What’s Killing Productivity? Some Think It’s the Banks
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    HOUSE MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $1,623,020 (+0.08%)       Melbourne $974,710 (-0.81%)       Brisbane $992,583 (-1.37%)       Adelaide $896,270 (+0.26%)       Perth $892,481 (+0.31%)       Hobart $726,595 (-0.35%)       Darwin $664,958 (+1.76%)       Canberra $1,012,150 (+0.04%)       National $1,048,965 (-0.14%)                UNIT MEDIAN ASKING PRICES AND WEEKLY CHANGE     Sydney $751,258 (-0.23%)       Melbourne $495,378 (+0.24%)       Brisbane $583,696 (-1.32%)       Adelaide $453,443 (-0.76%)       Perth $458,999 (+2.21%)       Hobart $509,191 (+0.99%)       Darwin $362,436 (+1.68%)       Canberra $497,643 (+0.69%)       National $536,245 (+0.06%)                HOUSES FOR SALE AND WEEKLY CHANGE     Sydney 9,903 (-109)       Melbourne 14,181 (+71)       Brisbane 8,075 (-54)       Adelaide 2,184 (+36)       Perth 5,723 (+16)       Hobart 1,216 (+3)       Darwin 275 (+14)       Canberra 888 (+5)       National 42,445 (-18)                UNITS FOR SALE AND WEEKLY CHANGE     Sydney 8,719 (+28)       Melbourne 8,357 (+7)       Brisbane 1,747 (+49)       Adelaide 405 (+23)       Perth 1,442 (+5)       Hobart 211 (-1)       Darwin 399 (-7)       Canberra 1,018 (+16)       National 22,298 (+120)                HOUSE MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $800 (-$20)       Melbourne $620 ($0)       Brisbane $635 (-$5)       Adelaide $610 (-$10)       Perth $675 (-$20)       Hobart $550 ($0)       Darwin $700 (-$30)       Canberra $680 ($0)       National $666 (-$12)                UNIT MEDIAN ASKING RENTS AND WEEKLY CHANGE     Sydney $750 ($0)       Melbourne $595 ($0)       Brisbane $625 (-$5)       Adelaide $510 (+$10)       Perth $630 (+$5)       Hobart $470 (+$5)       Darwin $560 (+$30)       Canberra $550 ($0)       National $597 (+$4)                HOUSES FOR RENT AND WEEKLY CHANGE     Sydney 5,884 (-132)       Melbourne 6,585 (+256)       Brisbane 4,488 (+137)       Adelaide 1,589 (+2)       Perth 2,880 (+283)       Hobart 411 (+13)       Darwin 93 (-4)       Canberra 632 (+17)       National 22,562 (+572)                UNITS FOR RENT AND WEEKLY CHANGE     Sydney 10,906 (+381)       Melbourne 6,312 (+294)       Brisbane 2,339 (+54)       Adelaide 371 (+21)       Perth 797 (+18)       Hobart 143 (+3)       Darwin 126 (+3)       Canberra 816 (+23)       National 21,810 (+797)                HOUSE ANNUAL GROSS YIELDS AND TREND         Sydney 2.56% (↓)     Melbourne 3.31% (↑)      Brisbane 3.33% (↑)        Adelaide 3.54% (↓)       Perth 3.93% (↓)     Hobart 3.94% (↑)        Darwin 5.47% (↓)       Canberra 3.49% (↓)       National 3.30% (↓)            UNIT ANNUAL GROSS YIELDS AND TREND       Sydney 5.19% (↑)        Melbourne 6.25% (↓)     Brisbane 5.57% (↑)      Adelaide 5.85% (↑)        Perth 7.14% (↓)     Hobart 4.80% (↑)      Darwin 8.03% (↑)        Canberra 5.75% (↓)     National 5.79% (↑)             HOUSE RENTAL VACANCY RATES AND TREND       Sydney 0.8% (↑)      Melbourne 0.7% (↑)      Brisbane 0.7% (↑)      Adelaide 0.4% (↑)      Perth 0.4% (↑)      Hobart 0.9% (↑)      Darwin 0.8% (↑)      Canberra 1.0% (↑)      National 0.7% (↑)             UNIT RENTAL VACANCY RATES AND TREND       Sydney 0.9% (↑)      Melbourne 1.1% (↑)      Brisbane 1.0% (↑)      Adelaide 0.5% (↑)      Perth 0.5% (↑)      Hobart 1.4% (↑)      Darwin 1.7% (↑)      Canberra 1.4% (↑)      National 1.1% (↑)             AVERAGE DAYS TO SELL HOUSES AND TREND       Sydney 29.8 (↑)        Melbourne 31.6 (↓)     Brisbane 30.4 (↑)        Adelaide 25.3 (↓)       Perth 35.7 (↓)     Hobart 33.0 (↑)      Darwin 43.9 (↑)      Canberra 31.9 (↑)      National 32.7 (↑)             AVERAGE DAYS TO SELL UNITS AND TREND       Sydney 30.2 (↑)      Melbourne 31.7 (↑)        Brisbane 27.1 (↓)       Adelaide 25.5 (↓)     Perth 37.5 (↑)        Hobart 38.0 (↓)       Darwin 37.9 (↓)     Canberra 41.2 (↑)        National 33.6 (↓)           
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What’s Killing Productivity? Some Think It’s the Banks

