Rory Sutherland: Breaking the Property Market Delusion

I'm going to share a really weird thought experiment with you, which is part of the reason we have a property crisis is we don't have enough supply. We'll park that for a second. Part of it is low interest rates. Part of it is that effectively, when mortgage companies basically set a norm that you can borrow, let's say three and a half, four and a half times joint income, okay, they thought they were creating a limit and actually created a target. So most people buy property in a way that nobody buys almost anything else they buy, which is they go, how much can we afford? And then they start looking for properties around the maximum level. Now, we don't do that with cars, okay? If we did that with cars, if I went into a car dealership and said, well, I've got a 40,000 deposit and I reckon I can probably borrow another 270 something, we'd all be driving around in a Bugatti Veyron. But because we frame property as an investment, every single person who enters the property market does so with the intention of maxing out. I'm an anomaly there. I actually went low. I bought apartments outside. I live in an apartment outside London. It's in a grade one building, which was cheap, it was less than I could afford, and I deliberately and consciously tried to do that. But nearly everybody basically goes, what's the most I can afford?

This is driven by the banks.

That's what I'm going to buy. Well, it's certainly very convenient for them.

Of course it is, yeah.

That this very convenient because they're lending.

Us all the money to do that.

In the 70s because you didn't know how much you could borrow and you were nervous. And people ask the question, what sort of house do I need? Before they ask the question, how much can I afford to spend?

Right.

So you have this absurdity on Rightmove, which is apparently on Rightmove, you can't sell a house for £850,000. And the reason is people either start searching at 800,000 and up or 900,000 and down. So if you're pricing a house at eight hundred and fifty, nobody actually gets to see you, Right? And when they do see you, that half of the people are thinking that's a bit too cheap and the other half are thinking that's a bit too expensive. Yeah, okay, so you have this price ziggurat now, okay? So there are lots of psychological factors. There are interest rates, there's supply and demand, all of which effectively combining in a kind of lollapalooza effect to drive up property prices to a point where I think they soak up most discretionary income. And the reason this upsets me is I've worked in advertising for 36 years and what we have done in that time, you may not like the companies that do it. We have, broadly speaking, provided people with better and better consumer goods, better and better services, better and better food at a fairly stable price. Okay? And half of me thinks that my entire time has been wasted because the increase in wealth that we have made possible by producing flat screen televisions that cost £700 rather than 7,000. Or you know, high speed Internet access that is actually affordable to most people, or mobile phones where actually the richest person in the world and someone on median income end up with the same mobile phone. Extraordinary egalitarianism of quality, pretty low prices, huge improvement in quality. And it's all a complete waste because all of the gains that should have gone to greater consumption and enjoyment of life have been soaked up in a sump by the property market. Now the other problem I think other than supply and demand, low interest rates and the psychological factor where people attempt to max out because it's their only real chance of a tax efficient windfall in their entire life, is betting on the property market. Okay? It's the best lottery ticket you can buy because you get a tax break for buying it and you get to live in it while you own it. Okay? Leaving that aside, there's also a problem with allocation, which is there are too many empty nesters. Fundamentally a lot of the space, a lot of the people are in the wrong homes. Interesting psychological thing I learned from someone who is a personal financial advisor. Apparently if you don't downsize before you're about 72 or 73, you'll never do it.

Right.

So one thing government could do is have a have a stamp duty break on anybody who downsizes before the age of 74. So you give people a deadline which says you better downsize now because if you leave it till later it's going to cost you to move into the new house. That would be a smart thing to do. My brother lives in a street in Buckinghamshire where he has a child. They're a couple with a child. Every other occupant of the three and four bedroom houses in that street is either a single person or a couple whose children have fled the nest. It's an absurd use of resources. Okay, I've got a weird theory. I'm going to write about this little which is that you could significantly improve liquidity in the property market with one single legal line of code, as it were, which is that you require that everybody's house is for sale all the time. If you don't want to sell, that's fine. You just quote a ridiculously large price. But the property market consists of every home in Britain. Let me explain why. There's a story in the Telegraph. This is how Alan Sugar bought his house. Just for interest. He wanted to move into Chigwell's Golden Triangle, and he couldn't find a house on the market that he liked. So he wrote a letter to people whose houses weren't on the market and said, I'd be interested in buying. And presumably when it's Alan Sugar who's interested in buying your house, your ears perk up a bit and you go, well, let's find out what he's interested in paying. There's a similar letter, an article in the Telegraphs. A couple moved back to Litchfield from Thailand. I think with triplets, they couldn't find a house they wanted. They wrote to something like 20 homeowners in the three streets they liked. They eradicated the homes through Zoopla they couldn't afford or they didn't want. And they wrote to the homeowners of the homes they wanted and said, we'd be interested in buying your house. And something like five people got back to them. Even though their homes weren't notionally for sale, they ended up having a look around three and they bought one. Now, I've tried this experiment with audiences of people. I asked the audience, 200 people, how many of you currently have your home on the market? And typically about four hands go up. And then I asked the follow up question, which is how many of you would think about selling if you received an offer spontaneously? Typically, about 20 hands go up. So there seems to be this very rough ratio in my very early experiments of five to one, which is for every one person who's prepared to put their home on the market through an estate agent, there are five people who would be interested in selling their home if they received an approach. Now, by the way, these asymmetries aren't uncommon, right? If you think about it, okay, I'm probably showing my age here. Let's say you meet a Hollywood film star, okay, who is your kind of fellow fantasy member of the opposite or same sex, depending on your proclivities. Okay. Would you chat them up? Possibly, possibly not. Would you respond if they chatted you up? If you, assuming you're single and have no Other, almost certainly, yes. Right. There's a fundamental asymmetry there between who makes the first approach. One person makes the first approach, the other person responds. There is a kind of deadlock in the middle where you can have two people. I think this is what Much Ado about Nothing is a little bit about. You can have two people who fancy each other and nothing ever happens. Okay. Now, my contention is, I don't know what the reason for this ratio is. Is it just that as soon as you put your house on the market, you no longer enjoy living there quite as much because it's no longer your home, it's now just a place where you're camping out en route to somewhere else? Is it fear of rejection that you just don't like the idea of people coming around your house and going, I think the road's noisy. Right.

