From Newsthump:
The nurses and paramedics that have just spent a gruelling year in the frontline of the war against COVID have finally seen their sacrifices rewarded by a 1% pay rise and the warm knowledge that the person who takes half their salary in rent is going to get richer...
I've just stumbled across this month old article on the BBC:
Where does rent hit young people the hardest in Britain?
People in their 20s who want to rent a place for themselves face having to pay out an "unaffordable" amount in two-thirds of Britain, BBC research shows.
They face financial strain as average rents for a one-bedroom home eat up more than 30% of their typical salary in 65% of British postcode areas...
Least affordable areas outside London
Epping Forest - postcode areas IG9 (rent £1,230; 71% of income), RM4 (rent £1,126; 65% of income), and IG7 (rent £1,087; 62% of income)
I live in one of those postcodes, they're in south west Essex inside the M25 and while the rent estimates look about right to me (good enough for a low level Land Value Tax assessment, for example), the percentage figures look way too high.
If you look at outer London postcodes just across the Essex/Greater London boundary, the % spent on rent drops significantly, even though the rents are just as high.
As you might have guessed by now, this is because they used average rents down to postcode district levels, but assumed that wages are the same across whole regions. Essex is part of the East Anglia region, which has an average wage of £1,755 per month, as against an average wage of £2,275 for people living in Greater London.
1. It would be much more meaningful if they used average wages at postcode district level.
2. The percentage is actually meaningless in itself, it is a derived figure. The relevant figure is wages net of housing costs. If they bothered to do that, they'd find that this is fairly constant everywhere in Great Britain (Ricardo's Law of Rent).
From The Metro:
Jobs website Adzuna compared average advertised salaries with average rental figures across the UK to find the most and least affordable towns and cities for renters to live. In Swindon, workers typically spend 11.5 per cent of their take-home pay on rent, compared with a national average of 22.1 per cent.
Bradford, Hull, Dudley and Durham complete the best-value top five, with workers in these areas typically paying less than 13 per cent of their net wages on rent. At the other end of the spectrum, Londoners typically shell out 41 per cent of their pay on rent while those in Oxford can expect to see it swallow up 39 per cent of their take-home wages...
Andrew Hunter, co-founder of Adzuna, said: ‘Even though workers may be paid a higher monthly salary, their left-over cash is often smaller after paying steep living costs and local property premiums.’
Correct. Why would you expect any other outcome?
They list the areas with the lowest and highest rent-to-income ratios, quite unsurprisingly, these are pretty much in line with the local average wages that people in their twenties and thirties can earn.
From the BBC:
More than half of Britain has seen wages rise faster than house prices in the last 10 years, research by a mortgage lender has suggested...
"While some northern cities, such as Manchester, are less affordable than they were in 2007, in much of the north of England, Scotland and Wales, the gap between earnings and house prices is around a third of the average for London..."
In Scotland, wages rose faster - with the current house price five times the size of typical average earnings in Scotland, compared with 6.2 times in 2007. The same was true in Wales where the ratio has changed from 6.9 times earnings in 2007 to 5.7 times now.
This looks like good news for most of the country if you look at it this way round. Actually it's nothing of the sort.
You have to understand the Law(s) of Rent. The amount that people are prepared to pay in rent is their net wages minus the basic cost of living. The basic cost of living is the same everywhere in the country, but (average) wages differ markedly. The amount people are prepared to pay in mortgage repayments is broadly similar to local rents; you just multiply the rent by thirty-two (the inverse of just under 3% interest rates).
Let's take a baseline of net wages = £20,000, basic cost of living = £15,000, so rent is £5,000. Houses cost 32 x £5,000 = £160,000 = a price-earnings ratio of 8, which the article says is typical for England.
In London (upper extreme) average net wages are £35,000, living costs are the same so rent is £20,000. Times that by 32, houses cost £640,000, a ratio of 18 (like it says in the article).
That's why Scotland and Wales are more 'affordable'. Stick net wages of £17,800 for Scotland into the formula and hey presto, the ratio comes out at 5.0.
