Episode Details

Alex Groundwater is a good friend from early school days, one of the rare ones I have kept in touch with.

We sat down for a casual conversation on a serious topic. How bad could the economy get?

I am an optimistic and happy guy. But, this is not a cheery or positive episode. We actively debate what the worst case scenario might look like. If you find gloomy outlooks difficult, depressing or triggering in any way, I would suggest giving this episode a miss. 

You can find him here on Twitter
https://twitter.com/alexgroundwater

The expression “Death in Poverty” came about in April 2020 due to concerns over long-term economic and health damage caused by Covid lockdowns which is now playing out as we watch ie. inflation, interest rates, house prices, 7.1M NHS waiting lists, public sector strikes etc

Two days after recording this video we fact-checked our own estimates and assumptions. We weren’t far off. 

Here is what Alex sent me:

“We weren’t that far off with £400Bn - in 2021 Housing contribution to GDP was £360Bn

Of that - imputed rent ie. not real rent was £225Bn - which feels right to me - given the value of old people’s mortgage free homes ie. Magic made up rent was 225/360 - 63% of all of housing’s contribution to GDP. 

The total GDP in 2021 was c. £2.2Tr - so total housing of £360Bn contributes 16.4%! We’re good at this! 

Totally magic imputed therefore contributes 10.2% 

We are therefore in EXACTLY the same position as the US in terms of using pretend rent and real rent to make it look like our economies are doing well. How can an asset that is not being produced - only lived in - be counted as domestic product worth over 16% of the economy? 

It’s not like manufacturing cars and selling them domestically and abroad. More smoke and mirrors! Or… as this is GDP calculated from expenditure - like buying a new car or ACTUALLY paying rent… when your house is mortgage free. 

https://www.ons.gov.uk/economy/nationalaccounts/satelliteaccounts/datasets/consumertrendschainedvolumemeasureseasonallyadjusted  

Here is an extract from a different ONS site (section 2): 

“Owner-occupiers’ imputed rental is an estimate of the housing services consumed by households who are not actually renting their residence. It can be thought of as the amount that non-renters pay themselves for the housing services that they produce.

As such, imputed rental should represent the economic value per period to home owners of their dwellings, equivalent to if they were to rent out their properties. By definition, however, a homeowner does not receive payment on their property, and so the payment must be "imputed". ……Imputed rental represents around 10% of GDP as measured by expenditure.”

https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/changestonationalaccounts/imputedrental 

So… the corrections are: 

1. 28% affordability figure for mortgages is against gross income as first said… not net. 

2. All GDP figures are not only real ie inflation adjusted, but also per capita to allow for true comparison and population increases

3. Confirmation with ONS links that more than 16%, as stated, of GDP is from housing, of which 63% is imputed or magic ie. 10% of total GDP”

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