London: Gentrification Capital of the World

London is undergoing rapid transformation. It has been the case since the mid-1990s and it shows no signs of slowing down. With this upsurge of development are qualities lost in the areas that are developed? Are the newer traits and trends in developed areas better than what was there before? 


London Mayor Boris Johnson has been a stark proponent of inviting wealthy foreign investors to London. In October he suggested that VAT and import tax should be relaxed for our foreign neighbours in order to encourage Foreign Direct Investment (FDI).

“VAT and import duty – those it seems to me are classically things that can be resolved by growing trade and co-operation between London and China, London and Beijing. We need a proper, thoroughgoing free-trade agreement. If the EU won’t do it we can do it on our own”

If this were to occur, many non-domiciles would be spending even more of their wealth in London. The idea of facilitating foreign wealth on new enterprise opportunities in London is one fully supported by the Mayor and several other politicians, including Chancellor George Osborne. The video below outlines some of Johnson’s plans for London. When you combine the Right To Buy scheme proposed by the Government it could be suggested that both the London and National government are looking to create another property boom.

The idea of new business, new stylish housing developments, newer communities and a new beginning for those who concur with the Mayor strike a positive cord. The fact that a prosperity bomb if you like, can explode and a plethora of new businesses can suddenly replaces older ones surely translate to a better, more profitable society. The fact that bigger businesses seek to expand to areas that are ripe for development ensures that plenty of jobs will be created, more of us will work and in a macro sense the economy will grow. Surely this is what we desire….

Or is it the case that newer developments and everything associated with it impose a revised culture that virtually replaces the existing one. Ensuring that this newer culture, this different way of life that imposes itself on existing residents is cohesive with the established culture is not usually a priority for developers or investors. In fact you could suggest that their priorities take precedent because their interests are deemed more important and their main priority is profit maximization. Much of the rhetoric is aimed at what is coming, what the future holds; new developments rarely acknowledge the qualities that the area had or look to uphold or maintain some of the non-monetary merits a community had. So residents that reside in areas that are listed for development are often left marginalised because the rate at which they usually have to adapt is relatively quick and it could be suggested that they no longer feel they are part of their community.

London is undergoing rapid transformation, many people welcome the new age of “prosperity” and many view it as an inevitable outcome of what our society eventually leads to. Nevertheless, there is a growing concern that the rate of change tends to strip away some of the qualities some communities once had, qualities that cannot be monetized, nor measured, nor necessarily tangible, but certainly potent and very much real.

This movement of people towards inner city London is peculiar because it tends to be to areas that were written off by several, deemed not fit for purpose by some, but home to so many who are now marginalised. What is even more striking is the fact that property prices, both rents and house prices are increasing. So demand is inelastic, in the sense that it is relatively unresponsive to a change in price. Therefore if you are a landlord or a developer the profits are virtually guaranteed due to this wave of perpetual inner city London demand.

New Dwelling house prices
New Dwelling house prices
New Dwelling house prices
New Dwelling house prices

Both graphs illustrate the rise and rise of property prices and the second graph clearly highlight the disparity between London and another large economic area: the North West.

According to the latest Census, Newham (East London) lost 38% of its white British population. This does suggest that many of its residents are opting for areas such as Essex to reside. On the contrary, between 2001 and 2011 Brixton, an area that used to be associated with a predominately Caribbean demographic has seen ten continuous years of increases. The same is noted in areas such as Hackney, Wandsworth, Camden and Islington. Moreover, Stoke Newington and Dalston have had increases from 15% in 2001 to 26% in 2011. What this highlights is that inner city areas ( mainly Zones 1 & 2 on the Tube map) have gradually become more accessible and more appealing to many.

My qualm lies with the fact that this movement of people inflates prices of rents, property, goods and services and it leaves existing people, many of whom have lived in that area for a long time financially constrained. Should more be done in order to reduce the negativity associated with prices you can no longer afford? Or does the onus lie with the individual? Clearly, this conundrum is not a priority for a government, especially this Tory led coalition that favours individualism and self-sufficiency. They have not hid the fact that they are looking more people to buy their homes. Perhaps they are merely continuing a legacy they prospered from so it is a continuation of what they believe in. It should be noted that I personally believe in helping yourself and becoming self-reliant, but helping each other is critical to upholding what is left of any community. This does seem to be eroding rapidly however. If you can unite and help one another, you are helping yourself whilst helping others and that is the current that binds a community. But this new wave of social cleansing and this message sent out by property developers and the government of profit over people gears our society for something that we are just at the beginning of. The future of London seems to be gearing towards only those that can afford it and prices do not seem to be going down. It will be a shame if the vast majority of London transforms into a city where only those with enough money can afford it. The way government policies are aimed, market power is structured and consumption trends are there only seems to be one outcome. The next twenty years will see the London demographic rapidly transform.

