The balance of power is shifting away from property owners
Right-to-buy, populist land-grabs and other dodgy deals demonstrate how power is being taken away from property owners and handed to tenants, says Merryn Somerset Webb.
Earlier this month, Bristol's mayor, George Ferguson, pushed through the sale of the freehold of the city's 2,100-acre port to its leaseholder, the Bristol Port Company. The price is to be £10m.
If that sounds low, I suspect it is. It might be a perfectly reasonable price for the sale of the freehold alone, but takes little account of the enormous value in the marriage of the freehold and the leasehold.
Many of his councillors were unimpressed they voted 41 to 16 against and asked him to reconsider. And judging by the online reaction of the people of Bristol, they weren't much impressed either. But the will of the collective owners of the port was effectively pushed aside by the mayor in favour of that of their tenants.
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The Bristol Port Company gets to buy the freehold for what looks like a knockdown price because they have the cash to hand, and because they asked and crucially, because they are already in residence. You can watch the relevant webcast for the council meeting on their website (though I am not sure I would recommend it) but as one observer tells me, the mayor's case for this transfer of wealth appeared to boil down to the fact that the leaseholders are "good chaps and have run the port well for the last 20 years". You might think that sounds just fine. But it isn't the way we usually think of property rights working: in a normal capitalist transfer, the seller is obviously willing and the price keenly commercial.
You may be wondering why this local conflict is of interest to me. It is because the mayor of Bristol isn't the only person embracing the idea that ownership is as much about residence as actual ownership. David Cameron is also insisting on shifting wealth from its owners into the hands of a lucky group of people who just happen to be resident in the right place at the right time. How else can you describe giving housing association tenants the right to buy the properties in which they live for a knockdown price?
Then cast your eye north to Scotland. The SNP-led government has just introduced its land reform bill. This, too, represents a huge shift in power from the landowners to the residents and users of land. Even a skim of the legislation will show you that it is jammed with right-to-buy clauses and power transfers to "communities".
Interesting, isn't it? These examples of wealth transfer from right-to-buy come from different directions and political positions, but they all suggest the same thing: a convergence around the idea that owners shouldn't have exclusive ownership rights.
Now let's chuck one more thing into the mix rising wages around the world. Here in the UK real wages are finally rising, and both the left and right are arguing for higher wages for everyone. Note David Cameron's recent remarks on how people should be making their incomes from rising wages rather than tax credits; the mini strikes that keep popping up (Scottish ferries, Newsquest journalists); and the fact that hanging on to good full-time staff clearly isn't easy. The Office for National Statistics tells us that those who have hung on to full-time jobs since the financial crisis have seen their wages rise smartly.
The same is happening in China, where annual wages are rising at about 12% a year; in Japan, where a cornerstone of Abenomics is rising wages; and in the US, where Walmart has just announced a raise for 100,000 department managers and specialists.
So what does it all add up to? I wrote a year and half ago about just how much of a "boss's world" ours has become over the last 20 years the share of corporate output going to profits (and hence to shareholders) had soared and that to workers collapsed.
At the time I noted that these swings in the relationships between profit and labour or tenant and landowner take decades to play out, but I felt we were seeing the same signs of a shift as we saw back in the 1960s when the government was "irrevocably committed to doing something for the low paid" and the low paid were also figuring out how to do something for themselves.
All the things I mention above are signs that this is happening again. Power is beginning to shift to workers and to tenants just as it did then. Hugh Hendry of Eclectica Asset Management picks up the story in his latest letter to his investors. You could, he says, interpret this shift as the re-emergence of the "Henry Ford" option at the corporate and government level.
Back in 1914, Ford confounded everyone by doubling his workers' pay. He did it mostly to bring the best workers to his business, but it also established the idea that it was reasonable "for the economy's workers to capture a larger slice of the period's surging productivity". That in turn "produced highly remunerated consumers with a higher propensity to consume than their elite Gatsby'-like predecessors from the 1920s." GDP rose. Everyone was happy.
Look at it like that, and while it is hard to approve of all the signs of the pendulum swinging back (I am very against the SNP's nastily statist approach to land redistribution, for example), the fact is that it is has to be good news for the global economy. The better paid should be both more productive and keener on consumption.
The implications for your investments are a bit more complicated. Mr Hendry reckons it is generally bullish for equities everywhere. I worry that it isn't good for US equities they are priced for constant profit margin expansion, and if labour costs keep rising, they won't get it.
But I also worry about the UK's growing army of buy-to-let investors. With tenants getting increasingly angry about our dysfunctional property market, and governments and councils across the UK clearly all for right-to-buy, is it really safe to assume that landlords will keep the rights they currently think they have over their rental properties? Something to think about before you buy another.
This article was first published in the Financial Times
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Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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