An anatomy of economic inequality

The report of the National Equality Panel received a lot of coverage over the last couple of days. Aside from the message on overall UK inequality (high and persistent; between group differences matter but within group differences are much larger) it also provides evidence on differences based on region and area deprivation.

On regions, I think the most striking finding concerns the reason why inequality in London is wider than in any other region and the implications of that: "London is by far the most unequal region [because] the highest incomes in London are much higher than in all the other regions apart from the South East, but the lowest incomes in London are little different from elsewhere. [T]his implies that allowing for cost of living differences [...] those with the lowest incomes in London would be shown as poorer than those with low incomes in other regions."

Interestingly, this means that regional policy based on average income will not target the poorest people in England - a nice example of the problem of focusing on places rather than people.

On area deprivation the report points to 'startling differences' between average outcomes. This isn't surprising because there are very strong forces that lead to sorting within regions so that the most deprived end up in certain areas (which then get classed as deprived). The crucial issue remains whether area based policies are a more or less effective way of dealing with these spatial concentrations of deprivation.

UK Cities: From recession to recovery

Centre for Cities has published its Cities Outlook 2010. As in previous years, the report provides plenty of interesting facts and figures and there is much to agree with:

• Recession has reinforced disparities between places
• Places with lots of skilled workers have been least hard hit and will bounce back quickest

More open to debate are the assertions that:

• Giving cities greater flexibility will allow them to respond to local conditions (probably true) and drive growth (highly debatable)
• The next government needs to fix the basics - like improving schools (probably true) and public transport (debatable) - so they can attract new business and jobs (highly debatable)

Sorry to be skeptical, but I remain unconvinced that devolution plus fixing the basics will be sufficient to reverse long term decline. We need to face that reality if we are to develop urban policy which stops failing people who happen to live in "failing places".

BTW - a minor niggle, but this picture does not show regional growth rate differences are widening:

Empty Homes

Someone pointed out to me that the Lib Dems have been talking about empty homes: "There are over 760,000 empty properties across England which are no longer used as homes but can be brought back into use with some investment."

According to CLG, only around a third of these homes (c300,000) are empty for more than six months. The government target is for 240,000 new homes to be built per year.

The detailed figures are available here. They show that only 28,000 of these long term empty homes are in London, with another 36,000 in the South East. That is, in high demand areas, very few houses are empty.

Using empty homes will (sometimes) make sense. But it will not do much to solve Britain's housing problem.

Frozen Britain

Given the recent cold weather, it's interesting to ask whether climate has a role to play in explaining the UK's spatial disparities.

Within countries, urban economists argue that bad weather tends to be offset by high real wages (so either high wages or low costs of living). In the US, where spatial differences in temperature and precipitation can be very large, this is potentially very bad news for cold places like Detroit. While they had auto manufacturers they could pay high real wages to compensate for bad weather. With that industry's decline it's hard to see what could replace it that could pay suitable compensation for the bad weather - and this is reflected in the large outflows of population.

In Britain, climatic disparities are far smaller and so weather should play less of a role. Still, my colleague Paul Cheshire has some evidence that even within European Union countries (including Britain) places with nicer weather (i.e. warm, but not hot) grow faster. These effects aren't necessarily that large but within Britain are another factor (mildly) favouring the Southern over the Northern regions.

More Affordable Housing?

According to reports "Property is now affordable for first time buyers in nearly four out of 10 areas of the UK".

Unfortunately, as the BBC notes, this isn't the case if
- you want to live in London ("unaffordable [...] in all local authority areas")
- you need to borrow money ("many first time borrowers have been unable take advantage [...] because of tighter lending criteria")

Further, first time buyers are usually young which means that they tend to have lower than average incomes (because incomes rise over time). They are also increasingly likely to be unemployed.

Finally, house prices are already picking up while income growth is likely to remain relatively flat.

In short, the temporary downward price adjustment as the result of recession is not going to solve Britain's long term housing problems.