Privatisation is Justified… Only if it results in competition.

There is very limited choice in many of the privatised industries including rail.

Privatisation in the UK during Margret Thatcher’s premiership was intended to shift the economic burden away from taxpayers into private hands. It was intended to erode the natural state monopoly and establish market-based competition. Economic theory suggests that privatisation eradicates the state owned monopoly and creates competition in the market, which should lead to better services and a lower cost. Government led businesses are said to be inefficient at providing services that a private led firm can do, so the appeal is certainly there.

Nationalised industries tend to provide goods and services with high social value, goods such utilities, agriculture and transport tend to be provided by the state because these derived demanded goods are viewed as essential. Unlike firms, the state’s intention is not to maximise profits, so there are no shareholders to appease, nor answer to. This has its advantages and disadvantages because constantly operating at a loss will impose a burden on the taxpayer, who may feel their taxes would be best utilised elsewhere, where there taxes are not being wasted.

This was central when Thatcher and her government suggested that a wave of privatisations across various sectors such as transport, telecommunications and utilities were the best way to reduce the burden on taxation and the optimal way for consumers to be provided with essential goods and services. The state was viewed as a natural monopoly and the highest consumer satisfaction and utility is gained through competition, it is competition that yields the greatest efficiency and the lowest possible prices. Therefore, establishing competition through several competing firms was central to this proposal. Economists Todaro and Smith suggest,

“Proponents [of privatisation] suggest that it curbs government expenditure, raises cash to reduce internal and external debt and promotes individual initiative while rewarding entrepreneurship”  

Clearly the benefits of privatisation are clear, the eradication of the natural monopoly is perhaps the strongest because it opens the market and allow more firms to compete. However, in the UK this unfortunately has not been the case. The wave of sell offs during the 1980s continues to have a significant effect on life in the UK today. Services such as gas were privatised, so was telecommunications and parts of the rail industry. Some twenty years later after firms such as British Telecom (BT), British Gas and regulatory bodies such as Network Rail not only stifle competition, but they appear to have replaced the very monopoly it was created to replace.

John Moore was the Minister in charge of initiating the wave of privatisations. He said in 1983

“The long term success of the privatisation programme will stand or fall by the extent to which it maximises competition. If competition cannot be achieved, an historic opportunity will have been lost.”

He said at the 1983 Conservative Party conference:

“Our aim is that BT should become a private sector company…[but] merely to replace state monopolies by private ones would be to waste a historic opportunity. We shall continue our programme to expose state owned industries to competition.”

Moore explicitly states if privatisation cannot lead to a competitive market “an historic opportunity will be lost.” I could not agree more because had the privatisation initiatives been applied appropriately, with legislation implemented to prohibit cartels forming in the case of the rail industry or outright monopoly, like BT in the telecommunications market then these formerly stated owned industries would have created far more jobs on the sheer fact that the market would be significantly larger, they also would have lower prices. And they would have lower prices because there would be ten or more firms each competing to try and get customers, so lowering prices in order to attract custom. If however there are two or three firms, then they are more likely to collude, whether it is explicit or tacit, the outcome is the same and it is near impossible to detect.

Commentator John Gamble stating in 1994

“When BT, BG and the water industry were divested, the Conservatives failed to liberlise their markets meaningfully and as a result, were forced to create regulatory mechanisms and institutions to prevent the utilities from abusing their positions.” 

I mentioned in my piece about regulation and the above inflation gas price increases and how regulators in many instances interfere with business activity and can actually do little to prevent firms from these price changes. It should be noted that the way a customer will have low prices is through competition. That was the reason why Mrs. Thatcher sold off many state controlled firms, but we are seeing today that the state monopolies have been replaced by cartels and monopolies in some cases. Moreover, this is conflicting to what was proposed. One could even suggest that a return to state operated firms were better, because at least they are accountable to the public. Private cooperations are accountable to shareholders are not obliged to disclose information to stakeholders.

Privatisation in the UK does appear to have shifted from natural monopolies to private monopolies in the case of BT and oligopolies in the case of Network Rail, British Gas and so on. Clearly, this is the oligopolistic market structure is not competitive and fails to provide sufficient customer choice. Customers are therefore left to demand essential goods from limited suppliers, resulting in high prices. Unless privatisation leads to a highly competitive market, with several competing firms, it is merely replacing the very entity is supposed to be replacing.

Sing When You’re Winning. Two Financial Institutions. Foreign Ownership vs Fan Ownership.

The elite tier of professional football in England prior to the formation of the English Premier League was in a state of serious decline. Stagnant revenues, diminishing attendances combined with the egregious image of hooliganism made the highest echelon of English football unappetising for spectators and potential investors. English Football was not highly regarded by global football purists and was not seen as an avenue for investment from potential foreign investors. I am hoping to establish the fundamental differences between parliament style elections and fan ownership, which is more common in Germany and Spain and the ‘laissez-faire’ or “highest bidder wins” market system of private ownership in England. The essence of the argument shall compare FC-Barçelona and Liverpool-FC respectively.