Further, the main reason why Scotland and Wales have become more 'affordable' since 2007 is because the basic cost of living has increased faster than net wages in those areas, so the amount going to rent has also fallen, ditto house prices and hence the ratio. That's not good news, it's bad news (especially for landlords, but that's another topic).
From yesterday's Evening Standard:
Chris Roberts dismisses Rohan Silva's piece on housing costs by saying that "there are plenty of cheaper places to live than London" which misses the point.
Of course there are plenty of towns where the cost of living is £10,000 a year lower but in those towns wages are also £10,000 a year less. Any apparent saving in rent would be matched by a fall in wages.
To put it another way, half of all UK graduates move to London, attracted by the higher wages and better job opportunities, but landlords have simply increased their rents to soak up those extra earnings. Most of the official growth in the London economy ends up in the pockets of landlords or those who sell up and move away.
Younger people like Rohan Silva are caught between a rock and a hard place, and lucky Baby Boomers who bought their homes for a song 20 or more years ago should be thanking their lucky stars, not sneering at people who will have it so much harder.
Mark Wadsworth, Young People's Party
From The Evening Standard:
Strong recent employment growth and low inflation had pushed typical household incomes in London up by 2.9 per cent higher than with before the financial crash of 2008, said a Resolution Foundation report. But once the cost of homes was included, living standards fell 3.9 per cent since 2008 – which the foundation said was by far the biggest fall anywhere in the UK.
“Londoners have experienced some of the strongest income growth in recent years, with typical household incomes now well above pre-crash levels,” said Matthew Whittaker, chief economist at the think tank.
“But the wider picture on living standards changes completely once housing costs are included. On this measure living standards have actually fallen over the last seven years, and by far more than anywhere else in the UK.”
This is an example of bad inequality.
Tenants are worse off, owner-occupiers are slightly better off and landlords are laughing all the way to the bank.
Via City AM, from Landbay's Rental Index, December 2015:
Key findings
* Average UK rents climb 3.8%, twice as fast as wages...
Table 4: Top Ten 2015 Rental Fallers
1. Aberdeen City - annual rental change minus 12.8%
2. Aberdeenshire - annual rental change minus 10.2%
In other words, a year ago, about half of tenants' wages went on tax and essentials excl. rent and the other half all went on rent. Their wages went up by 1.9% tax and the cost of essentials remained approximately the same (price inflation +/- zero) so the balance, which all goes into rent, went up twice as fast.
Aberdeen wages are inflated by high wages paid in oil and gas industries, employment and wages in North Sea oil and gas have taken one hell of a knock over the past year, so rents have fallen disproportionately.
Simples. Basic maths and logic.
Funny how the Homeys happily trot out the statistics to back up the law of rent/wages; while simultaneously denying that the law of rent/wages exists.
BenJamin and I were discussing this thorny topic in the pub, i.e. if we taxed land/location values instead of earnings/profits, and ignoring the boost to the economy from losing deadweight costs, how much would flow through into higher rents, which enable more taxes to be collected from land/location and enabling taxes on earnings/profits to be reduced yet further..?
We started by writing down what we know:
1. Just about all increases in wages flow through into higher rents. We know this for a fact; London wages are about £8,000 higher than the rest of the UK and rents are also about £8,000 higher. Back in the 1980s when the North Sea oil boom took off, people in Aberdeen were proud to boast that their house prices rose to London levels. That's Ricardo's law of rent #1, which applies on a regional basis.
2. Von Thünen's law of rent, which applies on an sub-regional basis says the same. Rents are the inverse of travel costs, and the bulk of travel costs is hours wasted, and the value people place on their time is "how much money they could earn if they moved closer to where they work and worked longer hours instead of commuting". There are plenty of London-wide statistics that back this up.
3. Effects 1 to 2 are short-term/static things. If only 1 and 2 were true, then by now, 90% of GDP would go into rents and normal living standards would be no higher than at the start of the Industrial Revolution, which is clearly not true.
