By Christine Berry
March 28 2022
In this residency, I’ve been exploring the place of asset ownership in the UK economy. I’ve looked at the colonial roots of the ‘asset economy’, and at how it is shaping class relations today. I’ve considered what kind of democratic politics could offer an alternative to extractive ownership relations, and how these issues play out in the care sector. Now, I want to ask how the pandemic has affected all this. The past two years have intensified inequalities relating to asset ownership, but they have also widened some of the cracks – political and economic – in the UK’s development model. As we’ll see – with a particular focus on urban development and the politics of place – there is some cause for hope that new approaches may be able to grow within them.
Asset prices and the pandemic: the ‘K-shaped recovery’
As the Resolution Foundation note, “asset prices have defied historical precedent and risen rapidly during the pandemic,” even as living standards for most people have fallen. This is not some economic oddity: it is the result of deliberate and sustained policy decisions by governments and central banks. After a brief window in March 2020, in which stock prices plummeted as the emergence of the virus shook investor confidence, policymakers intervened decisively to avert financial contagion. In the UK, the expansion of the Bank of England’s quantitative easing programme helped prop up asset prices, while the Corporate Covid Financial Facility allowed it to use this newly-created money to buy corporate debt – a move some campaigners described as a ‘behind-the-scenes bailout’. Similarly, in the US, the Federal Reserve injected hundreds of billions of dollars into the economy by buying up debt securities. Among other things, this implicit underwriting of corporate bonds allowed large companies to borrow much more cheaply than they otherwise could have done.
This action was remarkably successful, and set the stage for a ‘K shaped recovery’ – whereby asset prices rebounded swiftly while ordinary people took a serious and sustained hit to their living standards. To take just one snapshot from the US: between March 23 and April 30 2020, the Dow Jones Index jumped almost 31 percent, making share owners $7 trillion richer. Meanwhile, 20.5 million Americans were losing their jobs. Two years on, US corporate profit margins are at a 70-year high, and have risen 37% in the past year alone – prompting some commentators to warn of a “profit-price spiral”. Central banks effectively put not just a floor under financial markets, but a trampoline, from which stock prices and corporate profits have bounced back to new heights. Following the direct bank bail-outs of 2008, we seem to have entered a new era of the “derisking state”, whereby the public sector almost limitlessly underwrites the risks faced by private capital. The difference is that this time, it has passed largely unnoticed.
Similarly, both the US and the UK have continued to record eyewatering levels of house price growth even as the rest of the economy stuttered. In the UK, spiralling house prices have been fuelled by the government’s stamp duty holiday and a glut of savings among wealthier households. Average house prices are around 20% higher than before the pandemic, a cash increase of £44,140. In turn, this has helped push up average rents, which have risen 8.6% year-on-year and now stand at over £1,000 a month. London has seen an even bigger rise of 11.8%, prompting Mayor Sadiq Khan to demand new powers to impose rent controls. US house prices soared by a staggering 23.6% between May 2020 and May 2021, with average home reaching a record high of $350,300. Once again, this was aided and abetted by stimulus programmes, including the Federal Reserve buying up $40bn of mortgage-backed securities every month. (And yes, those are the same financial instruments that helped cause the 2008 financial crisis.) Analysts expect prices to keep on rising, and virtually nobody thinks they will decline any time soon.
Mind the wealth gap
These soaring asset prices have helped to widen inequalities at both individual and corporate level. Since the pandemic began, the world’s ten richest men have more than doubled their wealth, from $700bn to $1.5trn, while 99% of the world’s population saw their incomes fall. It is hard to overstate the unimaginable vastness of this increase: the equivalent of $1.3bn every day, or $15,000 every second. The wealth of America’s billionaires rose 70% to over $5trn (more than is owned by the bottom half of US households put together), while UK billionaires’ wealth grew by 20%. The year 2020-21 created 24 new billionaires in the UK – the biggest rise on record – and 150 in the US. By and large, these super-rich individuals aren’t getting richer because they are saving or investing more, but because the value of the assets they already own keeps climbing.
Below this elite level, the pandemic has widened inequalities in household wealth, as richer households have built up savings while poorer households go into debt. On top of this, rising house prices and rents continue to widen wealth gaps between those who own homes and those who do not, while the rising value of financial assets widen gulfs between those with big pension pots and those without. Many of these trends were entirely predictable: indeed, Laurie Macfarlane, Shreya Nanda and I did predict some of them way back in May 2020. Yet, frustratingly, we seem no closer to a political consensus that something needs to be done. The return of high inflation will be the final straw for the finances of many struggling households: it remains to be seen whether this will force the politics of wealth redistribution back onto the agenda.
