Thank me for being a millionaire?
I am not a millionaire, but I will be. Then you will have to thank me for my financial well-being, because it will ultimately benefit you. No, I am not planning to redistribute my wealth beyond my family, but my millionaire status will be on the back of house price growth in the London economy, a regional economy that drives the UK’s economy. So as I get rich, so do you! Happy to receive the thank you card early if this convinces you.
There has been a lot of discussion recently about the relationship of the London economy to its UK counterpart. Is London an engine for growth, or does it suck talent and investment from the rest of the UK, thereby stifling growth in the rest of the UK?
The Centre for Cities published a report last month, (https://www.centreforcities.org/research/outlook14.html) and in the torrent of media attention and political comment that followed, the evidence and facts were, not surprisingly, distorted to support a particular argument. Why spoil a good story with the truth?
Well, I have read the report and I have researched around it and I think the case is clear. In the main, what is good for London is good for the UK. Growth in London drives UK growth but, as ever, there are some perverse consequences. Let’s deal with the growth question first.
The population of London exceeds the combined total of the next 14 British cities. So there are a lot of us. We pay more into the exchequer than we take out. Tony Travers of the LSE has estimated that the surplus is somewhere in the region of £10-£20bn.
Forget HS2 for now; let’s focus on Crossrail – a major infrastructure investment largely confined to London. I’m a big fan, because my travel time to the West End will be halved. So what benefit will my reduced travel time for a night out be to the residents of Sunderland? Well, 62% of companies winning orders to deliver Crossrail construction are from outside London. Of the 13,000 jobs created by the Crossrail project, 8,000 have gone to people from outside London. And on it goes.
However, returning to my soon to be millionaire status, London also leads the way in house prices. All the commentators agree that London house price increases are largely driven by overseas investment. As prices increase in Mayfair and Kensington, it has a ripple effect and house prices in outer London increase. Crossrail helps. It isn’t operational for another three years, but already the signs of house price growth by Crossrail stations is evident. Londoners tend to migrate to the Home Counties and, as demand increases there, so do prices. So what benefit is this to the residents of, say, East Anglia? Those already living in the better houses may (like me) get rich, but all that is really happening is that London is exporting social divide and wealth polarisation.
The answer to counter this perverse effect of London’s growth is simple – build more houses.
Chris Wood, Partner at Altair. Contact Chris on 07932 693292 and firstname.lastname@example.org