In this interview, Kristian Niemietz discusses housing and infrastructure, the problems facing the NHS, Britain’s economic stagnation, the legacy of Brexit, the political obstacles to pro-market reform, and the challenges AI poses for Britain and Europe’s competitiveness.
About the Guest
Kristian Niemietz is Editorial Director and Head of Political Economy at the Institute of Economic Affairs. He holds a PhD in Political Economy from King’s College London and is the author of A New Understanding of Poverty, Redefining the Poverty Debate, Universal Healthcare Without the NHS, and Socialism: The Failed Idea That Never Dies.
Interview
Simon Sarevski: Housing affordability has become one of the defining challenges in much of the developed world, not least in the UK. Why has this become such a widespread problem?
Kristian Niemietz: It is, first of all, important to note that it has not always been this way. In the pre-war period, housing costs in Western cities did not show a systematic trend over time. The idea that they must always go up is a relatively new one. In the 19th and early 20th century, when a lot of Western cities grew at rates that would seem unimaginable today, they did not. At least the second half of that period was also a period when housing standards used to improve consistently, albeit starting from a very low base. That’s not to romanticise Victorian slum housing; the point is that the general trend was away from those conditions, and towards more affordable, better-quality housing.
There’s a simple reason for that: the government had not yet got into the business of constraining housing supply. There was urban planning; we’re not talking about the Wild West. But ‘urban planning’ meant dealing with genuine externalities. The general presumption was that if you owned a plot of land, you had a right to build on it, unless that right was specifically limited or overturned.
Ideally, we would go back to that laissez-faire system. But there is a huge amount of variation even within the current systems of urban planning, and there are huge variations in outcomes. The empirical evidence shows quite consistently that more restrictive planning systems constrain housing supply and worsen affordability. Britain is clearly at the most restrictive end of the spectrum.
So we do not even need to talk about some libertarian ideal. For Britain, being about as bad as the average OECD country would already be a huge improvement.
Is expensive housing simply the inevitable price of living in successful, dynamic cities, or is the housing crisis ultimately a solvable policy problem?
Kristian Niemietz: It is an entirely solvable problem, as we can see from the fact that some places have indeed solved it, or never let it arise in the first place. Texas has rich, growing cities, with house prices that are still less than five times the average annual local income. I say ‘still,’ because that used to be the norm, not a positive example that you would specifically single out.
It is not the case that things have to get more expensive just because a place is economically successful. A Tesco in Mayfair is not more expensive than a Tesco in Blackpool. (Although Mayfair will, of course, have more luxury shopping options.) People in Mayfair can afford to pay more than people in Blackpool, but that doesn’t mean that they want to. They like a bargain as much as anyone. Obviously, inner-city land is scarce, but even for densely built-up places like Manhattan and Hong Kong, economists have shown that regulatory constraints explain a bigger part of the costs than physical ones.
Many housing reforms look convincing in theory but prove difficult to implement politically. Looking ahead over the next decade, which reforms do you believe are genuinely achievable?
Kristian Niemietz: What’s difficult to implement politically isn’t fixed for all times. It is true that previous YIMBY reformers – specifically Nick Boles in the early 2010s, and Robert Jenrick in 2020 – have failed. That is because they had no backing within their own party or among the electorate, so when the inevitable NIMBY backlash came, they were left to face it alone. Imagine YIMBYs had been a solid political constituency, willing to throw their weight behind those reformers. It would then, at the very least, have been a more even-handed match, a YIMBY-vs-NIMBY battle. Thus far, though, it was framed as a battle between greedy developers and lovely community conservationists. There are plenty of people who are angry about the current housing market situation, but this is a directionless, unproductive anger. These people need to understand that if they want the situation to change, they need to back YIMBY reforms and YIMBY candidates, be they Labour, Tory, or whatever else. The YIMBYs need to develop class consciousness.
Housing is only one example of a broader problem. Across the developed world, building new energy infrastructure, transport projects and major developments seems to take longer and cost more than ever before. Why has it become so difficult to build?
Kristian Niemietz: While this may be an issue across the developed world, there is, again, a huge amount of variation, and Britain is quite consistently at the worst end of the spectrum. Infrastructure projects here can easily cost well over twice as much as comparable projects elsewhere, so again, being merely as bad as the OECD average would constitute a huge improvement.
We need to stop running endless consultations about every minor project, which, in practice, only get hijacked by busybodies and troublemakers who like blocking things.
Beyond policy and regulation, is there also a broader cultural question: have wealthy societies become less willing to prioritize long-term investment?
Kristian Niemietz: In our role as individual investors, we haven’t. We are currently witnessing a massive AI investment boom, which includes investments that will not pay off for quite some time, if ever. But as political actors, we shut down projects that would briefly inconvenience us. Nor are politicians willing to pass reforms that will pay off in the long run, even if they are not immediately popular. We are individually quite rational and long-termist, but politically irrational and short-termist.
The NHS is often described as one of Britain’s proudest national institutions, yet it also faces persistent criticism over outcomes and efficiency. Is the reality closer to the image presented by its supporters, or to the concerns raised by its critics?
Kristian Niemietz: I’m one of those critics, so of course I will say it’s the latter. But the numbers also speak for themselves. Spending is at record highs, but we still have millions of people stuck on waiting lists, and lower survival rates for major conditions than people elsewhere in Western Europe or the OECD. The NHS is a hugely overrated system. It hasn’t achieved much, and we’d be better off without it. The foundation of the NHS was a big historic mistake.
If NHS-style universal healthcare systems suffer from structural inefficiencies, which international healthcare models deserve more attention? Are there countries that have struck a better balance between universal access and efficiency?