We also know long-term that people are prepared to spend about one-third of their income on rent (gross or net income? This is unclear). This is a crude average and more relevant is Ricardo's law of rent #2, which says that any rent = net income minus cost of a normal, basic living standard. So if wages drop to or below this level, land/location rent is zero.
4. Also, to counter-act 3, what people consider a normal, basic living standard changes over time, and tends to go up. But whatever happens, rents tend to go up slightly faster than that.
Pull 1 to 4 together, and the easiest way to reconcile these countervailing effects is :
Year 1 = income £100 = living costs £80 + £20 on rent.
Year 2, income = £102 = living costs £81 + £21 on rent…
This reaches an upper limit where income = £150 = £100 living costs + £50 on rent, and at that stage the economic/political pressure is to redistribute land wealth a bit (rent caps, social housing, mortgage caps, more construction, selling off social housing or overt redistribution via the tax system etc), so our owner-occupier with income of £150 does not worry about the rental value of £50, he can spend all £150 on living costs and this gets the average down again.
5. If you reduce taxes on earnings/profits, you get more business activity, more employment and more competition, so the unit price of goods you can buy for your net wages goes up. There are three more or less opposite conclusions to be drawn from this:
a) The cost of a normal, basic living standard goes down, so the amount going into rents goes up.
b) Currently, an average family can choose to rent a home with an extra room for £2,000 a year. That means they have to cut other spending by £2,000, so they sacrifice a new car every ten years. If the cost of a new car halves, then the opportunity cost of an extra room doubles. So rents might go down accordingly.
c) People might accept the split between spending on goods and services and on rent and simply consume correspondingly more 'other stuff' leaving spending on rent unchanged. So the basic, minimum living standard goes up in material terms but not in £-s-d.
6. As wealth rises, luxury/status/positional goods become more and more important. Location is the most pristine positional good there is. So if there is more money chasing a fixed supply of land/location, rents and prices go up. The fact that they cost more enhances their signalling power so does not dampen demand. This affects the top of the market more than the bottom, to be fair.
7. As a tie-breaker, we agreed that half the increase in net wages would flow through into higher rents i,e, higher land/location values. This is now a circular calculation:
a) For example, current land/location values are £240 bn a year, of which (say) £80 bn is collected in tax (council tax, business rates, SDLT, IHT, CGT and so on). Total taxes on earnings/profits are £400 bn (income tax, VAT, NIC, corporation tax). So we can collect £240 bn in LVT, an increase of £160 bn and reduce taxes on earnings/profits by £160 bn to £240 bn. That means net wages/profits to be spent on rents are £160 bn higher.
b) So land/location rents increase by half of that = £80 bn. We can then increase LVT by £80 bn and reduce taxes on earnings/profits by another £80 bn from £240 bn to to £160 bn.
c) That means net wages/profits are £60 bn higher and half of that £30 bn goes into higher rents etc…
d) By the time we get to iteration #8, which I did on a spreadsheet rather than boring you with it, LVT receipts would be £400 bn and taxes on earnings and profits would be a modest £80 bn, which means a flat income/corporation tax of (say) 10%.
e) Then we can factor in the loss of deadweight costs. The economy will grow considerably as taxes on earnings/profits are reduced, as a very modest and conservative estimate, by 20% over the transition period = £200 billion a year. Again, let's assume nearly half of that goes into location/land values, giving us the last £80 bn we need to get rid of even a token 10% flat income/corporation tax.
Job done, sorted.
The Homeys don't really deny any of this, they just see land as an 'investment opportunity' rather than 'privately collected tax' or 'private appropriation of publicly created wealth'.
From today's City AM:
33: THE MAGIC NUMBER
Over the last decade, we have seen the rise and fall of many housing-related indicators – from house prices, which fell 20 per cent and have subsequently bounced back by the same percentage, to private house-building, which is still 40 per cent below its 2007 levels.
The one measure that has hardly budged has been the proportion of average earnings accounted for by private rent. This measure has tracked in a consistent, narrow range of 31 per cent to 37 per cent, and has averaged 33 per cent since the fourth quarter of 2004. The stability of this measure is particularly attractive to investors.
