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Think-tank says British pay more and get less than people in other economies with similar incomes

Britain’s housing offers the worst value for money of any advanced economy, combining high prices with old, cramped, poorly insulated buildings and long commutes, according to an influential think-tank.

The Resolution Foundation said high levels of outright home ownership obscured how bad the UK’s housing affordability was relative to other countries. Its analysis, published on Monday, showed that if all households — including owners and subsidised social renters — were renting their homes on the open market, they would have to devote 22 per cent of their spending to housing services.

Compared on this basis — by combining actual with “imputed” rents — housing consumed a larger share of spending in the UK than in any OECD country except Finland, the think-tank said.

Its findings will inflame an already heated debate over housing and planning in the run-up to the next general election, as both main parties seek to win over younger voters struggling with sky-high rents.

Rachel Reeves, shadow chancellor, last week promised to tear up a planning system she described as “the single greatest obstacle to our economic success” and reintroduce mandatory local housing targets.

Adam Corlett, principal economist at the Resolution Foundation, said the housing crisis had been “decades in the making”, with successive governments failing to build or modernise enough homes, adding: “That now has to change.”

UK households both paid more and got less for their money than in many countries with similar levels of income, the Resolution Foundation found.

In 2018, households in England had on average 38 square metres of floorspace per person — outstripped not only by their French and German counterparts, who had 43 sq metres and 46 sq metres on the latest count, but even by Japan, with 40 sq metres and residents of New York’s central city district, where the average was 43 sq metres.  

Despite long-running concerns that the UK’s housing shortage is worsened by second-home owners leaving properties empty, Britain also has one of the lowest rates of second-home ownership in Europe and one of the lowest vacancy rates in the OECD, the Resolution Foundation found.

It citied a study showing 4 per cent of British households owned second homes for their own use, compared with 9 per cent in France, 17 per cent in Finland and 22 per cent in Spain.

Meanwhile, the UK’s housing stock is easily the oldest in the EU, with almost four in 10 homes built before 1946, compared with three in 10 in France, one in four in Germany and one in 10 in Finland — with knock-on effects for energy efficiency.

It is also farther flung: 42 per cent of UK commuters travelled for more than an hour a day to reach their workplace in 2019 — well above the EU average of 37 per cent.

After adjusting for the general level of prices across each economy, people in the UK paid more for housing, relative to other goods and services, than in any other developed country — more even than in New Zealand and Australia, which have their own perennial housing crises.

“We often live in smaller, older and poorer-quality homes in the UK than households in many counterpart countries and pay a princely amount for that privilege,” the Resolution Foundation said, urging both main parties to “bring on the manifestos” to tackle the issue in the general election campaign.

Investors are pouring money into derivative-income funds that sell options contracts to juice income

The stock market is calmer than it has been in years. Some worry that a popular strategy is contributing to the tranquility.

Measures of market volatility have fallen to levels last seen in 2018, while major stock indexes have climbed to repeated all-time highs. The S&P 500 is up 9.7% in 2024 and has set 20 closing records.

Investors are responding. They are seeking protection from potential losses by pouring money into what are known as derivative-income, or sometimes covered-call, exchange-traded funds that sell options contracts in a bid to juice income or boost their returns. Options are contracts that allow the holder to buy or sell shares at a predetermined price.

Assets in such funds topped $67 billion at the end of February, according to Morningstar Direct, up from about $7 billion at the end of 2020.

The funds work by primarily investing in stocks like Tesla and Meta Platforms or major indexes such as the S&P 500 and Nasdaq-100. A fraction of the fund’s assets are used to sell a call option on assets the fund already owns, in exchange for an upfront payment called a premium. The buyer of the option has the right to purchase the underlying shares at a specific price, known as a “strike.”

The funds tend to perform best in a sideways market when stocks don’t move up or down too quickly. During market slumps, they often fall less than traditional portfolios. The flip side is that investors can be locked out of potential gains when stocks stage a big rally.

Of course, the funds come with other risks. Some of the funds, like a popular Tesla ETF, offer eye-popping yields that can leave investors deeply in the red if the market turns against them. The Tesla fund is susceptible to the wild swings in the electric-vehicle maker’s stock and sells options tied to the shares to generate income. It is far from the conservative alternative that some might expect of an income-generating fund and has fallen 34% this year, compared with Tesla’s 31% decline.

Wall Street portfolio managers have chalked up the interest in these funds to investors who are eager for regular income or looking to protect against large losses after a big rally, particularly as they near retirement age.

“We are at all-time-highs, and demand for this strategy has increased. I don’t think that’s a coincidence, and I do think it’s a function of demographics,” said Eric Metz, president and chief investment officer at SpiderRock Advisors.

