How far will London house values fall?

London has seen some of the most bullish house price inflation in the country as the nation's ceremonial centre has been in the process of going from a national capital to a world megacity. Everyone expects domestic property values to fall as a result of the Wuhan virus, but by how much? There at several factors at play, I think. One is the fall in values that mirrors a fall in GDP; we saw this in 2008, when a small drop in GDP saw a much larger fall in house values, which fell between 15% - 20%. Add to that in 2020 the increased biohazard risk driving a flight to the country. All those shabby, noisy, flimsy multistorey blocks thrown up in the past fifteen years that have been so profitable for the volume builders have just become about as desirable as Rio favela-shacks made of crinkly tin. My own guess is there's a long way to fall. Property in the counties and towns with gardens and fields within walking distance will fare far better.

A counter argument may be that London is ahead of the rest of the country in acquiring immunity - and recent research suggests that rather than 60% of the population having been infected, it could take as few as 10% - 20% to provide herd immunity, provided the right people, i.e. those most liable to infect others, have been infected. London's economy could therefore bounce back far more quickly than the rest of the country, and dampen a drop in values. I don't understand why crowded, rammed, jostling London should be better off than the post-industrial NE, but there it is.

I've constructed the chart below from the Land Registry HPI for London, taking the flats values, and the ONS quarterly GDP data series, both rebased to 1995 = 100. Interesting. And that verse by Louis MacNeice from 1934 always comes back to me -

Splayed outwards through the suburbs houses, houses for rest
Seducingly rigged by the builder, half-timbered houses with lips pressed
So tightly and eyes staring at the traffic through bleary haws
And only a six-inch grip of the racing earth in their concrete claws;
In these houses men as in a dream pursue the Platonic Forms
With wireless and cairn terriers and gadgets approximating to the fickle norms
And endeavour to find God and score one over the neighbour
By climbing tentatively upward on jerry-built beauty and sweated labour.

Wands and Lycra louts

As a teenager I was a fearsome cyclist. I had, I recall, three bikes; a heavy chugger, a utility bike and a whiplike racer, for naked speed is fun, all built or re-built by me. The chugger was a heavy old steel machine with Sturmey-Archer gears and wired-in lights powered both by batteries and a dynamo and despite its age was superbly comfortable for long, low speed rides. It was also very sturdy - I once carried a No.19 radio set including power unit and variometer, which must have weighed 30kg, for about 25 miles. All in all, I cycled many thousands, even tens of thousands, of miles. The object wasn't health or exercise but either exploring or visiting mates, who were scattergunned across half the county. I was already smoking, and never quite managed to overcome the uneven burn on a fag when smoking whilst riding, though at 14 I bought a pipe in an experimental effort to do so. So I should be well disposed towards cycling, which I am. But not so well disposed towards the arrogance and violence displayed by many cyclists in London.

Londoners may have failed to notice the little plastic bendy rods springing up in long snakes along their roads; it's what the councils have been doing during lockdown. These wands designate new road space for cyclists. So rapidly have these been deployed, so assured the position of the new routes, one can only imagine that instead of stockpiling PPE the London authorities were stockpiling plastic traffic wands, ready for a crisis such as the Wuhan virus to roll them out overnight. London's incredibly low rate of new infections at just twenty-four a day may mean that drivers venturing out from lockdown will encounter these for the first time, and find that their own roadspace has just been reduced by a third or more.

What I'd like to see are these new spaces colonised by families on bikes, including the wobbly learners, by slow pleasure riders of all ages with wicker baskets or panniers, by cycles with babies and infants strapped into carriers, all cheerily smiling and nodding and behaving gracefully. What I fear we'll get is the lycra louts, with an enormous sense of entitlement, who will with great aggression assume their right to dominate these new spaces, and feel nothing but vindication for their past boorish, uncouth thuggery. They will assume the lane expansion is a reward for their previous loutish and utterly selfish posession of cycle space. And until it becomes legal to kick the buggers off their bikes, I'm not sure what can be done about it.

Borders borders borders

As Europe stumbles in a spread field into phase II of the Wuhan virus response, crossing borders becomes the issue of debate. Although Brits have been warned that they won't be let out for Summer, much of tourist Europe isn't so sanguine. Austria has been trying to re-open the border with Germany, to allow in the floods of German tourists, but so far Germany has refused - and with a second wave of infections coming to Germany, is unlikely to do so.