That one-third figure is about right (it drifts up gradually as the economy grows, which is why the proportion is higher in high-wage areas than in low wage areas).
But the total rental value of land and buildings increases in line with the economy, and bears little relation to the cash cost of just providing the building. It must be far higher or else location/land itself would have little value; this is also evidenced by the fact that the rent for physically similar houses are wildly different in different parts of the country, even though the running costs are much the same.
It's not like a hire car, where the rental income declines over time and which has to be scrapped after ten years; and indeed where the daily charge for similar cars is much the same across the country.
So:
a) rent is just privately collected tax. Higher incomes = more income tax; higher incomes = higher rents, and
b) that one-third gives us a good guide to the potential amount of revenue from Land Value Tax. Expressing it as one-third of gross income is far less meaningful than expressing it as half of net income after tax; get rid of income tax etc. and rental values would rise to nearly half of GDP. Seeing as a sensible government only needs to spend about one-third of GDP, that leaves plenty left over for personal tax-free amounts or a modest Citizen's Income (same thing, really).
Although Ricardo was quite correct, he explained his Theory of Rent in such a clunky fashion (using agricultural land to illustrate the point) that it's easy for the Faux Lib's and Homeys to attack (they are attacking the explanation, not the underlying observation, but there you go, some people easily confuse the two and have no grasp of analogies).
It turns out that the far more relevant explanation is Von Thünen's, as he factors in travel/transport costs, a model which applies much better to a modern, industrial society where the qualities of the land itself are nigh irrelevant and everybody faces the same two basic constraints - local average earnings and commuting times.
(Fraggle worked this out independently for himself, see here and here).
Caveat 1: The costs of transporting actual consumer goods are relatively low in the grander scheme of things, and the price of consumer goods are pretty much the same all across the country (higher rents in town centres are because a retailer can sell more goods per unit area; not because he can sell for higher prices).
Caveat/modification 2: What really matters is commuting times, and to a lesser degree 'getting the kids to school' and 'getting to the shops' times. Travel time is not the same as distance as the crow flies. Door-to-door is what counts. Hence why sensible retail areas give over at least half their space to car parks. They can't make the land any nearer to their potential visitors, but they can easily shave ten minutes from the door-to-door travel time by having plenty of parking spaces.
Caveat 3: There are lots of other things which explain local differences, such as being near a public park; in the catchment area of a good school and/or being nearer the school; having a nice view; being near the coast - but let's put those to one side for now, that's a simple plus/minus adjustment once we've done the basic workings.
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1. The first constraint is local average wages. If you look at average rental values (in terms of actual rents or selling prices) for whole conurbations/regions, they are closely related to average (net) wages, which is blindingly obvious. If average worker can earn £1,000 a year more by moving from A to B and doing the same job, then average rents in B will be £1,000 higher.
2. Commuting costs make up a huge share of GDP, if you express them in terms of hours x notional cost/value per hour. For example, average commute time 45 minutes and people value their own leisure time at £10 per hour, (or could earn £10 an hour by doing overtime, or they value their leisure time at £8 and commuting costs £2/hour etc), for one person the "cost" is 7.5 hrs/week x 48 weeks/year x £10 = £3,600. There are 30 million workers in the UK, 30 million x £3,600 = £108 billion a year, approaching ten per cent of GDP. Or, people spend one-fifth as much again commuting as working, in which case commuting is a hidden cost of one-fifth of of GDP.
3. So if everybody in the whole conurbation/region was on exactly the same wage, the gradient between the centre and somewhere half an hour (twenty miles?) further out would be £4,800 per hour, capitalised at 4% = £120,000 on the price of an identical sized home/garden. The rental gradient is £80/minute (being £4,800/hour divided by 60 minutes). The price gradient is that amount capitalised at (say) 4% = £2,000/minute.
But... Caveat 4: This assumes that all homes are of the same size.
Clearly this is not true; in the same way as people as people prefer short commute times to long commute times, they also prefer more space to less space. So the price gradient for "an average home" is much flatter. By and large, in a larger town or city, the price of a flat in the centre = the price of a terraced house in the inner suburbs = the price of a semi-detached house in the outer suburbs.