There are also some signs that the pandemic may be accelerating the concentration of ownership of the economy – as larger firms benefit more from the actions of the “derisking state” and are more likely to survive and thrive than smaller firms. Even more worrying, the corporate recovery seems to be dominated by hyper-extractive forms of ownership. Most significantly, as Laurie Macfarlane and Nicholas Shaxson have noted, private equity investors are taking advantage of their huge cash piles and access to capital to hoover up British companies like Morrisons. These investors are often less interested in companies’ operating profits than in how they can leverage, sweat and strip their assets. Their ascendancy thus threatens to extend the logic of the asset economy into more and more areas of economic life. But the picture isn’t entirely gloomy. When it comes to the future of our high streets, there are signs that the pandemic may yet trigger a more profound disruption – one that offers a glimmer of hope for a less extractive and more generative approach to shaping the places we live.
‘Zoomshock’ and the changing economics of the high street
The rise of home working is reshaping the UK’s economic geography in ways that may undermine the orthodox model of property-led, city-centric development. Back in February 2021, a group of academics dubbed this phenomenon ‘zoomshock’, projecting that the pandemic would displace spending from areas which previously hosted a lot of office workers – like city centres – and into suburban neighbourhoods where people were working from home. There was also emerging evidence that small independent shops were having a relatively ‘good pandemic’, while large-scale high-street retail chains were being decimated. For the first time in years, closures of chain stores outstripped those of small shops. With the rise of online shopping, people’s reasons for going out to buy in person were changing, with many actively choosing to shop locally and support their communities. Among other things, this translated into a revival of independent butchers, bakeries and greengrocers.
The data so far suggests that these trends have held up. In January 2022, consumer spending was significantly down on two years previously in all the UK’s major cities except Leeds and Liverpool. London was worst hit, with spending down 10% – prompting the FT to say that the capital “faces serious questions about the future of its business model”. The drop was almost entirely driven by a collapse in spending in central London, with in-person spending in the City of London down by 55%. By contrast, spending in Zones 3-6 held fairly steady. In general, areas with larger shops fared worse than those with small shops.
By contrast, areas with the strongest growth in consumer spending included unlikely candidates like Blackpool and Barnsley – usually more likely to be found in lists of ‘left behind’ towns in need of ‘levelling up’. In Scotland, East Lothian has been booming at the direct expense of spending in Edinburgh city centre. The ‘zoomshock’ hypothesis seems to be borne out. Given this fact, and the obvious potential for home-working to spread prosperity more evenly across the country, one might have expected these trends to get more attention in the government’s long-awaited Levelling Up white paper. Instead, they barely merited a mention – with a single paragraph in the report noting that “it is plausible that covid-19 will have some lasting impacts on economic behaviour and, hence, economic geography”, but that “the precise impact is uncertain.”
This is true, of course – we don’t know yet how durable these trends will be – but it somewhat misses the point. As Laurie Macfarlane and I observed in our report for the Scottish TUC, these changes are not some natural phenomenon, and government’s job is not simply to passively watch them unfold. Both local and national governments could be taking active steps to maximise the potential benefits of these shifts while minimising the potential harms (such as the loss of jobs in city-centre retail and hospitality). In any case, why would we want to go back to a status quo ante where clone-town shopping centres with ridiculously inflated real estate values were propped up by the spending of miserable captive office workers? Why would we resign ourselves to local neighbourhood high streets being littered with betting shops and empty units? This model was suffering a deep malaise even before the pandemic. If it is now being disrupted anyway, why not lean into it?
But the UK government seems more minded to bank on a revival of city centres, one that will avoid the need to think too deeply about how we could rewire the UK’s development model. Our economy is still heavily dependent on real estate investment and consumer spending, and the demise of city-centre retail could threaten both of these. This was the unspoken subtext behind last summer’s repeated exhortations to get ‘back to the office’. Meanwhile, Gove’s blueprint for ‘levelling up’ involves the same prescription that has made our cities so unequal in the first place: inward investment of private capital, not just into industry but increasingly into property development. In cities like London and Manchester, this process has helped drive gentrification and the displacement of existing residents by unaffordable housing. The government’s commitment to resuscitating this model is perhaps not surprising when you consider that property developers are responsible for around £1 in every £5 donated to the Conservative party. These shifts, if sustained, could pose a serious threat to their current business models, which rest on the assumption that land values in prime locations will continue to soar. This would open up an opportunity to think differently about who owns and controls urban space, how we use it, and who it benefits.
London’s Latin Village: growing flowers in the cracks?