Is it that you don't really like estate agents?

This is my other theory that actually one. One explanation for this is that people hate estate agents more than they hate moving houses.

Okay.

Which would at least fit the data.

Yeah.

But if you actually made a requirement that instead of having this ludicrous business where people had to actually say, I'm on the market, you created a. Now there's a. There's a website called Chimney C-H I M N I e.co.uk which is a property research site, which effectively would be the basis for this system. But the point is, you simply put your house on the market, everybody quotes a price, and then anybody's free to make an offer. You might have to limit the number of offers you receive to avoid sort of scamming. You could very easily signal that you weren't interested in selling by quoting a very high price. Famously, there's an advertising guy who bought a house in Richmond, and after he bought the house, Mick Jagger came round and offered to pay double. And he did sell. So there would be people, by the way, who don't want to sell, who put in an insanely high price, and there's someone willing to pay that. That will happen periodically. Okay, well, that's fine, but actually what we've done is we've created needless friction in the property market.

My suspicion driven by the banks.

Maybe again, it's psychology. Is it?

Are you sure? I think these imbalances in proper prices would make it harder for the banks to value them, wouldn't it?

Well, that's an interesting question. I mean, generally there should. No, genuinely, the surveyors art would remain the same, which is, what are you likely to receive My head.

With such a varied movement in price, understanding that's going to be more difficult, isn't it?

No, because obviously the actual. All you're quoting is a willingness to sell price. You're not quoting a valuation. Okay. So you would. You could still estimate what similar properties in the area actually sold for. You'd still have all that land value data. All I'm saying is there's a really interesting finding. If you were Charlize Theron or whatever, you know, if you're an actress and you went around chatting up people, you'd have a much hit higher hit rate than if you wait for things to happen in the opposite direction. And I'm suggesting there's something about property which replicates that. Okay. Which means that. Which means that if you didn't have this painful moment of I'm going to put my house on the market because it is a huge home to your own home and you enjoyed watching television and you had full enjoyment of your own property. And then one day someone comes along and says, yeah, I'll pay you 850, and you go, we haven't had many offers for that, you know, for the last two years. Why don't we. This is now the time to jump.

But I guess the light and the.

Liquidity and speed of movement in the property market, but also the amount of property that would actually change hands where large homes occupied by two people would now be occupied by four people, which is as God intended. Okay, you would accelerate that process, whereas at the moment it's largely made possible by death, I would argue. And you know, I suspect there are a lot of elderly people who would sell under those circumstances, by the way, but they really hate the idea of living in a house which doesn't feel like. I think there is something deeply psychological about it. I'll need to do more experiments to find out what that is. But for the moment, my only experimental discovery is that if you ask people whose home is in the market, you get four hands going up. And if you ask who would be willing to sell if they received an attractive offer, you get 20. Now, that ratio seems pretty important to me. And there is the possibility Chimney is an interesting website which might make that possible. But there's something broken with property and something is needed. Some of the solutions undoubtedly involve legislation or possibly taxation if you're a Georgist like me. But some of them, I think, could simply be changing the choice architecture and the. And recontextualizing the way homes are bought and sold. There's another interesting question which is how can you, you know, a psychological question which is how can you make renting feel like owning? Are there things you can do which give the same pride of ownership and confidence of autonomy and willingness to invest in improvement in a rented property that, that people enjoy in an owned property.

Could they have some kind of.

