Chart: Peru’s cities need to find alternatives to mining

The Yanacocha gold mine near Cajamarca, Peru. Image: Euyasik at Wikimedia Commons

It would be fair to say that, in terms of its natural resources, Peru won the lottery. It’s sitting on veins of copper, gold, zinc, and silver, which, we probably don’t need to tell you, are pretty good news for a country’s economy.

For the past four years, in fact, Peru’s GDP has grown at an average of 7 per cent annually, and since 2004, poverty levels have halved from 50 per cent to under 25 per cent, according to the Peruvian Association of Banks. It’s also been ranked second only to South Korea by Wall Street experts for its ability to resist shocks to the economy - literally sitting on top of a massive source of wealth probably helps.

However, mining is an incredibly labour-intensive industry, and Peru can’t sustain this level of growth forever. Over the past 50 years, its population increased by 73 per cent, massively inflating its working age population. Over the next 20 years, however, it's only expected to increase by 12 per cent. As today’s population gets older, the number of those who can work labour-intensive jobs won’t increase at the rate it has done for the past half century. 

As a result, economists warned this year, the mining industry can only expect to carry on at its current levels for another 15 years. At the Gold and Silver Symposium earlier this year, economist and politician Pedro Pablo Kuczynski said “Peru, demographically, has its best years ahead of it. But it’s only 15 years, so we can’t lose even a single day.”

The solution? Cities are trying to diversify their economies away from mining. Here’s a chart comparing the mining and manufacturing sector in a few of the largest ones:

Share (%) of manufacturing, mining and utilities in total GDP. Source: CityMetric Intelligence.

Lima, Peru’s largest city and its industrial and financial centre, already had a pretty diverse economy, in which mining and manufacturing only accounts for around 20 per cent of its GDP. The city produces large amounts of textiles, agricultural products (they apparently make an awful lot of fish oil tablets) and food, which account for most of its mining and manufacturing sector – even if the metals market crashes, Lima’s economy should survive.

Arequipa, on the other hand, is one of the most mining-reliant in the country (it’s in the top four Peruvian regions for exports of silver, copper and gold). But since 2008, the graph shows it’s diversified into something that isn’t manufacturing. Turns out, that something is IT. David Chandler, an ex-Google developer, recently set up his new company, the Zuriel Corporation, in Arequipa, and Silicon Valley companies like Zagile have also set up operations there. Companies are attracted by the city’s professional population and the nine universities offering technical subjects.

Country-wide, there are plans to install a massive fiber-optic system in 2016, which would make it possible for Peru’s other cities to expand their IT sectors, too. IT is far less labour intensive than mining or manufacturing – and that’s good news for Peru’s aging population.


“Without rent control we can’t hope to solve London’s housing crisis”

You BET! Oh GOD. Image: Getty.

Today, the mayor of London called for new powers to introduce rent controls in London. With ever increasing rents swallowing more of people’s income and driving poverty, the free market has clearly failed to provide affordable homes for Londoners. 

Created in 1988, the modern private rented sector was designed primarily to attract investment, with the balance of power weighted almost entirely in landlords’ favour. As social housing stock has been eroded, with more than 1 million fewer social rented homes today compared to 1980, and as the financialisation of homes has driven up house prices, more and more people are getting trapped private renting. In 1990 just 11 per cent of households in London rented privately, but by 2017 this figure had grown to 27 per cent; it is also home to an increasing number of families and older people. 

When I first moved to London, I spent years spending well over 50 per cent of my income on rent. Even without any dependent to support, after essentials my disposable income was vanishingly small. London has the highest rent to income ratio of any region, and the highest proportion of households spending over a third of their income on rent. High rents limit people’s lives, and in London this has become a major driver of poverty and inequality. In the three years leading up to 2015-16, 960,000 private renters were living in poverty, and over half of children growing up in private rented housing are living in poverty.

So carefully designed rent controls therefore have the potential to reduce poverty and may also contribute over time to the reduction of the housing benefit bill (although any housing bill reductions have to come after an expansion of the system, which has been subject to brutal cuts over the last decade). Rent controls may also support London’s employers, two-thirds of whom are struggling to recruit entry-level staff because of the shortage of affordable homes. 

It’s obvious that London rents are far too high, and now an increasing number of voices are calling for rent controls as part of the solution: 68 per cent of Londoners are in favour, and a growing renters’ movement has emerged. Groups like the London Renters Union have already secured a massive victory in the outlawing of section 21 ‘no fault’ evictions. But without rent control, landlords can still unfairly get rid of tenants by jacking up rents.

At the New Economics Foundation we’ve been working with the Mayor of London and the Greater London Authority to research what kind of rent control would work in London. Rent controls are often polarising in the UK but are commonplace elsewhere. New York controls rents on many properties, and Berlin has just introduced a five year “rental lid”, with the mayor citing a desire to not become “like London” as a motivation for the policy. 

A rent control that helps to solve London’s housing crisis would need to meet several criteria. Since rents have risen three times faster than average wages since 2010, rent control should initially brings rents down. Our research found that a 1 per cent reduction in rents for four years could lead to 20 per cent cheaper rents compared to where they would be otherwise. London also needs a rent control both within and between tenancies because otherwise landlords can just reset rents when tenancies end.

Without rent control we can’t hope to solve London’s housing crisis – but it’s not without risk. Decreases in landlord profits could encourage current landlords to exit the sector and discourage new ones from entering it. And a sharp reduction in the supply of privately rented homes would severely reduce housing options for Londoners, whilst reducing incentives for landlords to maintain and improve their properties.

Rent controls should be introduced in a stepped way to minimise risks for tenants. And we need more information on landlords, rents, and their business models in order to design a rent control which avoids unintended consequences.

Rent controls are also not a silver bullet. They need to be part of a package of solutions to London’s housing affordability crisis, including a large scale increase in social housebuilding and an improvement in housing benefit. However, private renting will be part of London’s housing system for some time to come, and the scale of the affordability crisis in London means that the question of rent controls is no longer “if”, but increasingly “how”. 

Joe Beswick is head of housing & land at the New Economics Foundation.