How did London escape the Great Recession?

By Richard Brown
London's mayor Boris Johnson, trying not to worry about the city's future. Image: Getty.

Boris Johnson will be banging the drum for the capital with his accustomed panache as he visits Boston and New York this week. That’s not surprising: London has a great story to tell.

But, while we are quick to celebrate London’s gravity-defying recovery from the last recession, we still do not fully understand it. At an LSE London lecture last week, Professor of Human Geography Ian Gordon sought to redress the balance by asking why the capital did not just survive the 2007 financial crash; in its wake, it actually thrived.

It’s a multi-billion dollar question, not least because London looked pretty vulnerable as the crisis unfolded. Unlike previous recessions, which had hit the Midlands and north harder, the early 1990s recession had its greatest impact in London, reflecting a shift from manufacturing to “speculation” (broadly-defined, to include housing and stock markets as well as knowledge-intensive activity).

A lot of people (including Gordon, and me) expected the years after 2007 to be a re-run, or worse. Instead, between 2007 and 2013, employment in five central London boroughs rose by 23 per cent, a faster annual growth rate than in the period running up to the crash, though unemployment rose across London, and job number recovery rates in the rest of the capital remained at much the same level as the rest of the UK.

Gordon reflected on whether there were structural features of London's economy that helped it survive. He also asked whether there were policy biases in terms of public and private investment and cutbacks, and whether the programmes of economic intervention (bail-outs, guarantees and quantitative easing) had features that favoured London.

The first two factors certainly contributed something. Structurally, the devaluation of the pound by 25 per cent between 2007 and 2009 could have helped tourism and investment (more on this below). What’s more, businesses fought to retain skilled workers , who are disproportionately located in London. And London’s economy was well-equipped to continue to supply luxury goods to rich individuals whose wealth was relatively unaffected by financial vicissitudes (the “plutonomy model”, named after the CitiGroup reports of the mid-2000s).

There were also policy biases towards London. The 2012 Olympics and Crossrail were big capital projects sponsored by government, which boosted the ability of London construction services firms to sell their skills overseas. There is some evidence that firms headquartered in London were quicker to lay off branch office than head office personnel, too.

But these factors shrink in significance, Gordon argued, compared to the sheer weight of financial intervention. He cited Andrew Haldane of the Bank of England in valuing the guarantees given to banks as equivalent to a subsidy of £100bn in 2009 alone (through their reductions in the cost of borrowing).

Meanwhile, quantitative easing was designed to divert nervous money away from safe bonds into more risky and productive investments – but, coupled with low interest rates, it encouraged a surge in equity prices. (Some went to emerging markets in search of even higher returns.) The FTSE 100 index rose from a low of less than 4,000 in 2009 to nearly 7,000 today – around the level of its 2008 high – delivering great returns for many investors.

But the job growth in the five boroughs studied (City of London, Westminster, Islington, Tower Hamlets and Hackney) was not restricted to financial services. It was also in property, real estate and engineering, tourism, hotels and restaurants, public services, and creative and digital businesses.

Signs of success? Cranes at work on London's South Bank, October 2013. Image: Getty.

Some of the growth in professional property and engineering activity can be attributed to the big capital projects, and the confidence that London’s 2012 success created. Growth in creative and digital businesses includes not only Tech City (about which Gordon was sceptical), but also IT support to increasingly tech-driven financial services. Finally, a buoyant stock market does much to help the higher end of the restaurant business: witness the profusion of £100 per head openings around the hedge-y hotspots of Mayfair.

Going beyond Gordon’s careful analysis, it’s also worth asking what part London’s booming property market played. The devaluation of the pound did little to boost tourism in the short term (visitor numbers did not return to their 2007 levels until 2012); but it did make London a safe haven for overseas investment.

Much of this investment went into property, and particularly the prime central London market, where 60 per cent of purchases by value were by overseas buyers in 2007-11. And after a brief slowdown in 2008, prices recovered fast, rising by 45 per cent across central London by 2013.

But, unlike prices, transaction volumes remained stubbornly low; they fell by about 40 per cent in 2007, and have remained pretty low ever since. In other words, buyers' money was flooding in, but sellers weren't responding; the market has failed to regain its pre-crash liquidity.

Investors wanting to increase their exposure, or to invest gains made in the stock market, had limited options for new purchases. So many chose to extend or dig down, creating catacombs of wealth in London’s most desirable streets – and contributing to the growth in employment in construction, engineering and allied trades.

So, the recovery in London’s economy, or at least in job numbers, has been focused on a very small area of the city. Perhaps more significantly, it could be seen as based on the wealth of a fairly small section of the population, and their spending habits, from underground cinemas to Michelin-starred restaurants.

This influx and expansion of wealth in central London may or may not be a good thing in itself – it has generated employment for a lot of Londoners, but its impact on property prices and the cost of living has stretched far beyond central London. And we shouldn’t become complacent about what it means for the future.

Gordon suggests that, just as this unique set of circumstances cushioned London in the downturn, they are also amplifying a speculative upswing. Central London may not have escaped the recession by means of our extraordinary civic virtue and vigour, by the discovery of some magic formula that has “abolished boom and bust” (remember that?).

Rather, he suggests, it may have prospered through a happy co-incidence of circumstances that has papered over the cracks. A change in interest rates, or exchange rates, or a crash in property prices could also have amplified impacts – equally and oppositely.

