The Shard as metaphor for London

By Felix Salmon
June 26, 2012
Aditya Chakrabortty doesn't like the Shard, the huge new skyscraper nearing completion next to London Bridge station, across the river from the City of London.

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Aditya Chakrabortty doesn’t like the Shard, the huge new skyscraper nearing completion next to London Bridge station, across the river from the City of London. It’s certainly a monument to the 0.01%: owned by the government of Qatar, and featuring Michelin-starred restaurants catering to guests at the five-star hotel; the hedge-fund managers who will rent out the office space; and of course the plutocrats in the 10 monster apartments (for sale at prices starting at $47 million or so).

Aditya’s not happy about this at all: the Shard, he says, “both encapsulates and extends the ways in which London is becoming more unequal and dangerously dependent on hot money”. The inequality point is inarguable, but it’s also inevitable, in any global financial center. And as for the dangerous dependence on hot money, that I’m less sure about.

Aditya cites “Who owns the City?“, a report from the University of Cambridge which shows that 52% of the City of London is now owned by foreigners, up from 10% in 1980. That’s a trend, not a hot-money capital flow: after all, the trend survived the financial crisis unscathed, even as property values plunged. He writes:

As the Cambridge team point out, the giddy combination of overseas cash and heavy borrowing leaves London in a very precarious position. Another credit crunch, or a meltdown elsewhere in the world, would now almost certainly have big knock-on effects in the capital.

I’ve read the Cambridge report, and I don’t really see them saying that at all. The closest they come is this:

For global financial office markets such as the City of London, functional specialisation not just in financial services but in internationally‐oriented financial services lock the fortunes of the occupier market to the state of the global capital markets; while growing international ownership and specialist global financial and real estate investment vehicles help to lock the investment and occupier markets together in a way that increases both upside and downside risk…

The locking together of occupier, investment, development and financing markets both within the City and across financial centres contributes to an inherent, systemic risk.

The point being made here, in less than crystal-clear language, is that the owners of the City are the same as the occupiers of the buildings in the City. Which means that if there’s a big bust in the world of international finance, the owners won’t just want to sell, they might well move out, as well — causing a double whammy to London office prices.*

But a reduction in London office prices is what Aditya wants! It would reduce inequality, and more generally it would provide a dividend of glossy and expensive real estate to a population which could never have afforded it on its own. That was Dan Gross’s point in Pop — while bubbles are bad for the people who invest in them, they’re generally good for the economy as a whole, which sees a lot of investment which would otherwise not have been made.

London’s a financial center, and like all other financial centers, it gets a lot of tax revenue from the financial industry. Come another credit crunch, that tax revenue will fall. But for the time being it makes sense to welcome the revenue, and the infrastructure improvements which international financiers are happy to pay top dollar for.

The fact is that new skyscrapers always cause an outbreak of nimbyish bellyaching. Here in New York, Christine Quinn, our probable next mayor, is refusing to come out and endorse a relatively modest addition to Chelsea Market, because although it makes sense from a city-wide perspective, the locals don’t like it. They never do.

But cities need density, and if they’re not going to degenerate into anachronism, they need big, expensive, modern skyscrapers. Especially if they aspire to being a financial center. Some of the criticisms of the Shard are just silly: the idea, for instance, that it somehow ruins the view of the Tower of London. What view of the Tower of London? You certainly couldn’t ever see it from London Bridge station, and in general the Tower is famous for being the least recognizable major landmark in London. I used to work as one of those tour guides on top of open-topped double-decker buses, for a summer, and I can assure you that long before the Shard was built, there was really nowhere you could get a good view of the Tower. Your best bet was to drive north across Tower Bridge, but even then the Tower itself just kind of shrinks into the riverbank, and a lot of tourists had no idea what they were meant to be looking at.

London is a city of large buildings on narrow streets (try finding the entrance to investment bank NM Rothschild one day), and the Shard is just the latest extension of that idea. I, for one, welcome it to the London skyline, even if I never set foot inside the place. It’s certainly a lot more interesting — and adds a lot more value to the city — than the bland mid-rise office buildings which Washington is doomed to, given its strict height zoning. Aditya’s right that the Shard hasn’t — yet — improved the lot of its immediate neighbors, but building nothing on that spot would hardly have been better for them.

I suspect that over time, the Shard will attract more money and gentrification to London Bridge in general, which is great news if your worry, like Aditya’s, is the area’s “deprivation and unemployment”. Cities are living things, and the construction of the Shard is proof that London’s still very much alive. And that, as Woody Allen would say, is definitely better than the alternative.

*Update: Colin Lizieri of Cambridge University writes to add that he was making another point, too: that diversification into office space in different financial centers is not really diversification at all, since the owners and occupiers of all that property are increasingly the exact same businesses, or at least very highly correlated ones.

Comments
9 comments so far

Totally agree with you here. When the Japanese piled into US real estate (and especially NYC real estate), it worked out terribly for them, but really not too badly for us.

Posted by Auros | Report as abusive

Also agree… if the brits get property taxation right then at 1% each russian heiress or arabian sheik in the 47,000,000 penthouses will pay the salaries of exactly 10 inner city teachers each and every year.

Not so bad.

Posted by y2kurtus | Report as abusive

Equity investments in realestate don’t fit anybody’s definition of “hot money”, except Chakrabortty’s. In fact, they are about as cold as it gets.

Engineering bubbles is a bad idea – haven’t we learned at least that? But this isn’t a manufactured bubble – it’s genuine demand, paid for in cash. It’s a windfall – what’s improper about that? Maybe only just this – don’t make the mistake of believing that it will continue uninterrupted and forever.

I mean really – what is this guy’s point? Does he want to close the City as a financial center? Seems like it. And why? Apparently only because it upsets poor people to have rich people in their midst. Snobs; guess we need to update the Chakrabortty -version of this – “Give me (only) your tired, your poor, Your huddled masses.”

Posted by MrRFox | Report as abusive

Oh but it is horrendously ugly. And in London we have taste. If they had stuck it in Canary Wharf it would be ok, but you can see it from everywhere, except when it is foggy. Compare the Gherkin, which Londoners love. Half the height, and nice and curvy, thats great. It is true that London Bridge already had some ugly buildings, but this makes it worse. (And the gentrification of parts of the area happened a while back, parts of Bermondsey are rather nice, there is the new White Cube there even).

Posted by JustinCormack | Report as abusive

Point taken, JustinC – it probably is ugly as sin, and suspect I’d have joined you in opposing it on that basis were I a local. But our South Asian author never really made that point, did he – he was all shun-the-rich, right? (Easy to understand his reluctance to throw that aesthetic-stone, if you’ve ever been to South Asia.)

So, bottom line – you should have written the piece, not our Asian-import.

Posted by MrRFox | Report as abusive

I actually quite like it. At least it isn’t another tall, rectangular block. It’s not as nice as the Gherkin or Lloyds insurance building but it’s a hell of a lot better than what used to be there.

Posted by ABT | Report as abusive

MrRFox the author is actually a local too, not a South Asian. But that doesn’t detract from the fact that I might well have written a better article ;-)

Posted by JustinCormack | Report as abusive

“… the author is actually a local too,…” (JustinC)

Umm … well … if you say so.

Posted by MrRFox | Report as abusive

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