Kristian Niemietz: There is no trade-off between universal access and efficiency. Other systems are universal too: with the exception of the US, all healthcare systems in the developed world are universal, in the sense that nobody foregoes clinically necessary care because of an inability to pay. But there are systems which achieve that within a broadly market-based, competitive framework. In the Netherlands, everyone has private health insurance, and almost all healthcare provision is private. If you can’t afford your insurance premiums, the government will pay for you. They’ve got better outcomes on just about every measure; they get much faster access to care, and they spend a comparable amount, as a percent of GDP.
Apart from the familiar debates over taxation and regulation, are there any underappreciated reforms that could make a meaningful difference to long-term economic growth?
Kristian Niemietz: Yes: trade. Brexit has massively divided people, including free-market liberals, but for better or worse, it has now happened. You don’t have to be a Brexiteer to see that Britain now does have the opportunity to adopt a much more liberal trade policy with non-European economies.
This may already be covered by ‘taxation and regulation’, but we need to stop the policy of unilateral decarbonisation. It makes virtually no difference to global emissions, to which Britain contributes less than one percent, and the idea that if we lead, others will follow, has been tested to destruction. Britain should be an energy-rich country, and if that means CO2 emissions are a little higher than they are now, so be it.
—— Related: Eamonn Butler on the case for free trade ——
Britain and much of Europe have experienced slower growth in recent decades. Is this simply what we should expect from mature economies, or are there policy choices holding them back?
Kristian Niemietz: We should not expect that at all from mature economies. In fact, in recent years, the frontier economies – the United States, Switzerland and Singapore – have pulled further away from the second-tier economies. The richest of the world got richer still. Once we have caught up with them, and there are no further opportunities for catch-up growth, that’s when we can start having that conversation.
—— Related: Dan Mitchell on rethinking taxes and growth ——
Brexit promised significant political and economic change. A decade after the vote, how has it altered Britain’s political and economic trajectory?
Kristian Niemietz: Brexit has fiercely divided the country, including the small minority of free-market liberals. Some liberals supported Brexit in the hope that it would lead to free trade and deregulation; others warned that it would just impose a needless economic cost, and that these supposed Brexit gains would never materialise. I am mostly on the Brexit-sceptical side of that argument, although I accept that a few good things have happened. Overall, I would say that Brexit was a massive waste of time and political capital. It paralyzed politics for years, and it triggered a largely destructive culture war.
If it had been up to me, I would have responded to the referendum by going for a very soft Brexit with continued Single Market membership, preserving the four freedoms (free movement of goods, services, labour and capital), and I would then have left it there for a considerable period until things calmed down.
Many widely discussed reforms have been debated for years without being implemented. What is the biggest obstacle today: public opinion, political incentives, or institutional constraints?
Kristian Niemietz: If you want pro-market reforms, public opinion is certainly not on your side. But neither is it an insurmountable obstacle. The current political class also seems to have this attitude that if something is not immediately popular according to the latest YouGov poll, it cannot be done. Politicians see themselves as waiters, who take orders from their customers (the voters), and then bring them precisely that. They should see themselves more like sommeliers. If you order a sea bass with a tannic red wine, a sommelier will tell you that that is a bad choice. A sommelier is not a dictator: if you are absolutely sure that sea bass with Malbec is what you want, you will get it. But short of that, they will try to second-guess what you truly want, rather than just take every word you say at face value.
On incentives, I would prefer a much more fiscally decentralised arrangement, where places which make better policy choices can get systematically richer than places which make worse policy choices. If you want to pander to your NIMBY voters, fine, but you will be poorer, and the rest of the country will not bail you out. If you want to ignore your NIMBY voters and permit economic progress, you will be richer, and who knows, maybe some of your NIMBY voters will later thank you for not listening to them.
Artificial intelligence and the infrastructure that supports it — from data centers and electricity grids to the regulatory environment needed to build them — have become strategic priorities. How concerned should Britain and Europe be about their ability to remain competitive?
Kristian Niemietz: The same factors that stop us from building housing, building infrastructure, generating energy, are now also stopping us from capitalising on the potential of AI. We don’t need a special AI policy; we just need across-the-board YIMBYism.
There was a time when other countries looked to Britain as a model of institutional and economic success. Correct me if I am wrong, but today it seems that Britain—and perhaps Europe more broadly—has more to learn from others. If so, which countries should they be looking toward?
Kristian Niemietz: Different places get different things right, so I wouldn’t be looking at one single role model. I’ve mentioned Texas for YIMBYism, and the Netherlands for healthcare. Switzerland is a positive example for decentralisation and many other things.
To take the discussion further, which books would you recommend to readers who want to explore these issues more deeply?
Kristian Niemietz: The Great Stagnation: Why Britain Stopped Growing, which I co-edited, has just come out. I’d also recommend No Room! No Room! The Costs of the British Town and Country Planning System, by Alan Evans, which, although originally published in 1988, reads as if it had been published last week.
I always end my interviews with this question: how do we find freedom in an unfree world?
Kristian Niemietz: When I was at university, there was a strong peer pressure to adopt the same fashionable left-wing opinions as everyone else, and I was always in a minority of one. Paradoxically, though, the fact that I was in my über-libertarian phase then may have helped, because it meant that I was so many million light-years away from the acceptable opinion that it was treated as a kind of eccentricity, and therefore tolerated again. Someone with more conventional centre-right opinions would have been given a much harder time. In my case, the response was more like ‘Ah, well, that’s Niemietz. He has these mad ideas, but he’s alright otherwise.’ Sometimes, people are more willing to tolerate the outrageously unfashionable opinion than the moderately unfashionable one.