving grace is its very isolation from the real world and note that most practising architects ditch much of its baggage when faced with the need to make a living. Partly true - but the persistence of this quaint reverence for octogenarian ‘Modernism’ is symptomatic of a much broader malaise – the persistence (in large measure) in our academic institutions of the kind of cultural Marxist/social engineering assumption currently manifest in Jeremy Corbyn and his devotees.
Of all the Modernist fallacies, perhaps the greatest was lumping together all building types into a single mould. Many people, including myself, are quite happy to be dazzled by steel and glass in their airport or corporate HQ but not in their residential neighbourhood. A person’s relationship to their home is a unique and complex psychology, well beyond the grasp of crass architectural theorising. If an individual desires to inhabit a dramatic spaceship of steel and glass, then that is fine – providing that they don’t insist on plonking it on your cherished avenue of period Edwardian villas. I am fond of the print on my wall of Frank Lloyd Wright’s Falling Water and can imagine it being someone’s dream home. For the great majority however, their dream of domestic bliss is located in some-or-other variant of an archetypal pitched roofed dwelling house – and it is this that deserves to be ‘respected’. To insist that the aesthetics of dwelling ‘must’ be ‘modernised’ to suit some perceived advancing zeitgeist is almost as absurd as proposing that any of life’s simple pleasures ‘must’ be modernised; that maybe even sexuality be modernised? Come to think of it though, I do believe there are some in our society today who may indeed be advocating something just along those lines too.
Graham Cunningham March 2016
This isn't a reason to be against Brexit, far from it
As all will have noted there's an awful lot of propaganda flying around about this Brexit, this idea that Britain might leap free from the clutches of the European superstate (not that we want to hide our opinion here). It is sadly true though that quite some measure of that shrieking and wailing in the headlines doesn't actually tell the story being indicated. Take this for example, that Brexit would lead to a fall in the pound, a rise in inflation and thus a rise in interest rates:
The Bank of England will need to raise its key interest rate or Bank Rate to 3.5pc by the end of next year if Britain votes to leave the EU, the newest recruit to the Monetary Policy Committee has warned privately.
Michael Saunders, who was chief economist at Citibank, and will join the rate-setting MPC in August, said the drastic rise would be needed because Brexit would cause the pound to collapse, which would send inflation sharply higher.
That does sound oh so terrible, yes. But then consider for a moment what recent economic policy has been. Something, anything, to get the pound down and the inflation rate up. For that's the mechanism by which expansionary austerity might work, as it did back in the 1930s. That's how to square that circle of having a contractionary fiscal policy: by having a massively expansionary monetary one through the exchange rate.
We've been doing this to the point that the Bank of England currently owns some £400 billion or so of the government's debt. Really, they've been tossing in the kitchen sink and inventing new tricks to try and bring about this situation. Quite why it's a bad thing if we leap free but a good thing if it's done deliberately is hard to fathom.
No, we would not say that this in itself is a good enough reason to vote leave: our point here is rather about how confused some of the boosters of remain are becoming. We are supposed to be scared of this outcome? The one which government policy has been aimed at for a near a decade already?
Interestingly, assume that it did happen: it wouldn't actually be necessary to raise interest rates in quite that manner anyway. It would provide an interesting opportunity to unwind QE though.
Are we doomed to eternal student living?
Back in April a housing association called ‘The Collective’ launched a new concept property which Vice described as “a sort of all-in halls-of-residence-for-grown-ups where they do your laundry and deliver your sheets and pay for your Wi-Fi but you live in a small bleak white room to justify it all”. The tiny rooms, just 10 sq meters, are available for the eye watering price of £1,083 a month – which as the Guardian noted is about half the average Londoner’s take home pay.
Boasting a space invaders themed communal area and using the term ‘Twodio’ to describe rooms so small you can’t even fit a four ring hob in it, would usually signal that those signing up to the new Old Oak development were a group ripe for ridicule – but they’re not.
At the moment most Londoners are paying just under half of their take home pay on their rent, and that’s before bills. The average rent in London increased a further £17 last year to £298 per week, which starts to make The Collective’s shoeboxes look like more of a bargain.
Private renting now accounts for 27% of all residential accommodation in the capital according to the latest English Housing Survey, and it’s a sector that will continue to grow rapidly with more Londoners renting from a private landlord than owning their own home by 2025.
New mayor of London Sadiq Khan, who’ll have the happy task of trying to control the problem, focused heavily on the housing crisis throughout his campaign. But one of the less publicised proposals of Sadiq’s is the idea to give the London Mayor the ability to cap rents, and this is where we start to disagree.
It is obvious that we need to alleviate the pressures on renters in London but it’s important not to get into the habit of sticking regulatory plasters all over what is in fact a huge gapping oozing wound created in the large part by the planning system.
