Jonathan ghost-wrote a chapter for this book, published by India’s Rupa publications.
Bricks and Mortals
Moroccan spices, French mountain cheese and mounds of mouth-watering artisan bread: we’re sniffing the air in the buzzy market fronting King’s Cross Station in London.
Strolling beyond the station building we discover a gleaming mixed-use realm: 67 acres of squares, offices, bars, restaurants and 1,900 brand new homes — all wrought from a post-industrial wasteland of gasholders and goods yards.
So far, so magnificent. Unless of course, you actually want to live here.
At the time of writing, we can take our pick from a £1.45m two-bed flat overlooking the canal, a modest one-bed flat for £728k and, if we’re feeling flush, a three-bed penthouse in the magnificently restored St Pancras station building for a cool £6.25m. All this in a city where the median household income is £39,100.
Look across the globe and we see this pattern being repeated in major cities from Beijing to Sydney, Dubai to New York: houses increasingly out of reach for average earners.
In fact, in our analysis of 15 key global cities, we discovered only one metropolis, Boston, offered truly affordable housing — defined as eating up less than 30% of typical net earnings.
The remaining 14 cities in our study all breached the affordability barrier, with Singapore and Sydney draining just over 30% of typical net earnings, and housing in Abu Dhabi and Hong Kong eating up more than 60%.
So what’s going on here, and does it really matter?
Do higher housing costs really make a difference to the economic success of cities?
Urban prosperity drives population growth as jobseekers migrate to cities for work. But housing stocks often fail to keep up with demand, so workers are faced with higher accommodation costs or longer trips from home to work.
In emerging economies, rapid urbanisation is accelerating the process. Between 1995-2015 Beijing exploded from around 8m to 20m citizens, Shanghai more than doubled to around 24m, and the populations of Mexico City and São Paulo mushroomed to over 20m.
It’s no coincidence that these four cities are home to congested roads, overburdened public transport systems and some of the longest commutes in the world.
So the answer is, yes it does make a difference, and yes, we should care. How we do something about it is another matter.
In our 2016 report Housing for Inclusive Cities: The Economic Impacts of High Housing Costs, we explore the economic impact of high accommodation costs and the various attempts of cities around the world to tackle the problem.
We discovered that the stakes are particularly high for developing countries, with rapid population growth dramatically pushing up accommodation costs and potentially storing up problems to stymie economic success.
Let’s start with the impact of high-cost housing.
According our analysis, there are three key knock-on effects: increased wage bills for employers, longer commutes as staff are forced to live further away from work in lower-cost accommodation, and ‘unrealised’ spending.
Our research discovered that employers are paying out millions in a housing-related ‘wage premiums’ — essentially topping up salaries to help staff bridge the housing affordability gap.
Our analysis found that in 2015 Hong Kong employers may have paid out an additional USD15bn in such premiums and São Paulo businesses nearly USD4bn. Singapore and Mexico City occupied the middle of our 15-city range, shelling out just over USD2bn each.
But do urban employers have to offer these higher wages in order to attract the right staff?
Let’s zip east across London to Queen Elizabeth Olympic Park to see what one innovative company is doing in an attempt to address the problem.
London’s former Olympic Village, where world-class athletes dreamed of glory during the 2012 Games, is now a smart enclave of flats and townhouses.
Here, quite a few residents are trainees on Deloitte’s graduate training programme. These lucky employees snapped up Deloitte’s offer of high-quality, affordable housing as part of their employment package, the company having identified finding reasonably priced accommodation as a major headache for young joiners.
Spinning the globe, we settle on Chicago to find a similarly innovative measure.
Here, the University of Chicago has created an employer-assisted housing (EAH) scheme offering interest-free loans and fund matching to lower earners. The scheme is regenerating neighbourhoods around the university, as well as helping attract and retain staff.
It’s a neat solution that circumvents hefty wage premiums and has employees’ wellbeing at heart: staff do not have to endure lengthy commutes that sap both the will and the mind.
Which brings us to the impact of high housing costs on commuting times.
If you’re a typical worker in Mexico City — the metropolis that topped our commuting league — your round-trip to the office will eat up nearly two hours of your day.
Land a job in Beijing or Shanghai and your journey to and from work will top one hour and 40 minutes, while a post in sunny São Paulo would see you hit road or rail for more than 90 minutes.
