Britain has barely grown richer in real per-capita terms since 2007, and the reason is not weak institutions or a lack of innovation, but a chronic inability to build, according to a new briefing from the Institute of Economic Affairs.
The briefing, by Kristian Niemietz, Editorial Director at the IEA, sets out the case that Britain’s stagnation is entirely self-inflicted, and therefore entirely reversible. It forms part of the IEA’s forthcoming book, The Great Stagnation: Why Britain Stopped Growing.
Niemietz finds:
Britain is not much richer today in real per-capita terms than it was in 2007: we have experienced nearly two lost decades, which is an anomaly by historic standards.
A large part of the reason for this stagnation is that it is simply too difficult to build anything in Britain, be it residential housing, office or business premises, infrastructure, or even reservoirs. An economy which does not build things does not grow.
This is not a new insight: the problem is extremely well-known. Governments have been publishing White Papers and expert reviews which say precisely that for over twenty years (without ever doing anything about it)
Britain does not just have a shortage of residential housing, but a shortage of premises of all kinds, including business premises such as offices, retail outlets, laboratories for the biotechnology and life science sectors, etc. This raises the cost of doing business and lowers productivity by forcing firms into unsuitable premises.
Britain has a nationwide housing shortage, but the shortage is systematically worse in the most productive parts of the country. This constrains Britain’s growth centres, and traps people in less productive areas.
From the mid-19th to the mid-20th century, Britain’s housing stock used to grow by 1-2% almost every year. Housing affordability used to improve, and economic centres were able to expand. In the 1960s, these growth rates began to decline, until they stabilised at around 0.5% in the 1980s.
Britain is not ‘overcrowded’. In aggregate terms, Britain is almost empty. Only about one tenth of England is developed; nearly two thirds is farmland.
‘NIMBY vs YIMBY’ has become the most important ideological divide in Britain, arguably more so than ‘Left vs Right’, or even ‘large state vs small state’. The NIMBY side is able to cooperate across traditional political dividing lines. If the YIMBY side does not learn to do the same, the NIMBY side will keep winning, and Britain will not break out of its self-imposed economic stagnation.
While this is widely researched and published, the success of tech particularly fintech in Britain's case is despite the inability to build the buildings, but an ability to translate decades of financial expertise into products.