I was listening to a Freakonomics back-episode the other day, where they covered the story of a couple who won a diamond in a charity auction, but then when they came to sell, struggled to get what they were told to be market price. Stephen Dubner, Freakonomics author and broadcaster, goes on to reflect on the forces that have been exerted on the diamond market over the years, with Mr Edward Jay Epstein.
The story ends with the previously happily married couple having fought about whether to sell the diamond or make it into a ring for Mrs, but because they can't agree, they do neither, and the diamond stays hidden in their house! My take-away from all this, was that like the fine art world, something is only worth what somebody is willing to pay for it.
There was a time in history when diamond traders were doing well. They had coordinated an organised and efficient supply chain from the South African mines to the wealthy cities of Europe. However, so efficient was the system, that they began to oversupply and prices, along with demand, took a negative turn.
So all the diamond traders got together and they did some thinking. Where did most diamonds end up? Engagement rings. They figured out how many young couples got engaged every year, and that was how many diamond rings we need.
This was a cartel. No nicer way of putting it. Multiple market players consorted to raise the market value of their products. Even today, the diamond trade occupies a strange world of third floor offices with concrete safe rooms.
Artificial Limitation Of Supply Drove Up Demand
Much like the diamond traders, property developers are in a risky and exposed market. It is in their interest that supply remains under tight control, while they simultaneously continue to develop their own sites to make a living. In property, this is done by picking battles to overcome zoning and planning regulations and get the projects with potential for profit through the system. Better to pick battles with the current system than push complete reform, because this would cause the market to open out, and profit would spread more evenly across the market. Great for socialists, but not for capitalists.
This approach can be seen at all scales (and not just in property), from national housebuilders down to part-timers using property as an investment vehicle. My issue with this 'commodification' of property is that it changes the incentives and ultimately the decisions we make with regard to housing. The concept of shelter and sanctuary are considered basic human needs. But ever since money became involved, property has come to mean many more things to us.
Roger Zogolovitch sums this up brilliantly in his book, 'Shouldn't We All Be Developers?' with this observation:
"Property as an asset class is priced by reference to comparative values of other homes in its locality. Thus when global capitalism catapults itself into a street, purchasing a home at any price, that benchmark immediately becomes the new price contour for all it's neighbours." p84
The Role of the Cartel in Global Economics
Back at the end of 2015, commodities markets had a bit of a wobble. This was believed to be due to a glut in supply rather than a fall in demand. The US had opened up their restrictions on export of crude oil, with the broader effect being a fall in the global price of oil.
The US and Saudi Arabia had done the same earlier that year when they refused to limit their supply levels, again pushing the global price down. The OPEC nations were held to ransom by the Saudis, whose insatiable supply rates forced them to keep pace. It was widely believed that this was done to squeeze the margins of producers from other nations where oil extraction is more laborious and therefore more expensive. Pushing the market price down meant that the margins of the smaller operators were compromised and their market share reduced.
Similarly, recent talks relating to government intervention for Tata Steel's South Wales plants demonstrate the pressure being exerted on the UK Government to support manufacturing as part of the UK economy. Paul Mason wrote a great piece about how the collapse of these manufacturing markets in the UK has deeper cultural implications than governments realise. The cultural implications of removing an entire community due to a steel plant closing down, is a similar scenario to when communities are uprooted by 'redevelopment' projects. Mason writes passionately about how the failure of markets to adapt to change, results in those who rely on it being exposed to serious hardship.
Possible Solution: Access To Planning Revenue
In more commercial circles, the architect’s role is secure, but as I've already said, the profession has lost its ability to leverage a fee that represents the significance of its contribution. Planning Gain is an area of the construction industry that I discussed in my earlier post, 'Don't Hate The Player, Hate The Game,' and I’ll probably write more on this in future. This is the space where the money has been made for decades. Speculative acquisitions of green or brown field sites are made, then a large planning application to the underfunded local authority offering a joint venture development. The developer lobbies hard to get the land reclassified for the benefit of the area, more homes and a contribution to local infrastructure.
The problem I have with this is that the contributions to infrastructure, while discussed and negotiated with local authorities, are instigated and delivered by the private sector. Shouldn't the local authorities have more power to plan and deliver the services that they will own/manage in the future?
What Can Architects Do To Contribute To A More Accountable Housing Market?
This system, like the political system above it, is not perfect. And as mentioned in previous posts, don't hate the player, hate the game.' Therefore a soft approach is required when attempting to disrupt a well-established market. But a piece by Roger Zogolovitch printed in the Architects Journal (13.08.14). sums up my difficulty with the profession that I am training to enter, and the challenges faced when marketing myself to the wider industry I will serve.
"Lets be clear - architects add value through their imagination and clarity of thought. A client's brief is often vague and superficial; the architect interprets it to make their building. If the client went to any of the management consultants to solve the same 'problem' inherent in the brief, that first step alone would capture a big fee."
The difficulties of demonstrating added value cannot be blamed solely on architects themselves. The laws of the market create a tense interplay between short and long-term profit. The long-term government schemes run in-house by publicly appointed architects and town planners of the mid-20th Century displayed a genuine interest and passion for the future of places. These often turned out to be erroneous, but wrong as some may have turned out to be, see Concretopia by John Grindrod, the closing of these departments has lead to urban planning in Britain entering the land policy doldrums.
Now that responsibility has been deferred to the private sector, we in the UK rely on large incumbent firms underwritten by foreign equity to support our urban growth. This is so far removed from the people who live in these communities, that the schemes please no-one except the buy-to-let landlords and the developers who have no doubt shipped the profits abroad. Which leads me to my conclude that housing is the new diamond trade.