4. So build densities vary. If all homes cost the same but there are 50 flats per acre in the centre and 10 semi-detached houses per acre in the outer suburbs, then the rental value of one acre of the centre is worth five times as much as the rental value of one acre of outer-suburb.
And... Caveat 5: Not everybody earns the same, and each earner has his or her own price gradient. The larger the conurbation, the higher the average salary and the higher the difference between the highest and lowest earners. So in a very large conurbation/city state, the gradient is £80/minute for median earners, £160/minute for higher earners and £500/minute for top earners.
6. So there are three gradients (in fact there are infinite, but this is getting complicated enough), at the centre, the top earners create a gradient of £500/minute and price out the higher earners; the next concentric circle is the higher earners who create a gradient of £160/minute and price out the median earners; once the top earners and higher earners have their homes, the median earners make do with the rest with a price gradient of £80/minute.
7. Or you can start from the margin. Home rental values at the margin are zero, they and climb by £80/minute for a good long while (lots of median earners), then the price curve steepens to £160/minute for a shorter distance (fewer higher earners); then climb by £500/minute at the very centre.
8. Land values per acre are just one measure or all this. You can also look at population density or build density and it is always exactly the same gradient. Look at a long range photo of any major city and the skyscrapers are always in a cluster in the middle; then it's office blocks and blocks of flats, then terraced houses, then semi-detached houses, then industrial estates and then suddenly it's countryside.
Winston Churchill, a century ago:
Some years ago in London there was a toll bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work.
The spectacle of these poor people thus mulcted [?] of so large a proportion of their earnings offended the public conscience, and agitation was set on foot, municipal authorities were roused, and at the cost of the taxpayers, the bridge was freed and the toll removed.
All those people who used the bridge were saved sixpence a week, but within a very short time rents on the south side of the river were found to have risen about sixpence a week, or the amount of the toll which had been remitted!
Emailed in by Chrome Man, Boris Johnson a month ago:
"Each time a station is rezoned it results in a loss of revenue. In the case of Woolwich alone it would cost more than £1 million per year, a figure that would only increase with the introduction of Crossrail.
“In the case of Stratford [which was rezoned, which means people travelling from that station pay lower fares], I took a decision to absorb this revenue loss as another one of my agencies, the LLDC, is one of the principal beneficiaries of the change in policy and is likely to see an uplift to its land values.”
From today's Metro "Want to be in London? Pay twice the rent"
"While Londoners typically benefit from higher average incomes than the rest of the UK, affordability is being squeezed," said Martin Totty, chief executive of Barbon Insurance. "For rental property to be affordable, a tenants gross income must be at least two and a half times his or her annual rent. Our data shows that rents in London have pushed beyond that."
Is this really an accurate description of affordability?
If Ricardo's Law of Rent is true, we'd expect the amount of income left after taxes and rent has been paid to be roughly equal. This is what we get.
Greater London £8,382, East Anglia £9,991, Wales £9,273, South West £6,927, South East £9,945, West Midlands £8,178, North West £8,167, Yorks & Humberside £8,009, N Ireland £9,142, East Midlands £8,762, North East £9,125, Scotland £9,278
Given that we are using average wage to average rent ratio, we shouldn't be too surprised about the unevenness. If the survey had used mean wages and rents, this might have looked at lot flatter.
But the point is, discretionary income is a much better measure of affordability. In which case, London certainly isn't the worst. I'm also guessing London gets the lion's share of Housing Benefit, which makes it look more unaffordable than it is, under our current tax system.
Let's see what happens to those figures under a Land Value Tax, even assuming the tenant pays the LVT charge. A tenant on average wages in London would be £10,190 better off in their pocket, and one in Scotland would be £5,600 better off.
So not a tax on London then.
More Ricardo's Law of Rent in today's City AM:
IMPROVING job prospects and growing demand from London workers hunting for homes outside of the capital has sent rents in the home counties soaring this year.
Figures released today by Knight Frank show that prime rents jumped 2.6 per cent in the three months to June, a marked increase on the 0.7 per cent growth in the first quarter.