The rise of the funds was propelled by a 2020 Securities and Exchange Commission rule that made it easier for ETFs to buy and sell options. The largest fund in the class, the JP Morgan Equity Premium Income ETF, has about $32.8 billion in assets under management and has returned 13% since its inception in May 2020. The S&P 500 has returned 17.2% over the same period.

One possible reason for concern: The funds are a different take of the short-vol trade that blew up in spectacular fashion six years ago. A February 2018 surge in stock market turbulence led to the collapse of two volatility exchange-traded products in an episode that became known as “Volmageddon,” causing huge losses for many individual investors. The blowup rippled through the broader market and fueled further selling.

This time around, investors are skeptical that the funds will trigger a repeat.

“That option structure is relatively benign in the grand scheme of things,” said Jim Carroll, a portfolio manager at Ballast Point Wealth Management. “There’s no detonation event that’s conceivable in that structure.”

Steve Bohn, a biotech executive from Highlands Ranch, Colo., uses a strategy that is similar to the derivative-income funds. He invests in a custom bank note that sells calls to generate income and protect against downside risk. He says he became comfortable with the idea after conversations with his financial adviser.

“I just wanted to understand, what is the maximum downside and how would I feel if I lived out that worst case scenario,” he said.

Bohn, who is 57 years old, estimated his portfolio would incur a $50,000 loss if his note lost all its value. “I wouldn’t be thrilled with it, but it wouldn’t mess up my life,” he said.

The interest in derivative-income investments is part of a broader options boom that has reached new heights to kick off 2024. Traders have flocked to bold, bullish bets on Nvidia and semiconductor stocks in particular.

By one measure, trading in options has surpassed that in stocks for the first time since 2021, according to Goldman Sachs. That is based on the notional value, a measure of how much the shares underlying option contracts are worth, a figure that fluctuates with daily moves in the shares. At times, the surge in options trading has fueled concerns that the derivatives activity could stoke volatility in the broader market.

Right now, volatility could hardly be lower. The Cboe Volatility index, or VIX, known as Wall Street’s fear gauge, closed Friday at 12.91. It has closed below 16 for 97 consecutive trading days, the longest such streak since 2018, according to Dow Jones Market Data.

Some worry that the rise of option-selling funds is contributing to the calm. The fresh supply of options means dealers, who generally don’t want to take a directional bet, need to hedge their risks, said JPMorgan Chase analyst Bram Kaplan. In this situation, that means buying stock futures when markets decline and selling them as they rise, serving as a counterweight to market moves and suppressing tumult.

“Call overwriting ETFs have become a large source of volatility supply that has been increasingly weighing on market volatility levels, in our view, ” Kaplan and other analysts wrote in a research note.

Even if the rise of option-based ETFs won’t spark another Volmageddon, some fear that current market conditions make the strategy unlikely to thrive.

“I love a short-vol trade. I get interested when VIX is 20, excited when it’s at 30,” said Rob Arnott, founder and chairman of Research Affiliates. At the current level, “it’s not exactly the trade of the decade,” he said.

Once-shabby neighborhood is booming while some other High Streets across the country still struggle

MIAMI—When Miami developer Craig Robins welcomed LVMH Chief Executive Bernard Arnault to his office in the city’s Design District, there was little about the gritty neighborhood to suggest it would ever become a mecca for luxury goods.

The dozen blocks consisted of squat, single-story concrete warehouses, furniture showrooms, and empty lots. But the two men shared a vision that the area could evolve into a SoHo of the south. By the end of the meeting, Arnault agreed to form a new company with Robins that would buy properties in the district and transform them into stores featuring posh brands from the French company and others.

“Everyone thought we were crazy and that it would never work,” Robins said.

Now, 14 years later, the Design District houses LVMH’s most recognizable names, from Louis Vuitton to Loewe. Their suite of luxury brands left the nearby Bal Harbour luxury mall to relocate to the District. Rival European luxury brands, including Hermès and Chanel, also added flagship stores to the Design District.

The once-shabby neighborhood has emerged as one of the world’s most popular luxury hubs, booming while some other High Streets still struggle. Luxury corridors such as New York’s Meatpacking District and Chicago’s Magnificent Mile have experienced double-digit decreases in foot traffic over the past four years through 2023. In the Design District, foot traffic jumped 47% over that period, according to Placer.ai data analyzed by CBRE research.

One of the keys to the neighborhood’s success has been mixing its 30 acres of retail with outdoor sculptures and murals. The flagship luxury stores resemble art galleries. At the Celine store, creative director Hedi Slimane recently designed a mirrored sculpture that is both an art installation and a functional spiral staircase that leads customers to the second floor.

