It’s a KIBS thing: Are some British cities going backwards?

Knowledge-intensive business services, 1890s style. Image: Hulton Archive/Getty.

The latest instalment of our series, in which we use the Centre for Cities’ data tools to crunch some of the numbers on Britain’s cities. 

We haven't talked about KIBS in a while, have we? Let's talk about KIBS.

"Knowledge Intensive Business Services" are, basically, the high-skill, high-value bit of the modern economy. In short, you can break an economy up into extraction, manufacturing, agriculture, and services. It's the latter that generates most of the wealth in advanced economies, but not all services are equal: there is much more money to be made in accountancy, say, than there is in retail. At any rate: if you want your city to be rich, you generally want more of those delicious KIBS.

So this, on the whole, is a bit worrying:

In the first half of the decade, KIBS fell as a share of the economy in no fewer than 23 of the 63 cities in our database. And not all of these cities are places you'd associate with economic problems, either: they struggling cities like Dundee, Swansea and Burnley, but also richer ones like Edinburgh, Aberdeen and Milton Keynes.

The decade started rather bumpily, so I checked if this as just a recession thing by checking if the pattern held if you started counting in later years. Starting the clock in 2013, things were different. Now there were 27 cities where the KIBS had shrunk. Right.

So what's going on? Couple of theories. One is that they've lost some good jobs: in the smaller of these economies (Slough, Worthing), the loss of one significant company is probably enough to make a noticeable dent in the figures. Another possibility is that they haven't lost KIBS jobs – might even have gained them – but that other, generally less productive sectors have grown faster.

What is clear is that there is, perhaps surprisingly, no obvious link with incomes. Check out this scatter graph which plots the change in KIBS with the change in weekly wages. There is, and I'm being charitable here, no correlation whatsoever. It’s a correlation coefficient of 0.04, which is basically invisible.

Click to expand.

 

Which suggests that maybe seeing the share of your economy devoted to KIBS shrink by 2 per cent really just doesn't matter that much. Perhaps there are other well-paying jobs replacing them, which aren’t classed as KIBS because there’s a quirk of the data. More likely, I suspect, there’s a mismatch between the two datasets: the KIBS one shows what happens inside a city’s economy, whereas the wages one includes people who live there but work elsewhere. What happens in Worthing is probably less important to its residents than what happens in London.

And yet, and yet... Here's another scatter graph showing weekly wages against KIBS. Unlike the last one, though, this isn't change over time: it's the figures for a single year, 2015.

Click to expand.

That very definitely is a correlation: a coefficient of 0.66, which is pretty bloody strong.

So: KIBS-heavy cities do still do a lot, lot better: perhaps the changes in that earlier dataset are simply too small to have much of an impact.


The lesson here seems to be that a city can see the share of its economy devoted to high-value business services shrink a little without consequence. But if it starts dropping like a stone, people are going to get a lot, lot poorer.

Anyway, to sum up, I'm sure Brexit will be completely and utterly fine.

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and also has a Facebook page now for some reason. 

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To fix the housing crisis, we need to decide what success would look like

Building houses in Ilford, 1947. Image: Getty.

Recent years have seen growing public and political recognition that there is a crisis in housing. This has led to a widening debate on the causes and potential solutions.

However, within this debate there has been little in the way of a consensus view of what constitutes the current housing crisis – or what a “crisis-free” housing system might look like. There seems little clear idea of any measurable goal. The nearest we have as a target to aim at has been a series of aspirational numbers for new-build homes, with limited clarity on what to expect if we were to hit those numbers.

Clarity about what success would look like is essential. Without a framework for what we need and want from housing, our ability to understand and fix it appropriately will be compromised. A lack of clarity also increases the risk of unintended consequences from misguided policy interventions.

The current housing debate is, to quote UCL’s Michael Edwards, “bedevilled by rival simplifications”. There are several, quite often competing explanations for why we have a housing crisis. For many it is our failure to build homes at the same rate as projected household formation. This failure might be assigned to the planning system, the greenbelt, housebuilder business models, the land market, or NIMBYs.

For others, the crisis is a result of falling interest rates, rising credit supply, low income growth, wealth and income inequality, tax incentives, or simply our fixation on house price growth. For some, there is no shortage of homes, rather a poor distribution. And for others there isn’t really a housing crisis.