Travel to work times in the West are on the rise too, with Londoners’ commuting distances increasing by 8% between 2001 and 2011, and staff living ever greater distances from work in American metropolitan areas.
The economic impact of this mass migration is stark. The daily tramp of worker to workplace causes traffic congestion and strains public transport. In 2014, traffic congestion alone cost the US economy an estimated USD160bn, largely in wasted time and fuel.
And then there are the softer impacts on health, well-being and staff loyalty. Those who take more than an hour to get to work are significantly more likely to resign because of the slog to get there.
On average commuters are less satisfied with life than people working mostly from home, and increased blood pressure, weight problems and greater absenteeism are all associated with long commuting times.
The third key of impact of high housing costs in our study is unrealised spending.
In cities across the globe, citizens are spending money on accommodation that they would readily divert to goods and services if their housing costs were lower.
According to our estimates, the money ‘trapped’ in the housing market runs to billions — substantial portions of around US3bn in Beijing and São Paulo, USD6bn in Hong Kong and USD2bn in Mexico City since 2010.
Unleashing this spending would in turn boost business revenues and create more jobs.
Assuming businesses would channel all additional revenue into employment, we estimate that Beijing could generate more than 400,000 new jobs, Mexico City more than 200,000, São Paulo 143,000+ and Hong Kong nearly 148,000.
Which brings us to the upsides.
According to our analysis, our 15 key cities could collectively create 1.3m new jobs and unleash USD30bn of additional spending power between them if they were able to keep accommodation costs within affordable limits.
Beyond benefiting employees and their families, provision of affordable housing would generate higher tax receipts, which would in turn bolster government coffers.
So how are we going to get there?
No single city has the answer, but many are making strides in the right direction.
Let’s spin the globe once more and settle on Hong Kong, its thriving financial and service sectors helping generate a higher GDP per capita than the US.
The downside of this economic success? It’s one of the most densely populated cities in the world, and house prices rose by more than 250% between April 2004-15.
In 2010 the government introduced a raft of measures: 15% stamp duty tax for foreign buyers, larger down payments for properties valued less than USD 900,000 and punitive taxes if a property was ‘flipped’ within three years of purchase.
The aim was to stem the influx of foreign investment in property and to try to make speculative investment less attractive. As a result, prices rose only 2.4% between April 2013-14.
Government measures in Beijing and Shanghai have been even more swingeing: from 2006, foreigners living in the country for less than a year were banned from buying and no foreigner could purchase more than one property.
Heading south to Singapore, we discover a successful outcome of state intervention.
In the early 1960s, more than half a million people were living in squatter settlements or ramshackle ‘shophouses’. The state set up its Housing and Development Board and built thousands of homes a year, and now more than 90% of Singaporeans own their own place to live. However, temporary residents do not have access to the scheme and so are at the mercy of the private sector and higher prices.
Flying further south, we find the antipodeans concocting two possible solutions. With demand outstripping supply, Sydney has just released around 7,700 hectares around the city to create space for 35,000 new homes — a controversial option for many cities where the ‘green belt’ is regarded as a vital urban buffer.
Meanwhile, the Australian government has stepped in to reduce foreign capital inflows. All foreign non-residents and temporary residents seeking to buy a property now have to pay fees relating to the property value and are generally only allowed to buy newly built homes and off-plan properties that add to housing stocks.
Heading back to the northern hemisphere, we see ‘smart growth’ strategies are vying to alleviate high-cost housing crises.
Instead of wrapping extra layers around an increasingly congested urban hub, you build high-density, self-sustaining, small-footprint neighbourhoods on brownfield sites. It’s perhaps no surprise that Boston, the only ‘affordable’ city in our study, is leading the pack, creating mixed-use zones replete with affordable housing stocks.
Compact design is a key element of the smart growth formula, and we finish our world tour where we started, in London, where ‘micro homes’ could be throwing a lifeline to ordinary Londoners.
These ‘pocket homes’ are selling for at least 20% below market prices due to their tiny footprints, but many are still out of reach for even average income earners.
Our world tour has shown that high house prices and rents have a direct impact on the performance of businesses in global cities and on the wellbeing of the people who work in them.
If the capitals of developing countries heed these lessons — their public sector policymakers working side by side with private sector developers and landlords to create affordable housing — they are well placed to match and even outstrip the economic successes of the West.
Author: Jonathan Lee
Publisher: Rupa Publications