Putting a price ceiling on any product below the market rate causes shortages: demand outstrips supply. Landlords will remove their investments if their returns are capped, consequently shrinking the choice of rental properties, but also flooding the housing market and causing a sudden fall in house prices.
There are further potential repercussions which hurt those they mean to serve, such as limited tenancies. If you’re capping increases in rent during a tenancy, then landlords are likely to have a much higher turnover of renters in their property so as to keep up with market value – not compatible with the three-year standard lease Labour are looking for.
Capping also runs the risk of limiting social mobility as people locked into low rent contracts will find it costlier than they otherwise would to move. This may not sound important, but lowered housing mobility causes higher unemployment as people are less ready to move to find new jobs.
The best way to reduce the cost of housing is to build more, not stifle the supply. And we need to build a lot of new homes if we’re going to make any significant impact. As we’ve argued before, building on just 20,000 acres of the Metropolitan Green Belt (roughly 3.7%) would create room for the 1m new homes needed, estimating 50 houses per acre; nearly all of which could be built within 10 minute’s walk of a station.
If we don’t start building soon, we may just be subjecting ourselves to an eternity of passive aggressive conversation across a communal dining table with our 451 flat mates.
So just how badly is the economy doing? Pretty well actually
We're generally told that the entire economy is slipping down that slope to hell in that proverbial handbasket. and yet when we go and look at what people are saying, away from the politically oriented opinion pages, in those very same newspapers we find rather a different story. Things seem to be getting better, perhaps not as fast as we would like, but better they are indeed getting. From the Guardian:
We're generally told that the entire economy is slipping down that slope to hell in that proverbial handbasket. and yet when we go and look at what people are saying, away from the politically oriented opinion pages, in those very same newspapers we find rather a different story. Things seem to be getting better, perhaps not as fast as we would like, but better they are indeed getting. From the Guardian:
Rising employment, near-zero inflation and low interest rates have boosted household budgets. Food prices have fallen amid a supermarket price war, cheap oil has helped knock back petrol prices and the rise of discount retailers has cut the cost of clothes. All that leaves more money for non-essentials.
We would not claim that that is perfection but it's movement in the right direction at least. But there's more to it than just this. Maslow's Hierarchy is a real thing: we humans devote our resources to solving our desires in order. Food, shelter, a decent relief of the bowels, these are first line matters which we simply must solve. When we have solved these matters, largely so at least, we then move on to devoting extra resources to further goals and desires.
But we can also run this observation the other way around too:
They call it the “experience economy”: a huge shift in consumer behaviour is said to be under way, from buying things to doing things.
The demise of high street stalwarts BHS and Austin Reed, poor retail spending figures and a downturn in the number of people visiting high streets and shopping centres, are all being held up as evidence that Britons’ priorities are changing.
Earlier this year a senior Ikea executive warned that the appetite of western consumers to own ever more goods and chattels was probably waning. “In the west”, he warned, “we have probably hit peak stuff.”
Now retailers ranging from fashion to food chains are making similar observations, because official data shows that households are spending less on clothes and food but more on holidays, cars, entertainment and eating out. Spending on gadgets that keep people connected to the internet is also on the rise.
“We increasingly see a trend for consumers to spend more on experiences rather than on products,” said Kevin Jenkins, the UK and Ireland managing director of payment card group Visa Europe.
“Eating out, booking holidays and discovering new experiences are all driving spending growth at a time when the lower cost of living is creating higher disposable incomes.”
If people are devoting their marginal resources to those things higher up that Hierarchy then they must be getting richer. Again we do not claim that this is perfection nor does it mean that all is just peachy. But is the average consumer is both gaining in disposable income and also spending that marginal income higher up that list then they must indeed be becoming better off.
Which is, obviously, the point and purpose of having an economy in the first place, that the average person becomes better off over time. Which is happening. So, that hell and handbasket story: what's left of it?
How Houston densified beautifully through markets
I recently came upon a 2011 document (pdf) from a local architect working in a suburb of Houston that I have become somewhat obsessed with. Basically, it's a pictorial account of how Houston—which has practically no land-use regulations at all—has developed as a city.
First, it sprawled outwards, but as the sprawl and population growth created more economic activity, and agglomeration benefits, the demand for housing near the centre rose and rose. Since there was no restriction on simply adding a few floors to buildings, and filling in gaps between them, to maximise the value of plots, and how many people they could accommodate, developers simply did this. And they did it beautifully and harmoniously, rippling outwards to make Houston denser and better.
The document, by architect Barbara Tennant, mainly tells its picture through stories, so you should check out the whole thing, as they say. But it has a few key lessons, repeated throughout: restrictions were minimal, with no height limits, freedom of style and design, and only a few rules on setbacks (how far properties must be from the street).
The results are impressive. Houston is cheap, diverse, rich, and growing, and this policy experiment should make us more sanguine about the results to London's skyline if we drastically reduced land-use regulations. The results of private development seem to be very attractive; by contrast planning restrictions seem to make things uglier and less popular.