Despite the apparent contradictions in this mix of positions, each of the arguments that support these various views may hold significant elements of truth. Housing is a complex and interconnected system within the economy and society. There is no simple single housing market: there are multiple markets defined by location, property type, tenure, and price. Therefore, there is no simple single housing crisis. Instead we have multiple overlapping issues affecting different parts of the country in different ways and to varying degrees.

There may be factors that influence all housing markets across the UK, indeed across much of the globe. There will be others that impact more locally and within specific housing sectors.

So, for instance, there is growing acceptance by many experts that the cost and availability of credit has been one of the biggest, if not the biggest, drivers of increases in national house prices over the last twenty years.


But it is not the only factor. The growth in buy-to-let has contributed to the financialisation of housing, with homes increasingly thought of as an investment rather than a place for people to live. A lack of supply is predominantly an issue for London and its surrounds, but there are localised shortages elsewhere, particularly of specific types or tenure of homes.

Planning (including a lack of) and the land market limit the responsiveness of supply to rising demand. Housing is unevenly distributed, mostly across generations but also spatially and within generations. Some areas don’t need a net increase in housing but desperately need existing poor-quality homes improved or replaced. In many areas the biggest issue is low (or negative) income growth and employment insecurity.

All these issues and others play a part in defining “the housing crisis”. Having a framework for what we need and want from housing, combined with an understanding of the complexities and interactions that run through the housing market, is essential to resolving the problems they create.

The problem with ‘households’

A misunderstanding of the complexities of housing can be found in one of the most frequently stated explanations for the crisis: a lack of new supply compared with household projections.

Unfortunately, this argument is flawed. Household projections are not a measure of housing demand. The effective demand for new housing is determined by the number of people or companies willing and financially able to buy property. Meanwhile new supply only accounts for around 12 per cent of total transactions and probably less of available homes for sale.

Importantly, even if some analysis may suggest there is no shortage of supply, that does not mean there is no need for new supply. Household projections are a statistical construct based on the past, not a direct measure of future housing demand. But they are still important if used appropriately within a framework for what we need and want from housing.

If we are more explicit about the role of household projections in measuring housing need and the assumptions they contain, then the ‘supply versus household projections’ argument might be recast as a debate on changing household sizes and the consumption of housing (both in terms of space and multiple properties).

This then implies that we should be clearer about the minimum acceptable amount of housing people need, while also accounting for what they want. Should younger people still expect to form households at the same rate and size as their parents? The assumptions and projections around future household sizes should be moved from the background, where they are typically only discussed by planners and researchers, to the centre of the debate.

They should be just one part of a framework for success that explicitly states what we need and want from housing – not just in terms of size but also cost, tenure, quality, security, and location – and better defines the minimum we are prepared to accept. That will provide a clearer understanding of where housing is failing to meet those requirements and help set objectives for how to fix it. These could then be applied appropriately across different markets.

“Rather than trying to return to the relatively short-lived 20th century ideal of mass home-ownership, perhaps we should be focussing our efforts on making renting cheaper”

If measurement against the framework shows that households are not able to form at an appropriate rate and size relative to what they need, then we probably need to increase supply while possibly encouraging older households to move out of larger homes. If rents are too expensive then we may need to reform the rental sectors and increase supply. If housing quality is poor, then we need to work harder at improving and replacing existing stock. If many areas are struggling due to low (or negative) income growth and employment insecurity, then we probably need to look beyond just housing. It might even question whether we need to rebalance the economy and infrastructure investment away from London and its commuter zone.

Having a framework for success may even highlight which issues we can fix and which we can’t. For example, it looks likely that we are stuck with a low interest rate and hence high house price to income market. Under those conditions, prospective first-time buyers will continue to struggle to raise a deposit and access home-ownership irrespective of how much new supply can be realistically delivered.

Rather than trying to return to the relatively short-lived 20th century ideal of mass home-ownership, perhaps we should be focussing our efforts on making renting cheaper, higher quality, and more secure as a long-term home. Increasing new supply would be an important tool in achieving that outcome.

When we have a framework for what success could look like, our ability to understand and fix housing appropriately will be dramatically improved. It would be an important step towards making housing available, affordable, and appropriate for everyone that needs it. It would also be more useful than simply setting a nice round number national target for new homes.

Neal Hudson is an independent housing analyst, who tweets as @resi_analyst. This article originally appeared on his blog.