Imagine if the price of food had gone up as fast as that of homes

 
Allister Heath

IMAGINE, dear reader, that grocery prices had increased at the same rate as house prices since 1971, a frightening thought for a Friday morning. A pint of milk would cost £2.61 (compared with 49p today); a chicken would cost £51.18; a bunch of six bananas would cost £8.47; a box of six eggs would cost £5.01; a loaf of sliced white bread would cost £4.36; and a leg of lamb would cost £53.18. These figures, compiled by Shelter, are shocking; Britain would face catastrophe were these today’s prices.

The point, of course, is to illustrate the extent of house price increases, and the over-valuation of property, which is now around 20 per cent nationally and far more than that in London and the commuter belt.

But there is a difference between consumer goods and food and homes. The latter are assets, and these naturally tend to rise over time, not fall. A good rule of thumb is to assume that house prices, when starting from a fairly valued base, would usually go up on average by the same amount as nominal GDP every year, in the absence of distortions. Rising food prices are entirely bad, yet rising asset prices boost owners’ wealth.

Such caveats aside, there has been far too little housebuilding for years, and prices are hugely over-valued. We need to build, build and build more – and for that we need a real, radical liberalisation of the planning rules.

AGAINST MALTHUS
PEOPLE, not commodities, land or even capital, are the ultimate resource of an economy, as the US academic Julian Simon famously put it. Without talented, motivated, skilled and educated individuals, nothing is possible; capital itself is a product of labour.

Human ingenuity is able to overcome everything. Malthusians who dream of a shrinking population and who reflexively believe that every country is over-populated are wrong.

This is always a lesson that nations suffering from shrinking populations relearn at great cost: all the productivity growth in the world is rarely enough to compensate for the psychological and actual effect of a declining population, perhaps because there are hidden economies of scale in denser populations. The problems that go with increasing numbers of residents – the need for greater infrastructure and more homes – can always be fixed; but a shrinking population with a declining workforce and fewer consumers is a nightmare, and usually leads to relentless, debilitating, economic and cultural decline.

That is one of the reasons why the crisis in the south of the Eurozone is hurting so many countries so badly: it is not just that the economy is shrinking, but that it is triggering an exodus of the most ambitious, hardest working people. The number of Greek and Spanish residents moving to other EU countries has doubled since 2007, reaching 39,000 and 72,000 respectively in 2011, according to new figures on immigration published by the OECD yesterday. Germany saw a 73 per cent increase in Greek immigrants between 2011 and 2012, almost 50 per cent for Spanish and Portuguese and 35 per cent for Italians. Italy saw a fall in the number of immigrants of 11 per cent and immigration levels there are now 44 per cent lower than in 2007.

On average, 13.2 per cent of the OECD’s population is foreign born, peaking at 40 per cent in Luxembourg. In Britain, it’s now 12 per cent, in France 11.6 per cent, in the US 13 per cent and in Germany 13.1 per cent. Inflows into the UK were worth 0.52 per cent of the population, quite a lot higher than the US, France or Germany but less than the OECD average, the Netherlands, Denmark, Ireland or Spain, among others. The fiscal impact of immigration is negative for a few countries – but positive for the UK, both including and excluding pensions. Foreign-born men are more likely to be in work than UK-born men. The Malthusians have been proved wrong, once again.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath