A little post at FTAlphaville raise an interesting question today:
Here’s a radical idea to deal with the London house bubble from Rob Perrins, managing director of Berkeley Group, the upmarket housebuilder.
Give London its own interest rate.
Or as he put it:
London is getting self-sustaining now – it doesn’t need the stimulus…It should probably have a higher interest rate than elsewhere in the country.
Which begs the question: are super-city states about to disrupt our current concept of the old fashioned sovereign state?
You know, a la the return of the Hanseatic league of Northern Europe during the Middle Ages?
It’s a point that David Birch at Consult Hyperion (and, no doubt many others) havebeen making for a while.
Couple that with the emerging threat of corporate supranationalism, the serious threat of Scottish secession and the idea that communities may soon be determining nationality in ways that transcend geography altogether, and one has to ask whether a sovereign existential crisis — not just a sovereign debt crisis — has yet been factored in by markets as the next possible black swan event?
That’s a little melodramatic but the overall suggestion is a good one and is really what happens when applying macroprudential. Using the example of Australia, there is little doubt that the RBA would jack rates on Sydney if it could do so without bloating the currency for the rest of us:
Likewise it would have done so for Perth three years ago.
The kind of MP used in New Zealand would implicitly hit Sydney harder than elsewhere given its level of stretched affordability is higher. NZ has also toyed with using MP targeting investors specifically which would to the same thing as higher interest for Sydney.
It should happen.