These issues have crystallised in the fight over the future of the ‘Latin Village’ in Seven Sisters, north London. Local traders have been fighting for over fifteen years against plans to demolish the market and replace it with 196 flats (none of them classed as affordable) and a retail offering centred on high-end chain stores. The plans were led by Grainger plc, a major ‘build-to-rent’ property developer and “one of the UK’s largest professional landlords”. In 2019, a United Nations expert panel declared the plans a threat to the Latin American community’s human rights. While traders were promised space in a redeveloped market, many were concerned that they would be unable to afford the inevitable rise in rents and would effectively be displaced. But the shift to online retail – accelerated by the pandemic – rendered Grainger’s plans economically outdated as well as socially unjust. In August 2021, the developer finally pulled out, saying that the development was no longer ‘viable’. This is both a victory for the local community’s war of attrition against the scheme, and a testament to what Grainger called “the changing economic environment”. The local Labour council endorsed the community’s alternative plan – backed by 28 of the 34 market traders – which would safeguard the market’s future and provide affordable office space and childcare facilities for the local community.
It’s worth noting that when developers say a project is not ‘viable’, it does not mean that it couldn’t break even or even make a profit. Developers’ assessments of ‘viability’ usually assume at least a 15-20% return on their investment. For comparison, the average rate of return on capital for non-financial companies in the UK is less than 10%. Outsize returns are supposed to be the reward for bearing outsize risks – but, given government’s willingness to underwrite asset values, the idea that real estate investment is uniquely risky is questionable, to say the least. (It’s true that the speculative nature of private development models makes them highly pro-cyclical, and in theory highly vulnerable if asset prices do crash – in commercial property especially. But it’s far from clear that this represents socially useful risk-bearing rather than financialised risk creation – the costs of which would ultimately be borne largely by society.) Developers have also become adept at using ‘viability’ concerns to wriggle out of providing amenities for local communities – like, say, affordable pitches for local market traders. Grainger’s oblique reference to “legal challenges” may indicate that they knew the community would not make it easy for them to get away with this at Wards Corner. A development being deemed ‘unviable’ therefore does not mean that the site is necessarily a dud. It simply means that it likely would not make sufficient profit to meet developers’ expectations of outsized returns.
Private developers’ business models are inherently speculative and depend substantially on the expectation of rising land and property values. If ‘zoomshock’ dynamics are sustained, we could see bigger ripple effects on city-centre land values and the ‘viability’ of some private sector developments – particularly those involving big shopping malls. While this would undoubtedly be disruptive, it comes with a potentially huge silver lining. As in the Latin Village, the collapse of extractive property-led development models could create space for a different approach. Rather than allowing predatory investors to pick up real estate on the cheap, local councils and other public bodies could work with communities to acquire and use it for the public good. Free from the imperative to extract maximum rents for the shareholders of companies like Grainger, alternative development vehicles could instead prioritise local economic resilience and community need – leaning into the changes we are seeing in what people want from their high streets and public spaces.
This week, Power to Change launched a campaign to ‘Take Back the High Street’, calling for government to set up a ‘High Street Buy Out Fund’ that would purchase empty commercial property until communities were ready to take it over, as well as a Community Right to Buy and a greater role for local people in planning their neighbourhoods. Such ideas begin to chart a path towards a future where our local high streets are spaces we own and shape together, rather than the fiefdoms of distant private investors interested only in their rental value. Crucially, the development proposed by the Wards Corner community plan would be owned and run by a democratic partnership between the local council, the public-sector landowner (Transport for London) and a community benefit society representing local people. Traders and their supporters are pioneering the concept of ‘public-common partnerships’ as an alternative both to the extractive ‘public-private partnerships’ which dominate investment in the UK, and to top-down state-led models which fail to meaningfully involve the local community.
There is still a long way to go to realise the community’s ambitions. Having been run into the ground by the previous managers, the market was temporarily closed for health and safety reasons, depriving traders of their livelihoods. TfL is currently soliciting bids for community-led development of the site, a process that is likely to be contested. The community campaign is now shifting into delivery mode, preparing to bid for the site and working to secure the capital needed to complete the refurbishments. But the community is hopeful that they can show a better way forward – “a new, democratic model of urban development that benefits the people who live in an area”. And if this can be done in London – in the ‘belly of the beast’ of global financialised capitalism – then perhaps there is hope for life beyond the ‘asset economy’ after all.
Christine Berry is an Autonomy Writer in Residence, based in Manchester. She is a Trustee of Rethinking Economics, a Fellow of the Democracy Collaborative and a Contributing Editor of Renewal journal. Previously she was Director of Policy and Government at the New Economics Foundation. She is currently writing a book on democratic ownership as part of the answer to rentier capitalism (Verso, 2022).