The number of tenancies agreed across the home counties was 50 per cent higher year-on-year, led by demand from people working in London...
“UK tenants are still the largest proportion, with many looking to move out of London to the home counties for a bit more space,” [Knight Frank’s Oliver Knigh] said.
Despite two consecutive quarters of rental growth, rents are still 3.8 per cent down over the 12 months to June. But returning business confidence is expected to further boost rental demand in the UK as companies push ahead with expansion plans.
“I expect that we’ll see further rent increases as the year progresses as demand shows no sign of slowing,” Knight said.
From Lloyds Banking Group:
Homeowners in local authorities with the largest falls in the unemployment rate have seen the value of their property rise by almost £136,000 over a decade, according to new research by Lloyds Bank.
The average house price in the ten local areas that recorded the largest falls in the unemployment rate in the decade to March 2014 rose by 68%, or £198,709, to £334,404. The unemployment rate in these areas fell by 1.3% during the period...
At the other end of the spectrum the top ten areas with the lowest house price performance and a higher unemployment rate are generally concentrated in Northern Ireland and outside southern England...
The top ten areas with the lowest price performance have an unemployment rate that is on average 2.2% higher now than in March 2004.
Well, duh.
It's not just that people with good jobs have more money to spend and some of that money goes on higher rent/house prices; it is also that people are prepared to pay more to live in areas with higher employment rates - the extra income justifies paying the extra rent (or you could say: landlords will charge an entry fee nearly as high as the extra wages which people can earn if they live in that area).
From The Evening Standard:
Charlie, 23, is studying for a masters in public policy at UCL. He spent his first year in London living in a poky two-bedroom flat in Battersea with two friends; they converted the living room into a third bedroom. “It meant we could live somewhere far closer to the centre,” he explains, “but it was horribly cramped. The flat was small anyway but it meant that when we had people around, we didn’t have anywhere to host them. There was always a queue for the shower and it was particularly busy when all our girlfriends stayed on the same evening.”
Charlie is part of Generation Rent —twentysomethings who bounce from lease to lease, squishing extra housemates into box rooms and sacrificing communal space for a Zone 2 postcode. It’s called “hutching up” and it’s exploding in the capital as young graduates flock to London to work but find starting salaries stretched to cover astronomical rents…
“Our surveys of tenants found that affordability is a key consideration but second to that is proximity to place of work or education,” explains Hudson. “So they’ll move down the line or bus route.”
The article is a long list of similar anecdotal evidence, but big picture wise it is true and this is how it works.
It is tenants competing against each other for the more convenient locations who dictate rent levels, the landlords just sit there and collect what they can get.
And tenants are very price sensitive. Price sensitivity is dictated by various factors, particularly relevant are items 5 to 9 on this list, all of which indicate that the demand for rented accommodation is price elastic.
So we observe that tenants respond to high rents by occupying less and less space, so the proportion of income spent on rent is not directly related to local rents in absolute terms - i.e. if the rent for a flat in London is twice as high as in Birmingham, London tenants do not spend twice as much per head - the tenant on a reasonable wage in Birmingham will rent the whole flat for himself or share with one other; the London tenant on a reasonable wage will share with two or three others.
All of which leads us to the conclusion that landlords cannot just "pass on" an increase in their costs or taxes on their income; they bear those entirely out of the rent, over which they have no influence whatsoever.
A lengthy one in today's FT:
Sir, Billy Fitzgerald (Letters, August 20) is right to question your editorial “Dismal scientists” (August 16) on the need to build economics on a foundation of ethics. Thus you were wrong to disparage the “jargon” exam question as to whether fish in the ocean should be classified as “land”. For the answer has profound ethical as well as efficiency implications.
Classical economists rightly placed great store on the distinctions between Land, Labour and Capital. Thus fish in the ocean were part of David Ricardo’s “free, god-given gifts of Nature” and were to be sharply distinguished from fish on the dinner table that got there via direct and indirect labour costs of production.