There's no move from Austria to re-open the border with Italy - they're quite happy with having it closed - but the two nations announced yesterday that cowherds tending herds on the alm, the high alpine summer pastures that frequently straddle the borders, could cross at will. These almhutte high in the mountains are often popular with girl students spending a Summer away together, a group of five or six doing the daily milking and making cheese from May until September. Often connected only by steep cattle tracks, with no vehicular access, where everything has to be carried up and down, it's regarded as quality time away. When it's time to bring the cows back down to the valleys in Autumn, they the girls will go back to university. Or not. There are reputed to be almhutte that actually sit on the border, with the bedroom in Italy and the kitchen in Austria, rather like the Irish border.

The UK has announced that no quarantine will be needed for those crossing from France, only to earn a rebuke from the technocrats from their bunker beneath the Berlaymont. It turns out we can do it under their EU laws, but only if we say 'no quarantine for residents of France' rather than 'no quarantine for anyone entering from France'. Go figure. I suppose we must therefore bang-up Polish truck drivers for a fortnight if we pay any attention to the dreary officials in Brussels. Which I hope we won't.

Whilst the Germans won't be able to come to Austria, the Austrians won't be able to visit their own  favourite destinations in Spain. I'm not sure where the Spanish won't be able to go - except Portugal, of course, which will also be missing the English. Meanwhile Croatia is planning an air-corridor to fly in their preferred Summer guests, the Czechs. Greece, like Austria a heavy-smoking nation with a low rate of infection, is ambivalent about losing her crucial Summer trade. Perhaps she should open only to Europe's smokers - each visitor having to drag deeply on a Capstan full strength at the airport on arrival to validate their status.

Latvia, Lithuania and Estonia have already opened their mutual borders, but with about a third of the population still working in the UK as bar-staff (now furloughed) there will be barely enough natives left to fill the foreign tourist restaurant tables. "What's the local speciality?" "Liver dumplings." "Oh that's strange. That's our speciality back home as well".

But remarkably, Europeans are reverting to a national border mindset more swiftly than I would ever have imagined possible after the Shengen experience. And that may be the biggest worry for Brussels.

Legal jackals, vultures and carrion eaters gather ...

Pity the employer trying to get their staff back to work, particularly in London and in densely populated urban areas. Lawyers are gathering like vultures on a branch anticipating litigating Employment Rights actions. As a silk from Cloisters Chambers advises already -

By s.44(1)(d) and s.100(1)(d) ERA, employees have the right not to be subjected to any detriment by any act, or any deliberate failure to act by their employer and the right not to be dismissed on the ground that "in circumstances of danger which the employee reasonably believed to be serious and imminent and which he could not reasonably have been expected to avert, he left (or proposed to leave) or (while the danger persisted) refused to return to his place of work or any dangerous part of his place of work". Similarly, s.44(1)(e) and s.100(1)(e) provide some protection for employees where, "in circumstances of danger which the employee reasonably believed to be serious and imminent, he took (or proposed to take) appropriate steps to protect himself or other persons from the danger."

Even asking staff to travel to work could raise in their hearts a "reasonable belief" that they would be exposed to "serious and imminent danger" - which would allow them to stay at home, and make unlawful their dismissal for not coming in. And that's just the tip of the iceberg.

Matthew Lynn continues the theme in the Telegraph this morning

There is a problem, however, and one that is going to become increasingly urgent as we lift lockdown. We have created a lawyer-dominated health and safety obsessed culture that may turn into our biggest enemy as we recover from Covid-19. Just think about some of the problems.

What if a restaurant hasn’t put the tables far enough apart to stop the disease spreading? Are they going to get a writ from anyone who gets ill? What if staff desks are not arranged the right way to protect people from infectious sneezes? Will the employer get hauled before a tribunal? What about those masks you finally managed to order, with great difficulty, and at huge expense? Do they really work, and are you liable if not? What if you ship a product to a customer, and then it turns out it contained traces of the virus? Is that your liability? The list could go on and on.

In fact the very last person I'd want to be right now is a City of London financial services provider with an office and trading terminals and staff. Staff who can't drive because there's nowhere to park, can't walk because they all live more than four miles away and can't even cycle because there's nowhere to put all the bloody bikes and a hot summer with a floor full of beefy traders sweating cobs in their lycra would probably also constitute some sort of H&S infringement. With only six people allowed in each tube carriage it would likely be 11.30 before they struggle in by public transport, anxious at having been breathed on by a Big Issue vendor.

