An article on Belgravia in London- one of the most expensive neighbourhoods in the world:
LONDON — An odd thing was happening, or rather not happening, as dusk fell the other day across Belgravia, home to some of the world’s most valuable real estate: almost no one seemed to be coming home. Perhaps half the windows were dark.
It seems that practically the only people who can afford to live there don’t actually want to. Last year, the real estate firm Savills found that at least 37 percent of people buying property in the most expensive neighborhoods of central London did not intend them to be primary residences. …
Paul Dimoldenberg, leader of the Labour opposition in Westminster Council, said the situation had reached a “tipping point” and was starting to concern lawmakers.
More here in the New York Times.
Sound familiar?
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Don Buchanan was initially drawn to this article by the picture of the empty street with so many bikes locked up (commuter transportation for the staff maybe?)
Property in a stable jurisdiction is popular place to park capital.
There is a huge capital glut globally, thanks to the ever-decreasing cost of labour in production. Not just the cheap Chinese widget-maker, but increasingly the rise of the robots – Expedia instead of travel agents; digital searches instead of legal researchers; Tesla’s Model-S factory. The benefits of technology accrue to capital, not labour. In the short term, consumer prices don’t fall as quickly as the cost of production, because both physical capital (buying robots) and brand (big marketing expenditure; also sexy design) provide great barriers to entry. This means a big wodge of profits at the moment.
Government rates at 0% (or less, whether discretely via money-printing; or overtly via Cypriot confiscation) are supposed to encourage capital out of passive savings and into productive investment. If you’re a risk-averse holder of $1m you’re supposed to invest it, whether by buying listed equities, seeding new companies with new equity, lending it out etc.
The problem is that industries keep getting blown up by the robots: in the longer term, prices do fall with the cost of production. It’s a fair assumption that anything that can be automated soon will be. Helper or heavy-lifting drones and google’s car are clearly on the horizon. So what is a risk-averse capitalist to do?
You could just sit back and wait for some of your capital glut to be wiped out – called illusory in hindsight – as more European banks go bust (see this recent article about Irish zombie mortgages http://qz.com/50615/welcome-to-ireland-where-house-payments-are-optional-apparently/) and more overt haircuts are imposed (or money printed, which amounts to the same thing).
Or you could park it in bit of land. And not just any bit of land. You want access to amenities (the fun of London; Vancouver’s skiing and beaches) and the sensible government mentioned above.
The good news from this narrative is that local governments can attract this capital into their purview (and so get more property tax revenue) by providing a stable, attractive environment. Zone and design streets for walkability and beautiful hanging-out-in-the-local-square and people will flock to you. And higher up governments can borrow at 0% or below – people are literally paying governments to look after their money.
Austerity is not only bunkum, but if capital prefers to park money with governments for safe keeping, even at negative rates, than invest it in competing to provide ever-lower-cost goods and actually employing people.. then governments should be accepting it all and redistributing it themselves, through some sort of welfare-for-all, quantitative-easing-direct-to-people.
And those same lenders will be falling over themselves to give Vancouver $3bn – at negative real rates – for the Broadway line. If only BC will let them.
(I didn’t explicitly say that you could, of course, invest in the equity of the robot companies, which I think you totally should. Lets get multiple robotaxi firms competing in Las Vegas asap.)