So, I mean, London clubs create a sense you don't own the building, right? But if you go to a London gentleman's club because there's a, because there's a restricted membership, you know, because of a whole load of other reasons, you do feel a sense of belonging there, that somehow you're invested in the thing. Are there psychological hacks which could actually create a kind of halfway house between owning and renting? Because it's ridiculous in a sense that, that for someone to enjoy. There are super rich people who live in hotels, right? I mean, they're very rich people who don't own. There's a weird billionaire in there who basically just moves from hotel to hotel and rents. That wasn't actually that uncommon in the 1920s and 30s. Really rich people would just rent a country house for three years now. It's kind of ridiculous that we're forcing people in order to enjoy the feelings of stability in which they can form a family, that they have to place a six figure, a large six figure bet in the property market. I also think it's a shit way to spend your money. Okay, let me put it like this. Okay? Okay. If you're buying, let's say you've got quite a good job in a London bank and you decide you're going to buy a three bedroom house in Fulham, which is probably what, 1.4, 1.6 million? What you're saying in 2024 you're prepared to spend about 50% of your discretionary disposable income in order to own something that a poor person would have owned in 1924. The house itself is a piece of shit, right? It's not an interesting house. It's the location that contains the value. The house is unbelievably boring. It's where a postman would have lived, okay? In 1917 you have this extraordinary competitive technological economy where you can buy jet skis and hot tubs and everything else, right? No, no, no, I don't want any of those wonders. Now the postman in 1917 would have been aghast at what we can buy with our money. The cars that, you know, the holidays, the jet travel, the, you know, et cetera. And the one, you know genuinely as I said, if Louis XIV visited that house in Fulham, he goes, you know, you've got the flat screen television, you've got broadband access, you've got a car outside. You truly are possessed of unimaginable wealth. What I can't understand is why you live in such a shit house. Right? That's what Louis XIV would say. And so we've produced these extraordinary consumer goods, and yet the vast proportion of people's disposable income is spent in buying a location occupied by a totally shit house. And I've got a friend who's got a flat in the barbican. And I get that, right, because you go, okay, you are, you know, it is now worth 1 point X or 2.3 million. But if you walk into the flat on the 23rd floor of the barbican, you do go, wow, that's a fucking amazing place to live. Most of the housing in London is dross. I mean, okay, who. Okay. I mean, this is literally like having a, you know, and, I don't know, a 1970s Ford Cortina. Okay. And then paying basically 60,000 a year for the parking space. That's. That's. That's what property is like. The actual buildings are utterly tedious and awful for the most part. And all the money is actually in the land. And people don't realize this, but, I mean, it's the land. And the permission to build on that land basically are 90% of the value of that place. Actually. Rebuilding that place with something better would cost nothing. And it's kind of bothersome to me because so much of what should be a productive discretionary market economy is actually being sequestered in this utterly uninteresting form of wealth preservation. Is that too depressing?

I need time to think about that. Obviously, I have a lot of property myself.

No, yeah, no, no. But. But you're. The actions of property developers, of people who actually imaginatively add value to land. That's kind of. I wouldn't say God's work, but it's a pretty worthwhile activity. You developed that thing in Peterbury you mentioned. That's a. That's a beneficial thing. You provided hundreds of people with a place to live in what would otherwise have been totally wasted space. Is that right?

Yeah.

It's still a shop on the ground floor, is it?

Yeah, yeah, yeah, yeah.

This is almost.

This is also.

That activity would be almost completely untaxed in my future, you know, regime.

Yeah.

But the experience of just owning land and making people pay to live in it, that will Be taxed quite heavily.

Yeah.

Because that's the unimproved.

If you could get it through.

Well, no, I mean legislation that. By the way, we've all mentioned reasons why property is too expensive. So we've mentioned.

It does depend on the location though, because I live in Peterborough and I own something in Peterborough which is basically a seven bed house, can fit all my cars in less than a million pounds.

No, I know, I know.

And in central London, something like that. Maybe £10 million.

Can I make it? Really? Really. I don't want to make all your London listeners really despair or for that matter New York listeners or anybody else. But the. When I moved to London again, 1988, pre Internet, okay, There were huge gains to earning in London. You could earn a lot more in London than anywhere else. And often in London you end up with a job title that's so specific, it's so specialized that you can't actually practice that job outside London. You know, there'd be fields of law, okay, which are so niche, you can only practice them in a mega city with the whole kind of ecosystem around you.

Okay.

But when I moved to London, it offered huge benefits in terms of how much you could earn, both actually and potentially. The property wasn't that expensive, which meant you had some discretionary income to go out and get blatted. But the third thing was it also offered really huge benefits over Peterborough or Monmouth, where I come from, in terms of consumption. You could buy stuff in London, you could eat things in London. You could, you know, you could, you could attend. Now it still has that primacy with ventures. Okay, yeah, stadium events. But you can go to Peterborough to go and see Taylor Swift. You don't have to stay overnight, right?

Yeah.

