I recently discovered I had French ancestors, who fled during the Huguenot rebellion, and from where the word refugees originated. This group was profoundly productive textiles, manufacturing, metallurgy and finance, which had a valuable impact on the English economy.
So it gives me some permission to make jokes about the French, and also to appreciate the benefits of targeted immigration.
As a founder of an online platform for students to study abroad - you might think I’m as pro-immigration as they come. But my stance is more along the lines of sustainable immigration, and I think it is part of the reasons for these problems that we are seeing in Europe.
So what’s the reason for the the riots in France, Italy and Spain and Germany?
As someone with a first in economics, and experience building businesses in various leading economies in China and UAE, and speaking to many students, I see a pattern and I feel as qualified as anyone to talk about this.
Ultimately, it’s because of student dissatisfaction, rising living costs and lack of sufficient work opportunities.
On a state planning level, a big part of this comes to housing - and our inability to solve the problem of providing abundant low cost housing.
On an individual level, there are ways for people to generate wealth by training and focusing on their careers with the new economy (social media, AI, fintech), real economy (construction), and people economy (care), but I’m going to focus on how the state can and should solve the housing problem because it is largely an economic problem.
We have two conflicting goals - that property prices (one of the largest stores of pensions) should rise faster than incomes so they can be a good investment, and that we can provide people abundant housing, but we can’t have both. And with older people voting in larger numbers, they have usually swayed policies in their direction.
Increasing property prices aren’t just important for voters, but for economies. Much of our economic growth in the last 30 years has been mortgage led growth for GDP reasons. We have Debt to GDP ratio so we push onto the private mortgage led growth which doesn’t impact debt to GDP but also stimulates the economy, by the wealth effect, income for banks, and extracting more of the surplus of mortgage owners and renters.
GDP has become a key goal but it also incentivises extractive behaviours that seek to raise prices and costs as much as possible.
Housing has become a larger part of our economy, we invest in houses, but that is not productive. We’re taught that putting money under the pillow is a waste - we should put it to use, and that’s exactly, what we are doing, while it also inflates and adds costs to every part of the economy - from the need for higher wages to cover those costs.
The only reason house prices have been growing is that they are artificially limited to maintain their prices. It is productive to earn a return on new construction or upgrading properties which is creating new value, but not from it artifically growing as demand exceeds supply which is extracting rents from productive people. That rise in prices is not because of anything the homeowner has done except for their ability to acquire an increasingly scarce asset.
Immigration has further added to this. Britains office of budget responsibility recently shared a report that it was better for the economy to import workers because then you don’t need to cover the costs of their upbringing and education. This is adding fuel to the flames, by further increasing demand with the same supply.
The economy would work better and more efficiently if we reframed if housing to be seen as infrastructure which would is defined as something that is needed for an economy to function - like roads, education and healthcare.
I’m not saying it should be fully privatised - so we get the worse aspects of capitalism, or fully managed by the state as in a badly run socialist utopia turned dystopia, but, like with energy, education to some extent, we currently have the worse of both, bad planning, and extractive rent-seeking. We should have the best of both - competence of management planning, and free-ing up the market so we can achieve abundance. Being able to build abundant housing, with planning that satisfies demand, and uses capital markets. Investing and capital markets can be used to solve market failures, and invested to solve important problems and market inefficiencies, rather than to sit there in property not growing, stuck under the mattress.
Thoughts?
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“The ultimate test of a society’s sanity is whether it builds physical environments that allow the young to establish roots, start families, and look to the future with structural confidence rather than precarious dread.”
- Jane Jacobs
“The economic security and personal independence that come from owning property-whether land or a home-form the bedrock of a free society. A man who owns his ground stands taller and thinks with a clearer, more long-term mind.”
- Alexis de Tocqueville
“We shape our buildings; thereafter, our buildings shape us.”
- Winston Churchill