At the margin, fish (or corn or widgets) fetch a price that just covers these costs, but “intra-marginal” production yields Ricardian rent surpluses over the real social costs.
The question then is: to whom should these rents belong? Neoclassical economists conflate land with capital and thereby treat unearned rents as normal profits on the total of private “capital”. Then rents are no different from the just deserts of labour and productive enterprise.
Central London yields massive ground rents. But the neoclassicals deny these are surpluses except insofar as an office, for example, may yield more than a shop on a particular site – its small “opportunity cost” differential.
Rents are an efficient rationing device. They are not an ethical basis for distribution. As a community-created surplus – the result of ever-growing demand relative to fixed supply – land rent should be the primary source of community or state revenue.
Instead, we destructively tax wages and productive enterprise (which incidentally depresses and conceals the underlying extent of Ricardian rents) and allow speculation in the scarcity price of land to create the next boom-bust cycle.
Roger Sandilands, Professor of Economics, University of Strathclyde.
From City AM:
TAXES and fees are making London by far the most expensive location in the world to set up a financial firm, according to figures released this morning.
Looking at rents alone, Hong Kong tops the table of world cities for locating a company in the financial sector, Savills said, but including the impact of fees and taxes London pips it to the post. With non-rent costs included, it costs £159 per square foot to run a financial sector firm in London, the estate agent said, over £128 in Hong Kong, £105 in Tokyo and £103 in New York. By contrast, hedge funds and others would have to spend only £40 for a square foot in Sydney, £43 in Paris – and just £27 in Mumbai, the Savills figures showed.
“The cost of residential and commercial accommodation can have a significant impact on the bottom line,” said Savills research director Yolande Barnes.
Including the cost of housing employees as well as the business, Hong Kong leapfrogged London. But the UK capital was gaining on the Chinese special administrative region, Savills said, with office rents in London up 6.5 per cent during 2012, compared to a 3.7 per cent fall in that period in Hong Kong.
It's the same old, same old. For whatever reasons - history, agglomeration, very accommodating government - London happens to be the most place where "finance firms" can make the most money with the least effort, and to the extent that a firm and its employees can earn £x more by basing themselves in London, a large part of that £x (adjusted for risks etc) will be collected as higher rents.
So it's not so much that "the cost of residential and commercial accommodation [has] a significant impact on the bottom line" but the the "bottom line" is fairly fixed; the total earnings after taxes are whatever they are; and whatever is left goes to rent.
Richard linked to this speech by some Bank of England bod, who was trying desperately to prove that UK house prices are not in a bubble etc. Well, he would say that wouldn't he?
Chart 8 is handy. It shows how rents have risen as a share of income over the last forty years. The chart heading, referring to rents as "costs" is misleading, because from for landlords, landowners and bankers, rental income (or potential selling price, or potential mortgage interest) has risen.
This is the important point: taking society as a whole, rents (and mortgages) paid are neither costs nor income, rents are a government-engineered transfer of wealth from producers to a self-selected narrow group of consumers, and the more the producers produce, the easier for these consumers to skim some off for themselves. It's like the "bloated welfare state" but about five times bigger and with a terrible veneer of respectability.
The steepest increases appear to be during recessions, which is probably because wages fall faster than rents during recessions, but the overall trend is clearly upwards:
There's a video report at the BBC, which explains:
Almost four years after the conflict with Israel, Gaza is enjoying a period of relative calm. That in part has led to a surge in the value of land, with prices more than doubling in the past two years.
Which is what we would expect. When peace breaks out, or a ceasefire seems to be fairly durable, confidence returns, business activity returns and population grows, so the rental value of land goes up.
And who benefits?
A lucky few who happened to be registered as landowners beforehand:
At one of the hotels he owns on Gaza's seafront, I meet Abdel Aziz Khaldi, one of the strip's richest men. To look at, he's not a flash character, more of a middle manager than a multi-millionaire.
But there are a few signs of wealth...
Of course there aren't, because his gain is everybody else's loss.
He says Gaza's fast-rising population and tiny size make land a good investment. He adds that prices are highest in Gaza City, which people believe would be safer in the event of another war with Israel.