It still has that primacy in terms of museums, theatre, nightclubs and dating. Right. There's a huge advantage in terms of your quality of consumption, never mind your earnings. If you live in a big city in 1988 versus a small provincial town in 1988, actually, first thing that changes that is the Internet. So even whether you live in central London, okay. Or whether you live in the Outer Hebrides, if you want to buy an obscure book, you go to Amazon, you don't get a bookshop. Virtually everything you might want to buy is now available without travel to everybody in the uk. The one bummer would be if you lived in Caithness, where my ancestors come from. It's probably two day delivery, not one. I don't know, okay. If you want Michelin star food, there are people who will deliver it to you. So the extent to which you're cut off from interesting forms of consumption by dint of where you live no longer applies in terms of culture. Netflix is the same everywhere. Amazon prime is the same everywhere. Amazon is the same everywhere. Right? Starlink is even more so the same everywhere. You can go and live in a field, okay? And so the benefits to consumption in terms of London, if you exclude those things, as I said, dating, nightclubs, theater, museums and sort of major cultural events are about a third as great. At the same time, places like my hometown of Monmouth, which when I was sort of 19, you couldn't wait to get out of this rural shithole, and now I go back there at the age of 58 and kind of go, I kind of wish I lived here. There's a Pizza Express. Now, I'm not suggesting that's a total transformation, but in terms of, you know, within driving range of Monmouth, there will be enough fine restaurants to sate your quest for exotic cuisine. There are great Indian restaurants everywhere. They're completely even. Have you noticed this good Indian food is totally evenly distributed? You know, yes, there are a few Michelin starred places in London which I really like, but not to the extent where I want to go there every day. And so actually the one thing that hasn't, I think figured adequately, I mean, I went, just to take the extreme example, I'll tell you two stories. I went to Sheffield in 1989 and it looked like it was a business trip and it looked like we were going to miss the last train back to London. And we said to our host, who is an entrepreneur in Sheffield, what's the best place to stay in Sheffield? He said Leeds. He wasn't entirely joking. Okay, yeah. And I went back to Sheffield two years ago. It's a really interesting place. You know, there's very interesting treatment of that development, of that, you know, the housing development that overlooks the town, which is someone really creative has put their mind to that in property terms. It's that Manchester firm, isn't it, that do very, very imaginative kind of restoration of buildings. I wish I could remember their name. Then, you know, I wander off the station and now bear in mind, okay, nobody knew what I've got. You know, if you went outside London in 1988, no one knew what a bloody latte was, never mind a flat white, okay? All that stuff has basically spread. It's not as if London is spawning new cuisines, you know, one a year, which take time to filter out to the provinces, you know, basically Everything you kind of want for a normal existence is readily available to you, regardless of where you live and you. And so if I lived, if I stayed in Monmouth and I wanted to watch a Korean film, okay, my chance of doing that would have been either zero or once every 15 years. If the guy who ran the local cinema had a brain fart and decided to put on a Korean film season in Monmouth, which is vaguely possible, I suppose it's kind of eccentric place, I love it. But. But at the same time, if I want to watch Korean film, doesn't matter where I am. I'm in provincial. I was in provincial France last week. The first thing you do is you walk into the Airbnb, you change the television, so all the instructions are in English, partly for your own benefit and partly to fuck up the next person who rents the house, okay? If they're French, okay? And you turn the temperature Fahrenheit, Sodom, right? But then the next thing you do is you log into your Netflix account, you log into your YouTube Premium account, and you're basically at home. Yeah, and if I wanted to watch a Korean film in the middle of the French countryside.

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Not a problem. Yeah, and so that strikes me as, I mean there is, there's an, there's a, I can't remember his name, he's kind of Indian philosopher who makes this point that one of the interesting things about consumer electronics is they're very democratic in that, you know, a billionaire does not have a gaming console unless they want one encrusted with jewels or something, doesn't have a gaming console that's essentially better than someone can buy on median income. It's also fair to say that a lot of consumer electronics have been incredibly geographically democratic in that, you know, you don't need to be in a particular place to get the benefit from them.

Yeah.

And so, so, you know, one of the things which we, we need to be realistic about, particularly if we look at the extent to which talented staff may demand flexible working and flexibility of place, is that people had two reasons to be in London in 1988, which was to earn money and to spend it. All right?

Yeah.

And now there's only one reason, and it's not even a very good reason, because if you can work remotely, you don't even need to be in London to do London work. And one of the strange things is everybody's talking about AI. I think the, it would have happened anyway, but it would have taken 10 years longer. The very rapid adoption and familiarization with video conferencing as a technology that happened during the pandemic was one of the most important economic events driven by technology in the last 30 years. What's weird about it is no one's talking about it. I'll explain it actually, why it's important. One of the things I get really cross about is environmentalists who say we need to get rid of cars. And the truth of the matter is that about 70% of the economy depends on cars and vans and what you might call independent energy driven stuff, the whole supply chain. That smug bastard who goes, no, no, I take the bus to everywhere. Yes, but you eat food that's been delivered in a van, mate. Yeah, okay. You know, all you've done is you've outsourced the driving to van drivers. You haven't actually escaped from the car. But there's a vital thing about the car which is really interesting. So let's draw an x axis where you have naught on the left hand side in distance. Then it goes 500 yards, a thousand yards, you know, a mile, 2 miles, 5 miles, 10 miles, you might want to do a log scale. Okay, 100 miles, 200 miles, 500 miles, a thousand miles. And then we have different forms of transport and how optimal they are for any particular distance. Now, okay, naught to 200 yards. It's walking, wheelchair, possibly a scooter. Okay, you know, you know there are different forms, but, you know, you don't want a car to go 200 yards. Although I was offered one in Houston once. I was staying at a hotel in Houston. I said, where's this restaurant? They said, it's over there, we can get you a car. And I said, I don't think I need a car to go 200 yards. But what happens is you have walking and other forms and then the bicycle kicks in, provided it's not uphill and it's not raining and you don't have any luggage and you don't have any children. And then there's a certain distance both for commuting into big cities and for intercity journeys where the train is really good. And then right at the right hand side, it's got to be a plane, okay, you're not going to drive to, you know, you're not going to drive to Australia, right? But then right across this from basically a mile or half a mile to 400 miles, there's this vast great curve which is the car, which is either optimal or a close second best for practically every journey of any distance. Doesn't matter what time of day it is, whether you have passengers, whether you have luggage, whether it's raining, okay, Whether you want to set up at 3 o' clock in the morning, the car, regardless of any of those other contextual factors, will do the job really, really well either. Optimally. When I go to Manchester to see my daughter, if I'm going for two nights, I'll take the train. If I'm going for four nights, I'll drive, right?

