Putting the heat on housing, and pouring cold water on levelling up

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Afternoon all,

The thing about 2022 is it always surprises you. This time last year no-one saw double digit inflation and rapid rate rises coming, and I for one did not see the PM’s ethics advisor resigning over… tariffs on Chinese steel. But you live and learn. Maybe for some people consistency with WTO rules really is the biggest ethical red line out there. The only way I can make sense of it is that the improving weather meant Lord Geidt just fancied more time at home (as this week’s chart shows the home is a safer haven for the better off in a heatwave).

Anyway, this week’s reads make a lot more sense. We’ve got a history lesson on the dangers of transport disruption and news that who runs your council doesn’t make as much difference in £s terms as those running for office might like to think.

Have a great weekend.

Chief Executive
Resolution Foundation

Treasonous transport. We’re shutting down big chunks of UK transport at present – planes lack baggage handlers and trains are struck by strikes. So here’s a topical read (free) on the impact of the decay and closure of the biggest artificial waterway in history: China’s Grand Canal. The 1,000-mile-long canal was maintained by government for centuries because of its role in collecting taxes – but used by private citizens for trade. From 1826 government found other ways of collecting taxes and left the Canal to decay. The results? Riots. Areas most affected by the closure saw an additional 117 per cent increase in the number of rebellions later in the 19th Century, reflecting economic dislocation. Now, the commuters of Tunbridge Wells probably won’t be rioting next week, because this lesson is really about longer-term trade disruption – think fisherman furious about Brexit. Economists have spent the last decade using China as an example of how increased trade can be destabilising – but this episode from Chinese history shows the loss of trade can be destabilising too.

Constrained councils. Some of you might have noted the Northern Research Group of Conservative MPs calling for more tax devolution this morning. They’re after corporation tax being devolved so it can be cut in some parts of the North. This goes in the ‘not a very good idea’ bucket. But the general point they are making, that local politicians don’t have enough room for fiscal manoeuvre is a good one. It’s also made by a new Warwick University paper that asks the simple question: does which party wins power in local elections matter when it comes to tax/spending choices. Not so much is the answer. Who wins makes no difference to total spend, the mix of that spend, council tax rates or debt. This isn’t because all politicians are the same, but more reflects the lack of meaningful financial autonomy below the national level. We need local taxes for local people. Unless that is…

Leave levelling. …you’re economist Tony Yates, who obviously doesn’t care at all about his twitter mentions, with a new article arguing that we shouldn’t even be trying when it comes to levelling up. We definitely don’t agree (and have two great, imminent papers on regional gaps in incomes and productivity showing why) but it’s worth hearing the counter-argument. Tony is basically arguing we don’t have much confidence that levelling up policies will make much difference, history has a strong bearing on outcomes, more devolution will mean poorer regions getting less £ from richer ones, and that we’ve got a long list of other things government should be focusing on (saving the NHS/planet etc). Controversial food for thought.

Minority mortgages. Last week we covered the PM’s big reset focus on spread homeownership to more people – including via mortgage market reform. A new US paper however shows that it’s not just mortgage market regulation that matters for who does/doesn’t get a mortgage – so does who is processing mortgage applications. Those from an ethnic minority are 5 percentage points less likely to be accepted for a mortgage, but this difference is almost wiped when the loan officer is also from a minority. Importantly this increase in credit access doesn’t end in more defaults: minority borrowers are more likely to default than White borrowers when the loan officer is White but this doesn’t seem to be the case when a loan officer is also from a minority (because they are better able to use soft information from minority borrowers in decision making).

Massive marketing. Mad Men convinced the world that advertising was all just a big party for (non-credibly) attractive people. But the economists among you know it’s actually a serious business of creating intangible capital. And lots of it, shows an article presenting some fascinating stylised facts about marketing investment in the US. It’s big, with brand capital standing at $350bn (1.7 per cent of GDP) in 2018. Anyone feeling smug that we’re in a more advertising savvy world than the 1950s should note this is double what it was in 1995. Whose gained? The marketeers. They may not look like Don Draper, but there’s many more of them (their share of payrolls is up by 119 per cent since 2005).

Chart of the Week

It’s boiling. Or at least it is down south. But don’t be too smug if you’re sweat free – high summer temperatures are coming all our ways thanks to climate change. Yes, that might mean more suntans and beer gardens, but there’s also a dark side to it: overheating in the home is a major driver behind the estimated 2,000 heat-related deaths in the UK each year, a figure expected to triple by 2050 as the world warms and the UK ages. Just to prove that there is no issue that the Resolution Foundation won’t remind you has a distributional angle, this week’s chart shows that hot homes are an unequal phenomenon – 1-in-4 of the poorest households live in homes that get too hot, compared to 1-in-20 of the richest. The immediate job is to insulate Britain’s housing stock to bring down bills and emissions, but we also have to think about how to keep new and existing homes cool in the summer sun. Complaining that it’s too hot/cold is a national tradition that isn’t going away. But modernising our often centuries-old housing stock so that it can actually cope with changing temperatures, without us having to resort to massive energy bills, or fighting over the last fan in Argos, is a new habit we need to get into.