Bank lending in the U.K. is going to property rather than innovative businesses

By JOSH MITCHELL
Wed, Jun 14, 2023 7:45amGrey Clock 4 min

LONDON—The birthplace of the industrial revolution is in dire need of innovation. Standing in the way: Britain’s mortgage-laden banks.

The U.K.—inventor of the factory system, steam engine and passenger rail—is at the forefront of a 21st-century global productivity slowdown. Growth in U.K. productivity, or output per hour worked, has halved since the financial crisis, leading some policy makers to call this era Britain’s lost decade. Among the world’s seven largest developed economies, only Italy has fared worse.

The causes are hotly debated, and include an ageing population, tighter regulation and the U.K.’s departure from the European Union. But a factor that has gained special attention: the way U.K. banks have tilted lending to the booming housing market.

Bank lending for projects that boost economic output, such as machinery and software, has stagnated. Research and regulators say the two trends are linked: As real-estate prices soared, banks shifted more capital toward housing, viewed as less risky because the loans were backed by tangible assets with rising values.

“The banking system is increasingly becoming a brake on the economy,” said Jonathan Haskel, a member of the Bank of England’s Monetary Policy Committee.

The U.K. is an extreme example of what’s happened in big economies around the world for the better part of this century. Central banks cut interest rates in the 2010s through early 2022 to make it cheaper for businesses to borrow and invest. But while debt rose sharply, most of it went toward real estate.

The world’s total assets—including those held by households, businesses and banks—more than tripled from 2000 to 2020, according to a report from the McKinsey Global Institute, a research group. Two-thirds are stored in real estate; only a fifth are in productivity-boosting assets such as factories, equipment and infrastructure, McKinsey said. “The historic link between the growth of net worth and the growth of GDP no longer holds,” the report said.

Among the world’s 10 biggest economies, the U.K. is tied with France for having the lowest share of net worth in assets that boost economic growth. Meanwhile, the U.K.’s home values and mortgage debt have exploded.

U.K. banks added £400 billion, equivalent to about $500 billion, to home lending in the decade through this February, Bank of England data show. Debt extended to businesses grew by only one-tenth of that amount.

The U.K.’s big banks “pulled back in the financial crisis and never really came back” in terms of business lending, said Richard Davies, a former regional head for Barclays’s U.K. business banking operations who now leads Allica Bank, a London startup that lends to small and midsize businesses. “The big banks are obsessed with residential mortgages.”

The obsession with mortgages leaves some businesses feeling sidelined.

Geometric Manufacturing, based in Tewkesbury, England, makes defence and cybersecurity products. Several years ago the firm asked a U.K. bank for a loan to design and manufacture a robotic arm to load its machines, an investment that would allow the factory to produce more with fewer workers, Managing Director Paul Wenham said.

Despite the option for a government guarantee through a U.K. program to help small businesses, the bank declined to participate, Wenham said. The company eventually received a small loan from a London-based startup lender. The loan came with a high interest rate and was smaller than what the company had sought.

