Compare two ways of earning the same amount in London. The first is to work. A job in one of the capital’s thriving industries will on average pay about £35,000. The second is to own enough office space for a few desks in the city’s West End. Just 17 sq m currently yields about the same amount.
Despite Britain registering deflation for the first time in half a century, its capital remains an expensive place to do business. The overriding cause is expensive property. Even against other global centres, the cost of renting an office or roof over one’s head is steep.
To superficial eyes this is a badge of success. Cities teetering on the brink of failure, such as Detroit, are often studded by boarded-up houses and empty business districts. London can charge so much because it is an excellent place to work. Alongside financial services, the city is a global hub for the creative industries, law and even high-value manufacturing.
Yet this high demand to work and live in Britain’s capital only makes more abject its failure to provide sufficient space. What is more, the scarcity of land for development is artificial, and largely comes down to politics.
The Conservatives sailed into power on a wave of promises that would boost the demand for property, such as inheritance tax breaks and an ill-received idea for selling off social housing. Since the election, developers’ share prices have risen and estate agents’ phones rung hot with inquiries from overseas buyers. Surprised at the scale of their victory, the Tory government might not have expected to enact many of its measures.
Now, to stop prices spiralling further out of sight the government must supplement its populism with a proper strategy to close the gap between demand and supply, starting with London. It can learn from others’s past failures: the Swedish National Bank tried to quench the roaring property market in Stockholm through its monetary stance, damaging the rest of the economy. Other tools are not available to the UK: Singapore owns 80 per cent of the homes its population inhabits. Like Hong Kong, it imposes restrictions on foreign buyers with which London should be ill at ease.
In contrast to Manhattan or Singapore, London is not an island and has no physical reason for limiting the supply of land. But releasing more for development will take courage. Much of the land needed is derelict but nevertheless marked as “greenbelt”. This inspires misguided environmental protectionism from an array of bodies determined to protect every last scrap. Even without such organisation, existing property owners create a fearsome political block. Many of London’s citizens have become wealthy owning houses that are collectively worth £1.5tn. They also savour the rules that bear down on congestion, keep the view uncluttered and hold back the sprawl typical in cities elsewhere. Opposition to development seeds many a political campaign.
Against these, the victims of insufficient development are voiceless and dispersed: families in cramped accommodation, workers slogging in on a long commute and younger people kept from a promising career by the lack of a wealthy relative. These also feed through to business costs.
The Conservatives have launched their new spell in government with the aspiration to govern for one nation, and do all they can for business. For the former they will need to heal the fissure in British society caused by the sheer expense of living in London. As for business, no single measure could save companies more than bringing down rents in the capital city.
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