Is London really too dominant a capital city?

Various reports have bemoaned London’s dominance within the UK. Helen Lewis of the Guardian recently stated “the capital’s uncontrolled growth has given it a dominance that damages the rest of the country” (http://gu.com/p/4g7f5/stw). This bloating of London has been most publicised in terms of house prices, with students topically claiming to have been “priced out” of our capital, and others too. All this made me wonder if this phenomenon is true elsewhere, or are we being UK-centric in thinking this challenge is unique to our country?

With the charting help of Tableau (trial available at http://www.tableau.com) and as much data as I could access online, I decided to investigate. I selected countries with a relative abundance of data, however the data collection still proved a challenge; as mentioned in previous blogs, finding robust relevant data across the world was once again problematic in the data age!

I started with Australia since, like the UK, it has just the one dominant city in Sydney (although some would argue that the second-largest city Melbourne has claim to being a superior cultural hotspot). The below charts show two snapshots of the country, in Q3 2011 then Q3 2015 (the latest available at the time of writing). Crucially they both have the same scale, where each state’s average house price is indexed against the national average house price at that point in time.

The aim behind this comparison is to effectively “tune out” seasonal influences associated with the economic cycle of the country as a whole, and so isolate changes in the spread of real estate values within the country.

  • Grey states like Victoria (which notably contains Melbourne) have a score around the 100 mark i.e. the state’s average house price is broadly in line with the country’s average house price.
  • The most negative (red) state on the 2011 chart is Tasmania with a score of 62 (i.e. the state has an average house price equivalent to 62% of the national average at that time), we might expect this for the most geographically remote state.
  • The positive (green) states represent those with higher than average house price at that time, e.g. New South Wales in 2011 had a score of 110, i.e. 10% higher house prices vs the national average.

 

Aus

Data source: http://www.abs.gov.au Mean Price of Residential Dwellings, per territory

You can see that in 2011, New South Wales (home to Sydney) was not markedly higher-valued than Western Australia or Northern Territory, however it became so as the years progressed. Note also that Northern Territory’s change from green to red doesn’t necessarily involve an actual drop in prices there, only that its average has gone down relative to all other states. This is the beauty of this comparison, we have factored out the country’s overall economic fluctuations, to analyse just the relative spread of regional values within a country over time.

Now since the same indexed scale has been used throughout, we can compare this regional spread between countries too – are other countries more over-valued in their capital regions? Not in the case of Norway or Holland, the distribution is almost boringly even across their countries, with only a very slight value-boost for the capital’s region of Akershus / Oslo in Norway and Noord-Holland (containing Amsterdam) in the Netherlands. I don’t include historical versions of these maps because they’ve barely changed!

Norway and Holland

Data source: http://www.ssb.no Statistikkbanken’s House Price Index and http://www.statline.cbs.nl Statweb’s House Price Index by Region (existing own homes)

To emphasise the point about scale, it’s not that there is very little variation within the country of Holland (for example), but on the common scale that’s been chosen to compare all the countries analysed here, the variation is slight. Indeed if the scale were to be changed for Norway to be based on its own minimum & maximum variation, their chart as you might expect would look much more colourful:

Norway rescaled

Next we turn to Germany and the common 0-200 scale, and now we start to make full use of the colour spectrum. An obvious result is the North-East to South-West divide, not much improved by 2014. Dominance is shown by Berlin and Hamburg (which have their own regions) in 2014, compared to 10 years prior when Bayern (Munich) dominated. Frankfurt in Hessen has a much more muted value.

Germany

Data source: http://www.regionalstatistik.de Genesis’  average land values per sq ft, unfortunately the only data available on a regional basis in Germany for free!

It is here that an acknowledged flaw in the comparison become apparent, stemming from inconsistencies in the way data is reported in different regions and countries. Berlin has a rather small area of land that it needs to impact upon in order to have a higher property value for its region; in contrast, Frankfurt has to influence quite a large surrounding area of countryside around its city as well, in order do so. Arguably however, a sufficiently dominant city would usually boost all its surrounding commuter towns anyway. There is a similar problem on a country scale too – the regional level at which house prices are quoted differs across countries, with Australia being divided into just 8 territories states, whereas the US is quoted in terms of 50 states.

Similar to Germany, in the US we’d expect a multi-capital wealth dispersion, with New York the financial hub, Washington the political one, and Los Angeles arguably the cultural one. However their dominance is not obviously borne out by the data, the only clear trend is the low pricing of the sparsely populated mid-American states:

USA

Data source: http://www.fhfa.gov Data Tools, House Price Index Datasets

And last but not least, let’s take a look at the UK! Or rather, England and Wales, since Scotland and Northern Ireland sadly don’t report on the same system:

UK

Data source: http://www.gov.uk Statistical Datasets, House Price Index 

The “North-South divide” has become more apparent over the past 10 years, and London has indeed visibly become more dominant. However, it dominates only with a score of 182, compared to Germany’s maximum of 200. This is despite London having more of a reason to become concentrated – we have designated the same city as our political, financial and cultural capital; it is Munich, Berlin and Frankfurt all rolled into one. So whilst London is a very dominant capital, this phenomenon is by no means unique to the UK so it’s hard to argue that London is “too” wealthy a capital yet.

Of course an analysis such as this can only go so far in determining whether an even or uneven distribution of real estate wealth is for the best. If even, how do countries such as Norway and Holland manage it? Or instead does the very nature of being regionally diverse actually help countries such as the US, Germany and the UK become great nations? Food for thought 🙂

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