The Economist - UK (2021-11-20)

14 Leaders TheEconomistNovember20th 2021

governments  during  the  pandemic  have  comefrominternal

startups  like  Operation  Warp  Speed,  which  helpedbringabout

America’s development of vaccines. 

The  state  should  strive  to  be  impartial.  Narrowinterests,

whether the unions and anointed victim groups favouredbythe

left, or the right’s chums in business, will alwaysseektocapture

it.  To  resist,  bureaucrats  do  not  need  relentlesscynical,self­

serving attacks on their integrity from politicians,buttranspar­

ency and support for the ethos of public service.Thoughrising

total spending on the old is justified, a full­scale gerontocracyis

not.Retireeswithdeeppocketsdonotneedpublichandouts.On

thecontrary,theyshouldbeara heavierburdenastaxesshift

fromwages,towardsproperty,inheritanceandconsumption.

Theprizeisenormous.Thedifferencebetweengoodgovern­

mentandbadwillbemeasurednotjustintherapidtransitionto

netzeroandtheprovisionofa sustainablesafety­netfortheold,

butinsocietiesthatarefaireranda lotmoreprosperous.Inthe

20thcenturyclassicalliberalsensuredthatthegrowthofgov­

ernment accompanied the progress ofhumanity. The same

mightyetbetrueinthe21st. n

“V

ultures out” read oneofthemanyplacardsyoungprot­

esters waved at a recent rally in Dublin. Thecauseoftheir

anger was spiralling rents in the Irish capital, pushedhigheras

the  fastest  growth  in  house  prices  in  years  hasmaderenting

more  attractive.  The  sentiment  is  spreading. Private­equity

firms,  insurance  companies,  pension  funds  andotherinstitu­

tional investors that have snapped up residentialpropertydur­

ing  the  pandemic  are  becoming  the  butt  of  resentmentinrich

countries. As their share of the residential­propertymarkethas

grown, so has the backlash. Some blame big landlordsforsoar­

ing rents. Others accuse them of exploiting crisisforprofit.

Policymakers have been fast to respond (seeFinance&eco­

nomics section). The White House wants to restrictthetypesof

properties that large investors are allowed to buy.NewZealand

has scrapped tax breaks for property investors, andIrelandhas

slapped a 10% tax on the bulk­buying of houses. Canada’scentral

bank  says  the  role  that  big  investors  play  in  housingrequires

more  scrutiny.  In  Germany  Berlin’s  residents

voted in September to force their city’s biggest

landlords to sell more than 200,000 flats to the

state, though the referendum was non­binding

and the constitutional court is expected to over­

turn  the  result  if  it  becomes  law.  Spain’s  left­

wing government is the latest to unleash mea­

sures  to  deal  with  big  landlords.  Under  new

proposals,  they  will  face  rent  controls,  higher

taxes on empty property and a ban on buying social housing.

From this brouhaha, you might think that professional land­

lords  are  gobbling  up  the  market.  In  fact,  their  share  remains

modest.  In  America  investors  own  just  2%  of  rental  homes.

Across Europe, publicly listed funds own less than 5%. In Spain

the  criticism  has  focused  on  Blackstone,  the  country’s  biggest

residential landlord. After entering the market eight years ago,

the  private­equity  giant  now  owns  30,000  homes.  Yet  this

amounts to just 1% of the total stock. 

There is no doubt that big investors have big ambitions. Sin­

gle­family homes and flats that are built to rent have become a

lucrative  line  of  business.  Other  Wall  Street  firms  such  as  kkr

and  Goldman  Sachs  are  also  piling  in  to  the  market—and  they

are building as well as buying. By some estimates, they account

for  more  than  6%  of  new  homes  in  America  each  year.  Across

Britain, institutional investors are expected to supply a tenth of

the  government’s  housing  target  in  the  next  few  years.  Since

2018 theyhavebuiltnearlya quarterofnewhomesinLiverpool,

andmorethan15%inNottingham,LeicesterandSheffield.

Thisinjectionofcapitalshouldbewelcomed,notscorned.

Theinvestorswanttomakemoney,naturally,buttheyseea gap

inthemarketthatneedsfillingandtheyaredoingsomething

aboutit.Demandforrentalhousinghasneverbeenhigher.In

Britainlessthanoneintenhomeswererentedinthemid­1990s.

Thesharetodayisclosertooneinfive.A thirdofhouseholdsin

Americaarerented.Fallinghomeownershipratesacrossthe

richworldmeanthatdecentqualityhousingintheprivaterent­

edmarketismoresought­afterthanever.Yettenanciesareinse­

cureandthesupplyofrentalhomeshasfailedtokeepupwith

demand.Anumberofcountriesfacechronicshortages.Cana­

da’snationalrentalvacancyratein 2020 was3%.InpartsofAus­

traliait isbelow1%.

The flood ofinstitutional money into the rentalmarket

comesata crucialtime.Citycentresarefullofemptybuildings,

asa resultofthepandemic.Thathascreatedthe

chancetoexpandhousingtherebyconverting

them.However,thiswillrequirenotonlyan

overhaulofplanningrulesbutlotsofmoneyto

payforthebuildingwork.CitieslikeNewYork

showwhatispossible.Biginvestorstherehave

beenturningofficesintohomesforyears.Asa

result,some60,000peopleliveinLowerMan­

hattan today, up from just 14,000 in the

mid­1990s. The City of London believes it has room for an extra

1,500 homes by 2030. 

The crux of the problem is a lack of supply in the places where

economic  opportunities  are  greatest.  Some  say  the  answer  is

higher  interest  rates  or  macroprudential  tools,  such  as  restric­

tions on the amounts that banks can lend. These policies would

temper demand and price growth, but would not bring the eco­

nomic  benefits  of  letting  successful  cities  grow.  Some  favour

loan schemes for first­time buyers, but these only inflate house

prices—failing  both  homebuyers  and  taxpayers.  Straight­

forward solutions such as relaxing planning laws can be polit­

ically poisonous. Britain seems to have shelved a proposed plan­

ning reform that would have encouraged more house­building. 

Rather  than  rely  on  gimmicks,  countries  must  build  their

way  out  of  the  crisis.  That  is  why,  instead  of  caricaturing  big

funds as barbariansatthegarden gate, policymakers should lay

out the welcome mat.n

Hostility towardsprivateequity’spushintopropertyismisguided

Build-to-rent home completions

June 2018-June 2021, as % of new homes

London

Sheeld

Leicester

Nottingham

Liverpool

50 25201510

Barbarians at the garden gate

Housing