How London’s economy will fare longer term is a matter for crystal ball-gazing, not secure prediction. But we owe it to ourselves to reflect more rationally and systematically on whether London has achieved such apparently gravity-defying success through luck or good judgement. Those answers may be helpful if – when – the tables turn.

Richard Brown is associate director of the Centre for London.

 

Related

 
 
 

“One of the few truly beautiful and sublime practices available to us”: on the pleasures of walking at night

By Nick Dunn
American Legion roof spotter Benjamin Franklin enjoys the New York Skyline, c1940. Image: Keystone/Getty.

In an extract from his new book, Dr Nick Dunn discusses how noctambulation can change our perceptions of the city.

The history of walking through cities is as old as that of cities themselves, and, as a practice, subject to a multitude of different uses and interpretations. Walking at night, however, offers something different, having the capacity to alter our ingrained, seemingly natural predispositions towards the urban surroundings, and our perceptions along with it.

It also allows the architecture of the city to be sensed differently. Architecture, through its presence and function, is typically a reflection of the values of the society that built it. Yet no matter how permanent our buildings may appear, there are temporal relationships occurring inside and outside – weathering, occupying, adapting – that subtly alter the fabric of the city.

By venturing into the urban night it is possible to experience the materiality of the city as distinct from its character in the daytime. It appears somehow more porous; the shadow play across its edifices is rich, deep and gelatinous.

In addition, and perhaps of greater significance, it fosters a different way of thinking. In an age of hyper-visibility, encountering anything genuinely new seems incredibly remote, weirdly distanced from us yet at the same time ever-present and depthless. As the feedback loops on all forms of culture tighten, we seem to have reached a terminal inertia of restless regurgitation. The need for a time-place to imagine alternatives becomes increasingly urgent. The point here is not necessarily where this occurs but when.

We can develop a tendency to think of the places we live as being the same, static or even boring. But just because something appears commonplace does not make it so. Surrounded by what largely looks to be identical backdrops to our lives, it is easy to forget this is an environment. On the one hand it is very familiar: we recognize its streets, its architecture and its composition. But on the other hand we enter its strangeness, a different domain that yields its features: sometimes readily and sometimes requiring considerable excavation.

The city is not simply out there – a built construction separate from ourselves – but in the here of our bodies: its particles inhaled and exhaled; its materiality and textures informing our gait and steadily reshaping our footwear; its smells, sights and sounds comforting us or perhaps causing concern. And, of course, pertinently the here of our mind where we reconstruct the city many times over, forging new maps and narratives in response to its restlessness. It lives within us and us within it. The artificiality of the built environment is transformed at night, a loose third place between the natural world and the stark configuration of the daytime city. This is the nocturnal city.

 

London's Soho by night, c1960. Image: Getty.

Architecture may be the original situated technology, supporting social relations and connections. It is also time-bound and has a relationship to space, whether sensitive to its context, indifferent or defiant. Gleaning place from space is no mean feat. But this is what architecture does all the time for good or ill to our sense of our surroundings.

At night, though, architecture’s power transforms the sense of location and orientation in a very different manner. Hitherto barely detectable features take on an altogether different quality in the dark. Urban crevices, interstitial spaces and the city’s margins loom forth in their confidence. The footnotes in these places are rich palimpsest, disclosing temporary inhabitation, sharp tangs of detritus and passage, dank and dripping, sunk and slippery against the more rational and acceptable materiality of the city. These charged voids of the night purr with anticipation of comings and goings, indiscriminate toward their dwellers’ predilections and cravings. To be on your own in the city at night is not to be alone. The architecture follows you, in close conspiracy with the city’s streets.

Noctambulation is at odds with the contemporary city. To be in a city is usually to be surrounded by life, the urban buzz of people, traffic, sights, sounds, smells and tastes all combine within the built environment. Unlike a static backdrop, frozen, or an empty vessel awaiting activity, the city wraps around and passes through you as its heady concoction pulls you into its rhythms, patterns and signals. During the daytime, cities may fizz with energies and exigencies, stirring the body within its soup and conforming it to within acceptable movements and behaviours. Anything and everything seems possible. But it is not. All is not as it initially appears to be. You don't need to look around for long for the signifiers of control and coercion to instruct you. Metal plate and plastic diktats applied on the city's surfaces telling us what to do, typically by virtue of informing us what not to do.

By contrast, the agency of the nocturnal city is a skeleton key to past, present and futures. It allows the unlocking of the city at night to reveal its latent energies and jewels. If we close ourselves down to the nocturnal city, favouring instead the simulacra of representations of life through digital devices, then we are condoning the elimination of the fragile physical aspects of our world that are essential to our reading of it. We are losing fundamental relationships with our surroundings and our understanding of them.

Walking in cities at night, therefore, enables us to sense, connect and think with the city around us. We are able to give things our undivided attention, a welcome respite from the ongoing erosion and subdivision of our time and sense of belonging in the world. Deliberately moving out of the glare and stare of our commoditised and highly structured daily routines and into the rich shadows and patina of our cities at night may be one of the few truly beautiful and sublime practices available to us.

Professor Nick Dunn is chair of urban design and executive director of ImaginationLancaster, an open and exploratory design research lab, at Lancaster University. His book “Dark Matters: A Manifesto for the Nocturnal City” is published by Zero Books. 

 

Related