His inability to get a bigger loan delayed the project by years, Wenham said. “We could have been reaping the rewards and benefits so much sooner,” Wenham said.

Dozens of startup lenders have stepped in to fill the void created by the retrenchment of big banks. They provided about half of all new loans to small and midsize businesses last year, government figures show. But they charge high interest rates on business loans, said Mike Conroy, director of commercial finance at UK Finance, the banking industry’s main trade group.

Conroy said the biggest factor behind weak business investment is a lack of demand, not supply. Many entrepreneurs are reluctant to take on debt, or simply don’t aspire to grow, he said. “The U.K. has many small businesses making a great contribution to the U.K. economy and local communities, even though they don’t aspire to be the next Microsoft or Google,” Conroy said.

Research in the U.S. and Australia shows that banks respond to rising home values by shifting capital away from businesses. U.S. banks located in areas with robust housing markets in the early 2000s bubble boosted mortgage lending while cutting business lending, according to a 2018 research paper in the Review of Financial Studies.

In the U.K., rules put in place after the financial crisis force banks to hold higher levels of capital for business loans, which are deemed riskier, than for mortgages.

Matt Hammerstein, CEO of Barclays’s U.K. operations, said banks have increasingly required all borrowers—whether homeowners or businesses—to put up physical assets that the lenders could sell if the borrowers fail to repay. Many business owners refuse to put up their assets, such as homes, as collateral and thus don’t win approval for loans, he said.

“What banks have done over time in order to be able to underpin their risk appetite is to expect entrepreneurs to put more of their own equity at risk,” Hammerstein said. “If you’re lending to a small business, particularly one that has intangible assets, you’re going to want some collateral.”

Default rates among established small and midsize businesses is low—about one in 50 will default in a given year, said Davies of Allica Bank. But determining each company’s risk—and thus what interest rate to charge and how much capital to hold—is less accurate and more time-consuming for big banks, which have instead shifted resources to mortgages.

In 2018, Jurga Zilinskiene wanted financing to develop software to expand her London-based language-translation business, Guildhawk. The 40-employee company translates documents for companies around the globe.

She asked a big U.K. bank for a seven-figure loan; they lent her a fraction of that, citing her lack of tangible assets that could back the loan if she defaulted. Many of her assets are intangible, such as intellectual property.

She worries that banks are too focused on making a quick profit rather than supporting the long-term health of the economy. “How can I compete with global enterprises in the United States, China?” she asks.



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UBS analyzed income and wealth data from 56 markets, representing “92% of the world’s wealth,” in its Global Wealth Report 2024, released Wednesday. The report’s overarching theme found that global wealth grew by 4.2% in 2023, offsetting a loss of 3% in 2022. Even in the face of continued inflation, adjusted global wealth grew by 8.4%.

However, overall global wealth growth is down, from an annual average of 7% between 2000 and 2010 to just over 4.5% between 2010 and 2023, the report said. This equates to a reduction in global wealth of almost one-third.

The remaining growth seems to be continuing on pace in the world’s most developed and already prosperous nations. In the U.S., average wealth per adult grew by nearly 2.5% and the country accounts for 38%, roughly 22 million, of all millionaires worldwide.

Mainland China came in second with just over 6 million millionaires, followed by 3 million  in the U.K.

The report also took a look at the growing issue of wealth transfer. Over the next 25 years, US$83.5 trillion of global wealth will be transferred to spouses and the next generation. UBS estimates 10% of that will be transferred by women and US$9 trillion will shift between spouses.

Wealth in the Asia-Pacific region grew the most—nearly 177%—since the report began tracking data 15 years ago. The Americas come in second, at nearly 146% growth. Surprisingly, Turkey has enjoyed the most wealth growth per adult of any individual nation in the last 15 years—more than 1,700% in local currency.

The world’s wealthiest class continues to be a small, tightly concentrated group. According to the report, only 12 people hold between US$50 billion and US$100 billion and just 14 people hold US$2 trillion of the world’s wealth. The U.S. and Canada are home to individuals holding 44% of this wealth, while another 25% is held by people in Western Europe.

UBS data suggests that global wealth will continue to grow most in emerging markets, with some countries experiencing millionaire growth of up to 50% over the next five years.

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