Well there's a short term and a long term solution. The short term solution may be something like the one Matthew suggests in his Telegraph piece

We could fix that. Here’s how. First, we could ring-fence liability. If a worker or customer is diagnosed with Covid-19, a company should not be held liable for that unless it has been completely reckless (and even then, liability should be capped at £10,000 or 1pc of turnover, whichever is the lower).

Next, how about we ban no-win no-fee lawyers from trying to drum up business by exploiting Covid-19 cases. Law firms shouldn’t be allowed to tout for coronavirus business, and they certainly shouldn’t be allowed to start organising (potentially lucrative) class actions.

However, getting such legislation through Parliament will be painful, and you can be sure that Starmer will use every lawyerly and slithering trick to obstruct and sabotage it. He'll be in his element as a human rights lawyer.

The long term solution is to stop employing people, or stop employing so many of them anyway in dense city-centre urban environments. The third tier of AI may come a decade early, and PwC are already predicting high rates of replacement of financial services jobs such as asset managers, as AI will allow not only replacement of existing jobs but will, for example, "have made it possible to develop customised investment solutions for mass market consumers in ways that would, until recently, only have been available to high net worth (HNW) clients." says PwC. And presuming that anyone has anything left to invest at all after this, or that there is anything left worth investing in.

And then there are all those offices in the City and Isle of Dogs. I wouldn't like to own the freehold on a Canary Wharf tower right now; the longer term solution may involve mass redundancies and human flight from our packed cities, as workers become more aware of the risks of biohazards. The SARS-CoV-2 virule may be a relatively harmless little bugger, but the entire world is now rethinking bio risk in a packed and mobile world.

Muzzling the lawyers won't work. It will just be a short-term fix. And the internet and AI will play an unprecedented role in a quantum change in the way we live and work. This is going to be fascinating. 

Earthquake hits the EU - but wait for the aftershock

The brawl between Germany and the EU over the ECB's QE will be one of the most spectacular fallouts since Maastricht. Get the popcorn out, and draw up a seat. 

Germany's Constitutional Court released a judgement on 5th May which essentially had two legs; that the Federal Government and the Bundestag were at fault in failing to challenge the ECB's PSPP (Public Sector Purchase Programme), and that the ECB had exceeded its authority by delivering the programme. Prior to forming a judgement, the court had referrred the question of the ECB's actions to the ECJ, which of course found that the central bank was not at any fault. The Constitutional court then ripped apart the ratio decidendi of the EU's political court in three tightly argued paragraphs and concluded -

In light of the aforementioned considerations, the Federal Constitutional Court is not bound by the CJEU’s decision but must conduct its own review to determine whether the Eurosystem’s decisions on the adoption and implementation of the PSPP remain within the competences conferred upon it under EU primary law. As these decisions lack sufficient proportionality considerations, they amount to an exceeding of the ECB’s competences.

Well, you can imagine the outrage in Brussels. The EU's political court is quite openly constituted to act to further the political aims of the EU - they don't even try to pretend it's not. The German Constitutional Court is concerned with the most fundamental basis upon which Germany was permitted to function as a nation after the period 1933 - 1945, the Grundgesetz, which set in concrete rules that would prevent the German people ever again repeating the actions of those years. Germany's membership of the EU is explicitly on the basis that the EU cannot legislate anything in contravention of the Grundgesetz - it is inviolable. 

Wolfgang Münchau writes in Marxist daily The Financial Times -

The ECB is, of course, not subject to German law. As an EU institution it answers to the European Court of Justice. But this ruling is binding on the Bundesbank. I doubt that Jens Weidmann, its president, will want to fob off the German judges with a superficial response. The ruling only allows the Germans to take part in the asset purchase programme for another three months unless they find a way to comply. Theoretically, the ECB could proceed without Germany. But I would strongly advise against it because that could precipitate a eurozone break-up.

The EU's political court was also not slow to assert its authority, and released a statement -

In order to ensure that EU law is applied uniformly, the Court of Justice (ECJ) alone ... has jurisdiction to rule that an act of an EU institution is contrary to EU law. Divergences between courts of the member states as to the validity of such acts would indeed be liable to place in jeopardy the unity of the EU legal order and to detract from legal certainty. Like other authorities of the member states, national courts are required to ensure that EU law takes full effect. That is the only way of ensuring the equality of member states in the Union they created.

In other words, the EU is telling Jens Weidmann of the Bundesbank that he should do as the ECJ says, not as his own Constitutional Court instructs him.

This is going to be massive.