Asking rents for retail space in the Miami neighborhood have risen 200% since 2019, according to real-estate firm JLL, by far the steepest increase of any North American prime retail corridor over that time period.

For certain brands, Miami is their bestselling city, said Michael Burke, head of LVMH Fashion. “And for others, the Design District is their top store in all of America.”

Robins has also been instrumental in expanding Miami’s cultural scene, helping launch the Art Basel Miami Beach fair and ushering in new galleries and museums to the Design District.

He sits at the nexus of the brash new Miami, which after realizing its aspirations to become more of a cultural capital is increasingly focusing on the business and financial elite that have flocked to the city. Outposts of popular New York City restaurants and exclusive membership clubs now define the city as much as the surf and party scene.

“These financiers, tech entrepreneurs, would be unlikely to move to Miami if you didn’t have this exciting urban culture,” said Jeffrey Deitch, of the Jeffrey Deitch gallery in Los Angeles and New York. “Craig is one of the key people in inventing this exciting new Miami.”

That blend of art and finance works for Robins, 61 years old, who feels as comfortable dressed in a jean jacket with a leopard-print collar, as he does in a suit and tie.

He grew up on Miami’s Star Island and was exposed to art and commerce at an early age. His father, Jerry Robins, was a real-estate developer. The chairman of Miami-Dade County’s Art in Public Places, one of the first public art programs in the country, was his neighbor. When he learned about Robins’s interest in art, he enlisted him to join the board when he was only 23 years old.

Robins got his start developing Miami Beach’s art deco district while studying law at the University of Miami. He later partnered with Tony Goldman, the developer who revitalized SoHo in the ’70s. Goldman also helped transform Miami’s Wynwood neighborhood from an industrial district into one frequented by younger people and featuring galleries and large-scale outdoor murals.

In the late 1990s, Robins used his own savings to acquire properties in the Design District at an average of $5 a square foot. He offered free space for artists and curators to display their works, and he brought in high-end furniture showrooms.

In 2010, Arnault was flying from Los Angeles to Paris when Burke elected to reroute his boss’s flight through Miami to present him with the “crazy idea” of investing in the Design District, something Robins had suggested at an Art Basel party a few years before. Arnault and Robins, both avid art collectors, lingered in Robins’s office over works by the conceptual artist John Baldessari.

Real-estate prices were especially cheap then after the 2008-09 financial crisis had caused Miami property values to plummet. By the end of a three-hour conversation, the LVMH chief agreed to be 50% partner with Robins on a company now called Miami Design District Associates. In 2014 Brookfield joined as an equity partner.

Robins spends most of his time in the Design District, curating both public and private events, including concerts open to the public. On a recent afternoon, he strolled through the neighborhood in a Dior Homme suit and his signature thick-framed glasses. He greeted friends while pointing to sculptural works throughout the neighborhood.

He strolled past two museums free to the public, including ICA, for which Miami Design District Associates donated the land. Of the 14 Michelin stars recently awarded to Miami, the Design District’s restaurants landed four of them. A private club, called The Moore, recently opened inside the historic Moore Building.

“Miami was not thought of as an inventor of global cultural content,” Robins said. “I really wanted to change that.”

Biden administration push to decarbonise draws in companies from Sweden, Denmark and Germany

Swedish steelmaker SSAB is among the European winners of a series of US government investments in an $6bn effort to decarbonise manufacturing, across high polluting sectors such as steel, cement, chemicals and fuel refining.

The $500mn in funding earmarked for an SSAB commercial-scale steel plant using hydrogen in Mississippi is one of 33 deals by a new agency set up under the Department of Energy, as part of the Biden administration’s efforts to steer industrial strategy and stimulate the manufacturing sector.

Of the five largest awards in the portfolio, each worth up to $500mn, three will go to operations with parent companies headquartered in Europe. The companies will match the US government investment, in a cost share.

Since the 2022 passage of the Biden landmark climate legislation known as the Inflation Reduction Act (IRA), European lawmakers have voiced concerns about the incentives-driven pull of green investment to the US.

The SSAB investment in the US comes as European steelmakers struggle to source the hydrogen needed for less carbon-intensive production. Final investment decisions for projects planned in Sweden and Germany have been delayed. In November, SSAB shelved plans for a hydrogen facility at Finland’s Raahe steelworks.

Heavy industry is responsible for about a quarter of US greenhouse gas emissions. The new US agency, known as the Office of Clean Energy Demonstrations within the Department of Energy, also awarded German cement manufacturer Heidelberg Materials up to $500mn to install carbon capture and storage facilities at a plant in Indiana.