Since the inception of the Premier division the English Premier League has become one of Europe’s most popular divisions. One of the main reasons why some English teams have become financially and commercially more successful is partly due to the ample transformation of the league itself, but also due to the fact that English teams are open and susceptible to foreign investment and ownership. In opposition to that notion are football teams in Spain, with the exception of clubs like Malaga, who have foreign owners; they remain in the minority. A financial institution like FC-Barçelona has a regime in place where members or socis’ buy shares in the club, and elect a President to run and organise the club on their behalf. So the running and handling of the club is at the hands of the shareholders, who are effectively the fans. This is in stark contrast to a club such as Liverpool-FC, whose principal owner John W. Henry and club Chairman Tom Werner run the club on behalf of a firm named Fenway Sports Group. They operate the club without any fan-shareholder scheme. FSG own an array of sports teams, including Major League Baseball team the Boston Red Sox.

Foreign investors have witnessed the growth and expansion of the English Premier League since its formation in 1992. The English Premier League has become the most popular division in world, with broadcasting rights in over two hundred nations. Foreign ownership is the basis of the current argument; foreign investors usually bring vast amounts of financial capital, which is used to aid its competitiveness within the division. The current Premier League champions Manchester United have benefited from substantial foreign investment.

On the 6th February 2007 ownership of Liverpool-FC changed from the Moore’s family into the hands of American businessmen Tom Hicks and George Gillett. The American duo made promises of lavish spending, a new stadium and promises of Liverpool’s ascension back to the elite of English football once again. In 2010 those words could be seen as chimerical at best. The club was purchased with debt and when HBOS could see that there was a good chance they could lose out financially, Martin Broughton was brought in to sell the club. What this episode has done is highlight the potential vulnerability that English football clubs can find themselves in because they are potentially open to ownership from any consortium. This would be impossible at FC-Barçelona due to the system in place.

This remained a virtually reality for Liverpool fans.

An institution like FC-Barçelona is not exempt from financial debt, far from it, but the idea of two non-Catalan businessmen buying the club, and adding severe debt to it is unimaginable. This is because there are unwritten barriers in place to prevent such an event from ever occurring. FC-Barçelona pride themselves on certain values, the togetherness with the fans is perhaps the most pivotal. One does not suggest that clubs in England do not share the same unity, quite the contrary, but the actual running of the club is by the fans. Foreigners that are employed can hold influential positions, such as Johannes Cruijff (who was a senior advisor for the club) but never the president. FC-Barcelona would be violating EU law if they abstained from hiring non-Catalans, but elected officials must be from Catalonia if they are to hold the influential positions. This certainly helps matters with the club because football is perhaps the most unique business, in the sense that it requires an almost religious faith an understanding that typical businessmen may not comprehend. No matter how much studying is done prior, people in the city, those around the club are always going to have a far greater passion for the club and this is a problem with foreign ownership because whilst there have been substantial benefits, foreign owners can suffer from imperfect information, which is detrimental to the club.

There are many advantages to foreign ownership within the Premier League however. The increase in popularity because of the increase in foreign investment due to rise in foreign ownership, has propelled it to becoming the highest revenue-generating league in world football. Figures from the 2008/2009 season show that revenue in the elite division of English football was the highest in the world. English football clubs generated some €2.3billion in revenue, this figure was more than double the French Ligue 1 figure of €1.5 billion. This gives us an indication of the revenue generating ability of top-flight football in England. As an entity generating over two billion in revenue it is not surprising that according to Deloitte football accountants, of the top twenty highest revenue raising clubs, seven of them are Premier League teams, including Liverpool-FC. Liverpool were ranked seventh in the 2008/2009 figures, generating some €217.0million in revenue. This figure does show that Liverpool, contrary to popular thought of gross mishandling of financial matters, were still in fact performing to an excellent standard. There was enormous debt, but the figure at hand does at least illustrate an excellent financial performance. Figures prior to 2007, when foreign owners did not own Liverpool were not as high as the current figures. According to Deloitte sport, in 2004/2005, revenue was €181.2million, in 2005/2006, revenue actually fell by €5.2million to €176million, in 2006/2007, revenue rose to €202.1million. This does highlight the sudden importance of new investment, particularly due to the relative financial instability prior to Hicks and Gillett’s tenure.