Yeah.

But the car is somewhere up there all the way across that graph until you get to very short distances or very long distances. Now, if you look at communications technologies and you draw the same graph almost by degree of intimacy, right? You've got loads and loads of ways in which we can send textual or photographic still messages to each other asynchronously, but in real time, okay? You've got email, you've got Snapchat, you've got Instagram, you've got da da da da, right? You've got the printed word, you've got newspapers, okay? Then you have this gap and you have a weird little blip which is the telephone call, which is synchronous peer to peer conversation. And then you have this huge gap all the way up to meeting face to face in person, in the same place at the same time, and that's a physical meeting. In the middle is this huge gap which only video conferencing fills, which is, in other words, it requires too much synchronicity and face to face contact to be satisfactory in textual form. But it doesn't quite warrant me getting on a plane and going to Palo Alto. Now, the number of potential meetings that are enabled by that technology that wouldn't otherwise have happened seems to me really immense. So if you're a B2B business, for example, there's a problem because what does every B2B salesman want to get? They want to get a face to face meeting with the vendor, sorry, with a buyer, okay? And that's a really, really difficult ask because it's a commitment and the person is committing time. And if you cancel a physical meeting, you're being an asshole because the person's planned their whole day around it. If I wanted to meet you, you know, if I wanted to meet you in an office, the opportunity cost is half a day. If I want to meet you for an hour on zoom, the opportunity cost is an hour. And if either of us cancelled, the other one wouldn't be furious, right? You just go get on with doing something else, you know. And so the extraordinarily unique position which peer to peer video conferencing seems to occupy in the world of technology enabled communication, which is an enormous middle ground between sending someone a text and actually meeting them around a table, seems to me actually colossal. It's less so in, less so in personal relations, but in business relations that seems to be incredibly important. And nobody's talking about it. There are a few economists. The guy called Noah Smith, who's written about the prospects for a zoom boom, he believes that zoom should, you know, effectively create significant economic growth once we work out how to use it. But it's not being talked about nearly enough. But actually, when I talk about the freedom to work flexibly. Before the widespread acceptance of video conferencing, nobody really asked for flexible work because it was generally acknowledged. It was, you know, not really practical. Now what's interesting is you're seeing a vast reluctance, particularly in the United States. This is really interesting. It's not the uk. The return to the office in the UK has been reasonably organic and has probably reached a kind of pretty sensible equilibrium. In the US there are people who Basically moved out of town completely, you know, I mean, Peterborough is totally commutable from London in a day, okay? You have no issue with that at all. But in the US there are people who've literally moved to distances which are a flight away. There's also something psychological about it, which is nobody minded traveling to the office when it was seen as inevitable, okay? It was rather we didn't mind buying. Are you old enough to remember when Spotify came along? Or when music downloads came? Yeah, okay, Nobody minded buying CDs when the only way you could listen to music was on a cd, okay? When the record companies started to say, no, I know you can download music from the Internet in five minutes, but you still have to buy it on CD to protect our legal rights, okay? That's when people revolt. They don't revolt when they see something as inevitable. No one revolts against anything they see as actually inevitable because they just go, well, I've got to come into the office. Because in 1988, people phoned you in the office on a landline. All the faxes came into an office, the calls came into the office, and you had to go to the office because that's where the computer was. So nobody grudged commuting in 1988 because no commute. There were people who on Fridays could do phone calls from home, but it wasn't really feasible. That same train journey feels 10 times more painful when you're conscious of the fact that it's not actually strictly necessary. So if you're asked to come into an office and you just do emails and zoom calls and you don't have any significant social interaction, okay, suddenly that thing which you put up with because it was just inevitable, rather like buying CDs in a physical form. Form becomes really, really irritating the moment you realize there's an alternative. And so the whole way in which we react psychologically to commuting is going to be totally different simply because we're conscious of the fact that it may not be necessary.

Right, Yeah. I have a hundred staff, so I have a lot to think about with this.

Are you. Now, do you allow them to work flexibly or are you some tyrant who demands?

A tyrant.

Some tyrant.

Oh, Rory, the judgment that flew out then.

No, no, no. I mean, don't forget, don't forget. Okay, can they drive to work and park outside the office?

Oh, let me ask you a different question.

Ok, go on.

If I believe I can get more productivity at work, more inclusion, more culture, more togetherness, more energy, offer better progression. Am I Not wiser as a business owner to encourage coming to the office.

Yes. By the way, I'm not one of the things. There are jobs you can do entirely remotely, and people may choose to do those jobs precisely because of the economic and lifestyle benefits they offer. You know, there are some jobs which are 100% you sit down, you nerd out.

Yeah.