The National Cement Company of California, owned by French materials group Vicat, won up to $500mn for a proposal to become “carbon neutral”, including by using carbon capture and replacing some fossil fuels used for energy with “locally sourced biomass from agricultural byproducts such as pistachio shells.”

Copenhagen-listed Ørsted, which last month announced that it would cut as many as 800 jobs and withdraw from key offshore wind markets in Europe, received up to $100mn to produce hydrogen-derived alternative fuels for shipping.

More than $1.6bn of the awards involve hydrogen, and come on top of IRA’s tax credit of up to $3 a kilogramme of clean hydrogen, as well as its subsidies for clean energy production.

In some cases, the projects receiving funding will provide a fillip to sectors that have seen few recent groundbreakings. Century Aluminum, for example, will receive up to $500mn for a plant that the US agency says would be the US’s first aluminium smelter built in 45 years.

Ohio-based Cleveland-Cliffs steel was awarded up to $500mn to replace one of its Middletown blast furnaces to be “hydrogen-ready”, among other measures. The company last year delayed plans to reline its blast furnace, extending the life of that equipment. Instead, the government investment suggests that the company will replace the blast furnace with the direct reduction process which is more energy efficient.

The US’s move to greener steel production has also had the effect of shifting production south, to states with less organised labour. Cleveland Cliffs’ proposal would be the first blast furnace to close and be replaced by cleaner technology, while keeping a local, unionised workforce.

Other funding recipients are set to take advantage of expansive hydrogen subsidies. ExxonMobil was awarded $331.9mn to substitute hydrogen for natural gas at a Baytown, Texas olefins production facility.

Consumer goods companies also received support. Unilever was awarded $20.9mn to make lower-carbon ice cream for brands such as Talenti and Ben & Jerry’s.

Rebecca Dell, a veteran of the Obama-era Department of Energy, who now directs the non-profit ClimateWorks Foundation’s industry program, said the funding catalyses projects that fall between early-stage ventures and loans for proven technologies to achieve commercial scale.

“This portfolio is exactly what I would want DOE to do,” Dell said. “This is great. They are doing all the things.”

According to a new analyst note from Jeff Pu at Haitong International Tech Research, seen by 9to5Mac, Apple is planning changes to the A18 Pro chip specifically for on-device artificial intelligence. Pu also writes that Apple is ramping up A18 Pro chip production earlier than usual.

The news comes as we continue to learn more about Apple’s plans for AI features this year, including how it will balance on-device versus cloud-based solutions.

iPhone 16 Pro’s new AI-focused chip

In the investor note, Pu, who is often a reliable source for Apple chip rumors, says:

According to our supply chain checks, we are seeing growing demand for Apple’s A18, while its A17 Pro volume has stabilized since Feb. We note Apple’s A18 Pro, the 6-GPU version, will feature a larger die area (compared to A17 Pro), which could be a trend for edge AI computing.

Increasing the die area of a chip means that it can accommodate more transistors and specialized components, generally allowing increased. On the other hand, as die size increases, so do the risks of defects and design flaws. It could also impact energy efficiency and heat dissipation. This is the balance Apple will have to strike as it ramps up A18 Pro production ahead of the iPhone 16’s launch later this year.

Edge AI computing, meanwhile, refers to artificial intelligence that is processed directly on device as opposed to in the cloud. Apple is believed to be taking a split approach to its AI features this year, relying on cloud infrastructure (potentially in partnership with Google) for some features, while running other features completely on device.

Here’s a great explanation of edge AI from IBM:

Simply stated, edge AI, or “AI on the edge“, refers to the combination of edge computing and artificial intelligence to execute machine learning tasks directly on interconnected edge devices. Edge computing allows for data to be stored close to the device location, and AI algorithms enable the data to be processed right on the network edge, with or without an internet connection. This facilitates the processing of data within milliseconds, providing real-time feedback.

This isn’t the first report to suggest Apple has changes to the A18 chip planned particularly focused on artificial intelligence. A report last month suggest that the A18 will “greatly increase the number of built-in AI computing cores” with a more powerful Neural Engine.

Both the iPhone 16 and iPhone 16 Pro are rumored to are expected to feature a version of the A18 chip this year. Currently, the iPhone 15 uses the A16 chip and the iPhone 15 Pro uses the A17 Pro chip. Jeff Pu’s report today seems to suggest that only the A18 Pro, destined for the iPhone 16 Pro and iPhone 16 Pro Max, will feature the AI-focused changes.