Economics 101 with Jack White

What's that, Jack? Price is a function of supply and demand?

Eighteen months ago, Jack White's record company Third Man Records was having problems with "flippers" – people who buy the company's ultra-limited-edition releases (the tri-colour vinyl reissue of the White Stripes' first album, for instance, was an edition of five) purely to sell them on for a profit. His solution? Skip the middleman:

This week, Third Man Records decided to beat the flippers at their own game, listing their own limited-edition White Stripes reissues on eBay. Vault subscribers [a paid members' service] were directed to these auctions, where bids have soared to more than $300 (£193).

The winning bid ended up being $510, but White had to face down angry fans, writing:

make no mistake, we could make twenty thousand split color whatevers for you, and they’ll be worth 20 bucks, and you’ll pay 20 bucks for them, and you’ll never talk about them, desire them, hunt to find them, etc. why should ebay flippers, who are not real fans, dictate the price, make all the profit (taken from the artist and the label) and take the records out of the hands of real fans. there’s a guy who waits in a black suv down the block from third man who hires homeless people to go buy him tri colors when they are on sale. doesn’t even get out of his car. should he be charged ten bucks or two hundred? don’t be spoiled, don’t insult people who are trying to give you what you want.

Writing at the Guardian, , a staff member at Third Man, even brought some economic theory into the discussion:

Third Man customers take these limited-edition releases very seriously. Hardcore fans are incredibly dedicated and vote with their money. The more hard to find an item is, the more they want it. It's something of a Veblen good, and that's not a bad thing. But I understand fans' frustration when there is something they cannot get, and by us selling items on eBay it appears we are dangling something in front of their noses and demanding they pay more. We are not. These items will end up on eBay regardless. On an auction site, the customers set the price.

So, economics 101 with Jack White: price is a function of supply and demand. If supply is low and demand is high, the equilibrium price will be high indeed. If the merchant keeps the price artifically low, then there is an opportunity for arbitrage – or "flipping". Either way, the price will end up at its natural level; so you may as well capture that yourself.

Hat-tip to Modeled Behaviour

Jack White sings with his band the Dead Weather. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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