Thursday, August 28, 2008

Recent work by Dimitri Ballas and Mark Tranmer on the geography of happiness in the UK has received a lot of attention in today's press.

Ballas and Tranmer are careful researchers. In common with other studies, they find that factors such as age, gender, health, employment status, and family composition have significant effects on happiness. They also obtain some new results - they find, for instance, that people who have been living in the same place for more than 5 years tend to be happier than others. (Presumably it's because they're happy that they haven't moved on.) They find that experience of unemployment causes individuals more misery in areas with low unemployment rates than in places where the unemployment is more common.

Since some places are, and others are not, populated by people with characteristics that tend to make them (relatively) happy, the media has suggested that a league table can be constructed that ranks places. Hence, it is suggested, people from (say) Wrexham might consider moving to (say) Wycombe to become happier. But Ballas and Tranmer clearly state that only 'a very small proportion of the variation of the wellbeing measure is attributable to the district level'. Differences between places can be identified, but, once the researchers control for individuals' characteristics, these are not (apart from a very few extreme cases) statistically significant. This is unsurprising - the British Household Panel Survey, on which the results are based, is a very small survey to use when employing a detailed level of geographical disaggregation.

It is the people who make the place. Perhaps, with the housing market being so sluggish, we should welcome the news that we don't, after all, need to move to be happy.
The Nationwide Building Society has announced that house prices have fallen by over 10% in the last year. This is a dramatic adjustment, but it is likely that the collapse in house prices will not end there.

How much further prices will fall is a matter of conjecture. It will depend in part on how vendors, who may be caught in a negative equity situation (where they owe more on their houses than their houses are worth), react. Many may choose to tough out the slump. In this case, houses will stay on the market for a long time, but prices will not fall much further. The recovery in house prices, when it comes, will be slowed down as a result of the stockpile of houses still for sale.

Other factors come into play too. At the moment, with inflation running at over 4% and rising, there is not much immediate scope for interest rate cuts. But the oil price has fallen quite sharply in recent weeks, and there are reasons to hope and believe that inflation will ease off by the end of the year. If interest rates fall, demand for housing could be stimulated, and that could buoy up the market somewhat.

My guess is that house prices will fall, on average, by about 15% in total before they start to recover. And the recovery will be a long drawn out affair. It may be several years before your house is again worth what it was worth a year ago.
A recent report by the World Health Organisation draws attention to the sharp international differences in life expectancy. Not surprisingly, people in rich countries tend to live longer, on average, than people in poor countries. More surprising, perhaps, are the differences within countries - and even within cities. The contrast between two areas of Glasgow has hit the headlines - in one, life expectancy at birth is 82 years for boys, while in the other it is just 54 years. People in both areas have access to the same national health service and face the same environmental conditions. These are shocking statistics.

The figures are explained in part by the tendency for people to self-select into certain residential areas. Calton, where a high proportion of housing is owned by housing associations, tends to attract people who are economically disadvantaged - those in receipt of housing benefit and likely to live in rented accommodation. Relatively poor people have less opportunity than richer people to be well nourished; so much is obvious. There are high levels of heroin abuse and prostitution - both of which are activities that attract people who are at high risk of experiencing health problems to live in the area. (You go where you can buy the drugs; you go where you can work.) Meanwhile, house prices in Lenzie ensure that only those who are economically advantaged can afford to live there.

For a given person, therefore, living in one area or the other may not make all that much difference. But the gaps between the rich and poor are huge. The right investment in our poorer areas could yield a massive social and economic return - through people living longer and working more.

Tuesday, August 12, 2008

It would be difficult to view the jump in inflation, now up to an annual rate of 4.4%, as anything but bad news. While some analysts are suggesting (or hoping?) that this is a blip and that the rate will start to fall again by the end of this year, the danger now is very real that a wage-price spiral could be set in motion.

A critical difference between now and the 1970s could be position of trade unions. Union membership has collapsed over the last couple of decades, following a raft of legislative measures brought in by the Thatcher government to reduce the impact of trade union power and influence. The levels of price inflation that we are now seeing provide a real test of the effectiveness of these measures. If wage pressure can be contained, then there is certainly the prospect that inflation could fall back quite quickly. But this will depend on the ability of employers to resist wage demands. This, in turn, depends on the strength in practice of the policies introduced a generation ago. While those policies give some grounds for optimism, they haven't been tested in a period of stagflation before now. So inflation may be blipping - but I'm cautious enough to keep an open mind about that. If it turns out to be a more chronic problem, a return to the 'cold turkey' policy prescription of the early 1980s - unpleasant though that would be - may have to be on the cards.