Economic Theory

Britain’s housing crisis blocks geographic mobility and social mobility


There has been a long-running decline in social mobility in the UK, dating back to the 1970s. This has combined with stagnating living standards in recent years to reignite concerns about inequality and fairness. How can society justify extreme wealth while those from less well-off backgrounds are denied economic opportunities?

An unequal society risks the development of sustained differences in outcomes across generations. This is because, it is argued, of disparities in access to opportunity. Richer families can afford better schooling for their children than poorer ones. These children also have greater and more influential social connections, leading to persistent inequality in socio-economic status. Consequently, even as society has grown wealthier, everyone’s relative position can remain the same. Those born at the top stay there. Those born at the bottom are, tragically, often locked in.

The most commonly cited remedy to inequality is higher taxes and greater redistribution through welfare and public services. These well-intentioned policies are meant to create more opportunities for upwards socio-economic mobility. 

But if we want to effectively boost mobility, as I explored in a recent paper, then we need to reconsider this strategy. While high taxes may fund programmes that can help people from lower income backgrounds access new opportunities, they create weak incentives for wealth creation and lower economic growth – both of which actively repel mobility.

Calls for more state intervention also fail to consider how existing regulations worsen social mobility. Take the example of our planning system, which inhibits the supply of housing and in turn, increases house prices. These have been the leading cause of Britain’s housing crisis, which has made cities inaccessible to those on low incomes.

This is obviously problematic for many reasons, but it is particularly so because cities have long been great hubs of opportunity. Their density, dynamism and diversity make them highly productive, which means higher wages and incomes for workers. High housing prices make city-based jobs harder to reach. Geographically locked out of these opportunities, lower income families are also locked into their income classes.

Take occupational licensing as another example. We often think that high-skilled jobs like doctors and lawyers bear the brunt of these regulations. This is incorrect. Across Western countries – notably Britain and the United States – occupational licensing has grown in scope and scale to affect numerous low- to middle-income occupations. 

These include working in construction or security and, in some places, even being a dog walker. In some sectors where licensing makes more sense, such as law and medicine, the regulatory regimes are extremely strict, and the number of people who can obtain the necessary qualifications is often capped. The result is that a number of occupations that could allow people to climb the social ladder are inaccessible to all but a small few.

These are but two examples – albeit large ones. Both are instances where a ‘first, do no harm’ approach would improve things. Liberalising the planning system and occupational licensing would promote social mobility by expanding the range of economic opportunities that people can pursue.

We can expand on these examples by looking at international evidence on intergenerational income mobility for people born in the 1970s and 1980s across more than 100 countries. When combined with data regarding levels of economic freedoms (freedom to trade, limited regulation, secure property rights, etc.), we can see that the latter is strongly associated with the former. Even within the group of liberal democracies, those with the highest levels of economic freedom enjoy more social mobility.

Similar types of data show the same thing at the local level. For example, in the United States, someone born in the economically freest quartile of all metropolitan areas will experience 5 to 12% more income mobility (relative to their parents) than someone born in the least economically free quartile.

Crucially, across all the literature on economic freedom and social mobility, we find that economic freedom mitigates the effects of inequality. Indeed, in the economically freest places, income inequality’s adverse effects on social mobility are cancelled.

These results are crucial in informing us about the most effective ways to boost social mobility. Sometimes, less is more. In this case, more economic freedom is better than less. Before considering new grafts to Britain’s dysfunctional welfare state, maybe it is time to consider the ‘first, do no harm’ approach. 

 

This article was first published on CapX.

 

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