For most people, they have a percentage of their time, which is like that. I think the open plan office is a complete failure because it does the thing that so many seemingly rational processes do, which is they optimize for the average. The problem is that an open plan office is neither a library nor is it a pub. So it's not a place where you can just go and chat to people and make a load of noise because you disturb the, you know, the neurotic people. Okay. And it's not also a place where you can go and find complete silence and solitude. So I redesigned the office to be half library for people who've got noisy home lives or whatever, who need a place to escape, and half pub for the people who have quiet home lives who need a place to actually commune. There are also very valuable things that only happen face to face, like, for example, coaching, serendipitous encounters, the speed of information exchange. However, a lot of that serendipity had been destroyed beforehand by the fact that in the 1980s, you used to go out on Friday afternoon, everyone used to get pissed and have a meal together. That was where the real serendipity occurred. And now email destroyed far more serendipity than flexible working did. And yet nobody really questioned email because staff don't like email, so nobody got suspicious. Whereas when it was flexible working, the staff started enjoying it and immediately people started going, what's the downside here? Where's the trade off? But there have been immensely damaging things like open plan offices and the profusion of email, which have been absolute productivity killers and have also killed conversation. Because people with 20 minutes to spare no longer chat at the water cooler. You always have this phrase, don't you? The water cooler moment. Maybe it's different in America, but I can't remember having any interesting conversations at a water cooler under any circumstances other than just standing in a queue, getting some water and walking away. One of the reasons I think we've had a bigger return to the office in the UK than the US is probably we've got a better drinking culture, so there's an incentive to come in in the first place because there might be a bonus after work. What about the attraction, we should emphatically ask the question, how do we maximize serendipity? But the way to maximize serendipity is not a return to the status quo before COVID because serendipity was already in massive decline because of technological and office design limitations. Okay? Now, what I would do if I were you is I'd go and buy office space near the seaside. Okay? I'd let some staff who want to live by the seaside work there permanently. But I'd take the staff on away days to work in a group to an unfamiliar place. That's how you bond people. You bond people. Actually, not in a conventional office environment. You bond people by taking someone somewhere. Right. I jokingly said that if you wanted to create team spirit in your team at work, what you do is you take them all to Paris on the Eurostar, and then accidentally on purpose, you'd fail to buy return tickets. And after your staff had all suffered, basically four hours together at the Gare du Nord, you know, at the five guys in the Gare du Nord, united, by the way, in their disdain for your incompetence, you would. You would have a level of personal bonding. Bob Dylan says this in Brownsville Girl. He says, isn't it strange how people who've suffered together have more in common than those who are most content? It's a line in Brownsville Girl.

Yeah.

And actually, I'm not suggesting hardship, okay? I'm not suggesting we send people, you know, to some, you know, tropical island where they're forced to fend for themselves, but putting people in an unfamiliar situation. The army knows this.

Yeah.

Okay? The army knows how to create camaraderie. Businesses don't. Okay, what do businesses do? Businesses create someone who'll make a cup of tea for someone else. The army creates people who die for somebody else. Who's better at creating camaraderie? The army or a plc? Come on. Let's just look at the available data here. And I think investigating ways in which you create this serendipitous conversation, which is basically not an office, that what you're describing there is a pub. Okay? And how you also create this camaraderie and group feeling is a really, really valuable area of inquiry, but it requires much more imagination than just, ooh, this flexible working is terrible to some extent. I have days when I work flexibly where I'm insanely productive because I meet, you know, I meet nine different people from different continents. Okay, well, that would take me four weeks and cost $70,000 if I'd done that, you know, conventionally using air travel. And I never would have got had permission for it in the first place. Okay, you can very, very rapidly get out of bed and start work five minutes later. If I travel into the office, my combination of ablutions and commuting basically take two hours where I could be either asleep or I could be working. You know, there are huge gains to a measured degree of flexible working. In rare cases, it might mean all the time. I would argue for almost everybody, it's at least one day a week and possibly two where they'd be better off just getting on with their shit in peace and quiet. What nobody's doing is taking the money they've saved on office real estate and saying we need to ring fence 20% of that or 30% of that for staff entertainment to make up for the, you know, the lost effects. It's a rounding error. Staff entertainment, it's people cut staff entertainment not because it actually costs money, it's because the finance department want a signal. Frugality. That's all it is. Okay? I mean, you know, the kind of money you spend on pizza, you get the civil service getting rid of biscuits in meetings and stuff like that. The point is that any meeting without tea and biscuits is just faintly unnatural. Right. You know, we've got to leave some space for anthropology here, not just economics. It's very weird going to a government meeting and no one offers you anything to eat or drink. It just violates, you know, thousand years old, you know, human norms.

Yeah.

