The Economist - UK (2021-11-20)

The Economist November 20th 2021 Finance & economics 79

Houseprices

Patch­up job

H

ousingcostsacrosstherichworldare

rising  fast.  In  America  and  Australia

prices have increased by nearly 20% in the

past 12 months, and rents too are on the up.

In  the  past  year,  prices  in  New  Zealand

have  shot  up  at  a  pace  of  more  than

NZ$2,000 ($1,400) a week. Costs in big cit­

ies have been going up for years, propelled

by a mix of cheap borrowing and a scarcity

of  new  homes.  The  pandemic  has  made

matters  worse;  lockdowns  boosted  de­

mand  for  larger  homes,  while  labour  and

materials  shortages  constrained  housing

supply.  As  they  try  to  bring  down  costs,

governments  are  throwing  all  sorts  of

ideas at the problem.

One  set  of  policies  involves  helping

first­time  buyers  and  renters,  while  dis­

couraging  other  types  of  prospective

homeowners. Spain, for instance, wants to

get  young  people  out  of  their  parents’

houses, and is offering them nearly $300 a

month  for  rent.  In  South  Korea,  President

Moon  Jae­in  has  brought  in  more  than  20

different  regulations,  including  tighter

lending rules and punitive taxes on expen­

sive homes.

Officials  elsewhere  are  focused  on  de­

terring  foreign  buyers.  Justin  Trudeau,

Canada’s prime minister, vowed a two­year

ban on house purchases by non­residents

during his re­election campaign in August.

New  Zealand’s  ban  on  foreigners  buying

homes  came  into  force  in  2018  after  the

controversial  purchase  of  a  ranch  in  the

country  by  Peter  Thiel,  a  Silicon  Valley

heavyweight.  Yet  although  these  policies

have  successfully  put  off  foreigners,  they

have  missed  the  mark  on  affordability.

House  prices  in  New  Zealand  have  risen

even as purchases by overseas buyers have

dried up. Mr Moon’s efforts have, likewise,

failed  to  curb  steep  price  rises.  Prices  of

flats in Seoul have increased by over a third

during his presidency.

That  might  explain  why  the  focus  in

South  Korea  has  shifted  to  supply.  This

year  the  government  unveiled  a  plan  to

build 83,000 homes in the capital. America

has pledged to subsidise construction. Of­

ficials in Hong Kong, who blame unafford­

able  housing  for  the  anti­government

protests that erupted in 2019, want to ease

costs by building a new city near the terri­

tory’s border with mainland China. The de­

velopment  could  house  as  many  as  2.5m

people—a  third  of  Hong  Kong’s  popula­

tion.  But  Britain’s  experience  shows  just

how  difficult  expanding  housing  supply

can be. The government wanted to revamp

planning  rules  to  open  up  more  land  to

housebuilding.  Then  fears  of  a  backlash

from  nimby voters  and  disagreements

within  the  governing  Conservative  Party

prompted a rethink.

Faced with the failures of managing de­

mand  and  the  political  difficulties  of  ex­

panding  supply,  some  governments  are

turning instead to a more expedient target:

big landlords. In October Spain’s left­wing

coalition agreed on a housing bill aimed at

cracking  down  on  investment  funds.  The

new  legislation  imposes  rent  controls  on

landlords  with  more  than  ten  properties.

The changes—due to take effect in the sec­

ond half of 2022—are a blow for companies

such  as  Blackstone,  a  private­equity  giant

that is Spain’s biggest landlord. 

Spainisonlythelatestcountrytopro­

poserestrictionsonlargepropertyinves­

tors.Similarapproacheshavesprungupin

IrelandandNewZealand.InAmericaPres­

identJoeBidenwantstorestrictthetypes

ofhomes largeinvestors areallowedto

own.Canada’scentralbankersplantoana­

lyseinvestors’roleinsurgingprices.Ina

referendum in September Berlin’s resi­

dentstookthedrasticstepofvotingtoex­

propriate biglandlordssuchasVonovia

andDeutscheWohnen.(Theresultisnon­

binding,andlegalsetbacksmeanitmay

neverbecomereality.)

Takingonbiginvestorsmightbepopu­

larwithvoters,andeasiertoachievethan

looseningsupplyconstraints.Butwhether

suchanapproachwillleadtomoreafford­

able housing is lessclear: curbson big

landlordsmakeitlessprofitabletobuild

newproperties.Ifthecrackdowncontin­

ues,investorscouldsimplytaketheirpots

ofcapitalelsewhere,leavinghousingcosts

torisefurtherstill. n

As housing costs rocket, governments

take aim at large investors

Frequent-flyerschemes

Lifting off 

W

hen executives at  American  Air­

lines  unveiled  the  world’s  first  fre­

quent­flyer programme 40 years ago, they

probably  didn’t  imagine  it  would  one  day

be worth more than the airline itself. Last

year analysts valued the scheme at around

$18bn­30bn,  eclipsing  the  company’s  cur­

rent market capitalisation of $12.9bn. Such

programmes have proved a boon to Ameri­

can  carriers  in  the  pandemic.  Firms  in­

cluding  American  Airlines  have  raised

$30bn in debt backed by the schemes. 

Airlines oncehoped  simply  to  foster

loyalty by offering customers freebies. Pas­

sengers  collected  miles  as  they  travelled

and  were  awarded  a  free  flight  once  they

racked up enough of them. But schemes to­

day  are  far  more  sophisticated.  Airlines

profit by selling miles to credit­card firms

at a price that exceeds the cost of providing

reward flights and dishing out other perks,

such  as  hotel  stays.  They  also  gain  when

miles  expire  unused  or  are  cashed  in  for

something  of  poor  value.  According  to

McKinsey,  a  consultancy,  15­30%  of  miles

expired unused before the pandemic. 

Credit­card issuers in turn use miles to

lure customers with bonuses. Airline­affil­

iated  cards  tend  to  rake  in  much  more  in

transactions a year than other cards. Many

miles  are  therefore  earned  not  in  the  air,

but through card spending on the ground. 

That  explains  why  customers  earned

$6.8bn­worth  of  miles  across  big  loyalty

schemes  in  2020,  even  as  many  kept  to

their homes. If they were to rush to convert

those miles into free flights as travel takes

off again, the profitability of such schemes

would be jeopardised. But airlines have an­

other way to ensure that their programmes

stay  profitable:  they  can  deflate  the  value

of their miles. In the early 2010s American

airlines  began  to  calculate  the  value  of  a

mile  based  on  a  complex  formula  of  fares

and routes. In 2015 Delta Air Lines stopped

disclosing  how  the  value  of  its  miles  was

calculated and embarked on a series of de­

valuations,  prompting  competitors  to  fol­

low. In the past year or so Delta, Southwest

and United have devalued miles on major

routes by 6­20%. 

Airlines  have  tapped  loyalty  schemes

for  cash  before,  by  selling  miles  to  credit­

card firms at discounted rates. United trad­

ed its miles with JPMorgan Chase, a bank,

for  $600m  in  the  financial  crisis.  But  the

pandemic  saw  the  first  use  of  loyalty  pro­

grammes  as  collateral  in  America,  says

N EW YORK

Loyalty programmes have been a

lifeline for airlines

Points mean prizes