Correct, Allister, and what policies does this suggest?

From last week's City AM:

Population matters for many reasons: denser urban areas tend to allow far more economic activity per person than sparsely populated ones. As long as the infrastructure can cope, and isn't messed up by short-sighted politicians, larger populations allow an improved division of labour and knowledge, and a better matching of the needs of employees and employers, key drivers of success, productivity and innovation. Ageing populations are good for stability but less good for risk-taking. All of this is therefore bad news for many nations.

There is hope for successful urban areas, however, but only if they continue to attract the best and brightest, not just from their own countries but globally, thus allowing them to buck the declining trend. But that means competing on many metrics, including tax, quality of life, infrastructure, crime, services such as education and health, housing costs and leisure facilities.

At the moment, we are falling behind on many of these: in particular, London desperately needs more family homes. As populations age and even shrink, the competition between nations and cities for people will intensify dramatically.

It's a treble whammy, at least.

1. Productivity and hence wages are higher, the more densely populated a town is (provided the infrastructure can cope and by definition it can; if it couldn't, the population would never reach that density).

2. London (for example) has "open borders" and a fairly transient population. People will move there if their net disposable income is at least as high as anywhere else they could be living, so the extra wages are initially competed away by more people moving there but once the place is full, the extra wages are "competed away" by landlords simply increasing the rent per person. Landlords can increase the rent to a level such that it is only-just-worthwhile moving to London, and some people who can't take the pace move away again.

3. A denser population clearly means more people per unit area.

So rental values in London (or any other large city) are considerably higher, per unit area, than anywhere else (and in central London they are ten or a hundred times higher than at the outskirts - the rental value of land pretty much follows the contour of the skyline), and this is precisely because of all the people who are working there.

4. If we build more homes, that means more people, which increases productivity a bit more so total output/wages increases exponentially. And all that extra goes into higher rental values under rules 1 to 3, landowners win yet again.

The workers and businesses are running to stand still. On the other hand, we have our Poor Widows In Mansions. They are no longer working, and by hanging on to their homes they are pushing up rents and prices and forcing workers to live further afield, increasing their commute times. And we have our landlords, who are collecting the benefits from other people moving to London. All of this is bad for London's real economy.

Now, what if we reduced taxes on earned income, turnover and profits and collected more revenues from the rental value of land instead?

From the actual or potential worker's or business' point of view, this is a break even at worst. From the Poor Widow's point of view, this encourages her to swap places with a worker or worker's family who currently live further afield or in a too-small home, she can free up some cash by moving outwards, so she's no worse off either. You can't take it with you, you know. Landlords might or might not be worse off, depending on how much they can increase rents (even higher wages/profits and disposable incomes being a higher proportion of those higher wages).

Surely it's worth a try?