And so absolutely. I'm totally. By the way, no one ever paid you for serendipity. No one ever paid you for coaching, did they? They were never actually measured. They were always done voluntarily. So demanding that people spend their own money to come in and do things that you never rewarded them for is probably a little bit of an unreasonable request. We've got a policy which is, I think, pretty intelligent here. I don't think it's a bad starting place. I do a lot more investigation of what else we could do in terms of fostering. Maybe. I think Fridays have gone to waste. I think one Friday in five you should say everybody comes in, but you go out at lunch, you know, you got a budget. Every fifth Friday you go out with a group of your colleagues and you just have lunch together. Don't come back. All right? Now that would foster, you know, many, many of those coaching things. You co creation, serendipity, you know, all those things which, which just require physical presence. I think there are also digital Technologies that will come along that will be. I mean, it's kind of weird that with the exception of the metal portal tv, no one's produced a device that lets you video conference on your tv. Okay. Or no one's produced a consumer level device that lets you do that. Because that's very interesting. You know, if you want to attend a webinar, I don't want to sit at a desk for four hours, but I will sit at a sofa for four hours and have the webinar on the telly. I've been actually horrified at the lack of innovation in this space. There are some interesting businesses. There's one called Dugo IO, which takes people from a zoom feed and kind of constructs a kind of film studio with a kind of. How would I describe it? It's kind of amphitheater feel. There are a few interesting businesses out there, but not nearly enough seeking to say it's not. But this idea, apart from anything else, okay, let's be really honest about this. Every really major technology, the effects are visible from the air. Whether it's the canals, okay. The railways, okay. Telecommunications, you can see the effects of those technologies from the air. I would argue, what the hell is the point of everything we've done since 1994 if it doesn't fundamentally change the way in which people can live and work? I mean, you know, at some level you go, seriously, we spent trillions on this stuff. We've created billionaires, we've created bankruptcies. You know, we've created massive problems, we've created massive opportunities for people. You know, social media is both wonderful and terrible. Potentially, we've disrupted whole industries. Okay? If all this turmoil created by technology doesn't manifest itself in basically a general improvement to people's lived existence in the same way that the railways did with the creation of suburbia. Okay, I know suburbia is not fashionable. That's one problem with young people. The real way to solve the property crisis is to make suburbia cool, by the way, because suburbia. Where do you live? I'm intrigued. I live in Peterborough as well. You live in Peterborough as well? Do you live just outside the outskirts or do you live in the middle where you're in.

I live in the middle.

You live in the middle?

Yeah.

It's a fucking big house. How'd you manage to get a big house?

Yeah, I was quite lucky. There's just. There's just one street which is really in the middle where it's like the.

Knox landing of Peterborough. Yeah, yeah. The Golden Triangle or Whatever it's called.

I can walk to the station.

You can walk to the station? Yeah. I met a very shrewd guy who ran a Ford dealership. We ran several Ford dealerships, some up north, some up south. And his great property tip was Newark, because you've got that fantastic train service going north and south.

Yeah.

But he showed me his house and said, if you want to buy this fantastic Victorian house, he said, you know, do you want to buy this? This is a few years ago. He says, 400,000, you know, in London, it would get. That would get you a kind of, you know, rat hole. Yeah, but no, I mean, there are. I think you're right. But by the way, flexible work doesn't necessarily mean you don't come into the office. Flexible work might simply mean you come in at 10:30, you do Zoom calls and emails, and the morning, then you travel in on an empty train on an off peak ticket. Right. You know, I mean, we should look not just at flexibility with the unit of time being the day, but also the hour.

Yeah, yeah. Because I work completely flexibly, owning the company and.

But everybody who works for you.

Well, I like how you're trying to paint me here, Rory, but, like, we've seen a dramatic reduction in desire to. To be great at what you do since lockdown. We have 100% locally seen that.

Interesting.

And there are a handful of people who we've found. Ironically, many of those found me from my interview with Andrew Tate, which is very, you know, interesting based on what people hate him for. So we've got a few young people who want to be great, who want to work hard and want to feel valuable, and we've got a lot of people who. I want to work from home three days a week.

There's an element to the incentive to be great, which is a kind of theatricality, isn't it? It's. In other words, if I'm going to be great, I need an audience.

Yes.

To be great in front.

Yeah, that's true.

Yeah, I totally. So, just to be clear about this, I'm absolutely not one of these people who goes, you know, we should close down our offices completely. I mean, there are. There are tech firms which have closed down their offices completely, but they invest in, like, four weeks a year in Ibiza for all their staff to recreate the bonding that was lost. That's an extreme. What you might call. That's very extreme approach to it. You also have businesses which have a problem, by the way, which is if you're someone like Amazon, or you're someone like ups, okay, you're demanding that all your delivery, or Sainsbury's for that matter, okay, you're demanding that all your store workers get up every morning and travel to a, a store while the management is swanning at home, you know, in the, you know, nicely beamed attic room. That's a dangerous double standard, that is.

And like, I work on that and I work at 10 at night and I work at three in the morning and I work seven days a week and I work, you know, on the training in, you know, in the car. And everyone knows that. And you know what? I'd let them all do it if they got the same results. Absolutely I would. But what happens is you let four of them do it because they get the same results and then everybody else wants the same, but they don't want to put the same level of effort.

I, broadly speaking, give up on Fridays and say, you know, because I think, I think the three day weekend makes a difference. What we shouldn't forget, okay, is that actually one of the effects of technology is an enormous amount of bureaucratic work has been offloaded on the consumer from the business. You know, renewing your car insurance, moving house. Okay. A huge amount of that is where effectively companies have cut costs by making their customers do the work. Yeah, you know, Yeah. I mean, you know, you know, it takes me, you know, seven minutes to check a gas bill, you know, rather than just opening a bit of paper. You know, that's slight exaggeration, but actually a degree of autonomy is really valuable. And actually for many people, a degree of kind of, you know, solitude is probably valuable. You might have in some ideas you have alone.

Yeah.