With the Premier League generating so much in revenue there are many relationships to depict from the increase in foreign ownership and increase in revenues. Arsenal Football Club is a public limited company and their leading shareholder, Stan Kroenke, is an American investor. The recent AGM meeting was viewed as platform for fans to voice their discontent with the running of the club. Further evidence suggesting that a football club requires a strong understanding between fans and board and unfortunately this may be lost with foreign ownership. There is clearly a reliance on foreign ownership in the Premier Division; in addition, the acquisition of Blackburn FC by the Venky family is another example of the clear appeal for foreign investors to buy Premier League clubs. Whilst it would be incorrect to group all foreign owners in the same category, the Venky family’s ownership highlights the lack of cohesion between fans and oweners. This bond is critical for a smooth running of any football club. Moreover, Blackburn’s relegation and farcial managerial “merry-go-round” speaks volumes of a clear lack of understanding from foreign owners. 

Més que un club translates to: More than a club. This statement is a reminder of the tradition of FC Barcelona. Due to the harmonisation with board members, players, coaches and fans, FC-Barçelona is operated with coherence, because of the greater understanding, the fans having a much greater input with regards to club matters. The same could be said about clubs such as Bayern Munchen and Ajax. Although they are not of the same ownership model, their respective boards consist of former players. Therefore they function from the bottom up, rather than top down as many English clubs do, Andy Mitten a writer from the UK’s football magazine Four-Four Two suggests that 

“Barça is owned by its members and the fans demand daily communication with players and coach.” 

The coherence between the fans and the board is one of the main advantages of having fan ownership or heavy involvment of past players. Firstly the bureaucratic responsibilities are spread, not evenly, but spread nonetheless. This means that everybody has got a degree of responsibility and this gives the members a greater voice, so if things are not running smoothly, they can opine some of their immediate concerns and actions will be taken. This kind of power is what majority of Liverpool fans wished they had when the threat of administration was lingering over the club. Because Hicks and Gillett had complete control of Liverpool, the fans discontent went unheard, with their protests and anger failing to produce results they wanted, at the pace they desired. This is an illustration of how fan ownership is superior to a privately owned club that is susceptible to foreign ownership. Liverpool-FC, like every other football club, rely on the bond between club and fans, and that was in jeopardy due to board room events, what made the problem even worse was the fact that many fans felt as if their opinions went unheard, something that could not have materialised at Barcelona, a clear benefit of fan ownership.

More than a club.

The cadre of fans, players, coaches and board members is clearly an advantage in comparison to Liverpool. However, there are some noticeable hindrances to fan ownership nevertheless. FC Barçelona is in debt, despite revenues of €405million. They have outstanding loan repayments of €155million. Debt in business is inevitable, but an option for an English club in this situation would be to try and find a new buyer in order to ease the financial burden, something that drove Liverpool-FC to finding new foreign owners. Not every club that is in debt in England tries to find a new buyer, that is simply not sustainable, however, there is always that option. One of the main reasons why Liverpool had to find new owners was due to the mismanagement of the club’s debt. If Barçelona were open to foreign ownership there would be potential foreign owners waiting to make an approach. Nonetheless, because of the traditions, it is not a possibility. This ‘financial stubbornness’ if you like, thus prohibits all potential avenues of better financial management that would be helped due to foreign investment. Barçelona are a profitable organisation, but debt mismanagement can cripple any organisation, regardless of stature, history or tradition. Even with the possibility of foreign ownership, Premier League clubs are always susceptible to debt; hence the importance to run an efficient model, despite the threat of debt however, there is always that possibility to find a foreign buyer, something that clubs like FC-Barçelona cannot do, or Bayern Munchen would not do..

Barçelona retain all the broadcasting rights, which benefits Barçelona due to the high demand for their services. However, the oligopoly created along with Real-Madrid, has created an imbalanced situation for the rest of Spanish football. English teams receive an equal share of broadcasting revenue, thus increasing competition amongst teams. The oligopoly with Real Madrid has penalised Spanish football as a whole, one of the main reasons why the Premier League is so popular is because of its competitiveness. Moreover, a combination of equal broadcasting rights along with openness to foreign ownership gives the Premier League a competitive advantage.

Fans in England may require a greater voice with non-board room matters, but the fact that clubs are open to foreign ownership is a good attribute, but good owners who understand the needs of the club and the fans are vital to the success of the club, regardless of nationality. Liverpool-FC’s new owners have brought some stability and a clear focus to the club, despite the sacking of previous manager Kenny Dalglish. The renewed stability is welcome, but fans and board alike must realise that a close relationship is vital. Football clubs with heavy fan involvment at fan and professional level function a lot more harmnony and it holds board members accountable to their actions. Certain episodes have blemished English football, the current state of Blackburn Rovers, Portmouth and Liverpool’s financial shape prior to new owners highlight what can happen when owners  do not have a clear understanding of the football club they own. Of course other factors must come into consideration, but owners must bear most of the responsiblity, if the owners have a greater input, they have more control, thus the they are more accountable.