You know, it's not purely co, you know, creativity isn't purely a team sport by any means, as artists demonstrate, for example. Yeah, but, but at the same time, all, all I'm in favor of, without generalizing at all, is we need to take this as an opportunity and experiment. We shouldn't just say, oh dear, this hasn't worked, let's revert. Because the data is highly complicated. It varies by person, it varies by personality, by life circumstance. But also, as I said, you know, if you invent this technology and you literally invest trillions in. Because if you listen, if you listen to Peter Thiel, I know, more fashionable than Andrew Tate, perhaps. But if you listen to, if you listen to Peter Thiel, he, he will say that we've had extraordinary progress in the world of bits and bytes over the last 20 or 30 years. The physical world of Flying cars, as it were, with the exception of, you know, maybe electric cars, you know, flat screen TVs, it's been cool, okay? But the, you know, the, you know, there are no supersonic aircraft anymore. Okay? In some respects, the improvement in the physical world has stalled the level of innovation. My grandmother, who lived from 1900 to about 1988, in terms of physical innovation, she had a more exciting life than perhaps my kids will have in terms of digital innovation. You know, I completely accept the fact that a huge amount of investment has, has gone into all this stuff. Now, if we're going to invest this much disproportionately in one part of the economy, I don't think it's unreasonable for people to demand a corresponding lifestyle benefit to come out of it. And if that means that you commute three days a week, if it means that someone who's hyper talented can just negotiate a lower salary and live in Fuerteventura and hang out with kite surfers, all I'm saying is that the previous negotiation between employer and employee involved how many hours, okay? And how much money. Yeah, the where wasn't negotiable. There was no negotiable location because you worked where you worked. And there was no negotiation around degrees of autonomy. Now, people value autonomy for its own sake. I'll give you an example. When I work flexibly. The chief executive here was driven into conniptions because he learned from Netflix that there was a spike in Netflix viewing between 1 and 2pm okay? And immediately he was given visions of his staff. Well, 1 and 2pm Is technically lunchtime. Secondly, when I work from home, I do work earlier in the morning. Then I take a longer break in the middle when there's actually daylight. Imagine what it's like if you're Swedish, right? You go to work in the dark, you come home in the dark for about three or four months of the year, actually, for a Swede saying, I'll get up really early in the morning, then, you know, I'll do, you know, I'll, you know, prepare my herring or whatever they do, you know, in daylight between, you know, between sort of 11 and 1, and then I'll work later in the evening. That autonomy has a value in and of itself. Okay? Now, I had a PA who was a single mum previously, and I used. I had this arrangement. I said, look, if you want to take your son to school, go and take your son to school. If you want to go to the sports day, I said, the one favor is that I'm Going to do a bit of bureaucracy. I'm going to send you a load of expenses and bureaucratic shit. And I used to send my physical expenses to her home. And the whole point was she could do them late in the evening while her son was asleep, and she could have more time during the day to take care of childcare. That just strikes me as an intelligent value exchange. The point of capitalism, right? Capitalism has nothing to do with efficiency. Forget that. That's a distraction. Praising capitalism because it's efficient is like praising Bob Dylan because he's got a beautiful singing voice. Bob Dylan's great, but that's not the reason why, okay? And in the same way, okay, capitalism is massively inefficient. Most competition is inefficient, okay? Involves huge amounts of duplication. It involves huge amounts of people doing effectively the same thing in a different way. It's not efficient. The reason it's magical is it's a discovery mechanism. And the principal thing it does is it discovers new forms of value exchange between vendor, employee and employer and shareholder. I guess if you want to add the fourth component, okay, now this is patently the opportunity for a new form of value exchange. Maybe you can attract someone who you couldn't afford otherwise because you can offer them lifestyle benefits. Maybe you can attract someone at a slightly lower salary because they say, look, I'm happy doing the work and I'm very good at it, but I just don't want to live in London anymore. Okay? A third thing I always remember, very interesting story. I had a friend who very early on worked for a software company called Psygnosis. Who were the people who came up with the game Lemmings, if you remember.

Yes, I do remember.

And they were based somewhere near Liverpool and they opened an office in London. And my friend who was asked to open the London office said, I don't get this. Why will we go and open in London when we enjoy these incredibly low property costs up here? And the guy answered very simply. He said, I know one thing, this business depends on having really good programmers. And there's one thing I know about good programmers. He said, half of them won't live in London and half of them won't live anywhere else. Now we've got into a kind of mental frame where we are assuming that that talent is infinitely available.

Trust me, I'm definitely not.

No. Okay. But I think there's this London smuggery which is, don't worry, they'll come. I don't think. I think that more and more Businesses are actually, although they don't necessarily always know it, are more and more dependent on the talents of two or three remarkable people. Those people now have a negotiating counter, which isn't money. Now, at some level, that's not necessarily bad news because it means that, you know, you could now negotiate with them along two dimensions rather than just one. Maybe this isn't a bad thing at all.

Well, you have to go, and I have to go and think about what I'm going to do with my office and 100 staff now. I mean, you've definitely challenged me to think about that.

Okay. I would definitely, I would definitely look at opening a different office. You know, whether it's a beta or looking at actually, films help. Films carry on. Films are made around the factory outing. Okay. Carry on at your convenience.

Okay.

I think those trips, when you travel with other people to a different place, you bond and share confidences in a way you don't in a standard office environment. The standard office environment has also killed the office, which means that actually what you might call genuine candor of conversation has probably disappeared. I've always wondered if one of the reasons Americans are really resisting returning to the office is partly because the political correctness of the office has become so extreme. They're terrified that if they come into the office and, like, misgender someone's dog, it's going to be career destroying.

And on that note, Roy, on that note, thank you very much.

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