AI, Pension and Property: 3 Economic Trends for Q3

How good is AI? And can it really deliver the productivity gains we need?

State pension spending is predicted to rise by a third over the next five years. How do we turn owners into doers to help grow the economy?

And are we about to see another 1992-style drop in property prices?

Every quarter, behavioural economist Roger Martin-Fagg shares his economic update and expert predictions for the coming months.

Here are three key trends we’ve identified from this quarter’s report. 

You can read Roger’s full update here.

1. Could AI Solve the Labour Supply Shortage?

For months, businesses across all sizes and industries have been wondering at the generative powers of ChatGPT and how it can help them become more efficient.

Some argue it has the potential to solve big problems by developing new drugs, designing new

materials to help fight climate change, or untangle the complexities of fusion power.

Others see it as more of a science fiction dystopian novel come to life. 

But can AI really solve the labour supply shortage in the Western world? 

Roger says yes. 

“It will enable productivity growth,” he writes. “And thus expand the tax base which will be

required to support health and wellbeing of the aged.”

2. How Do We Get More Doers into the Economy?

Labour produces output. 

Yet, in the UK, those doing the labouring receive around 60% of the value created while shareholders and landlords get the remaining 40%. 

And an increasing number of people of working age are opting to receive income from owning property and shares instead of labouring. 

To grow the economy, Roger says, we need more people producing value and fewer receiving income from the efforts of others.

How? 

“Raise the retirement age, cut state benefits to the bare minimum for survival. Increase taxation on capital gains, including property,” Roger writes.

However, this will require a significant societal shift which is unlikely to happen until renters are no longer able to survive on the income from owning. 

Download the full report here to learn more. 

3. Will Property Prices Crash This Year?

Most people in the UK hold the majority of their wealth in their primary residence. And as house prices continue to rise, so does perceived wealth and confidence that our country is doing well. 

However, many journalists predict a housing crash akin to what happened in the early nineties, when house prices dropped 18% in just two years. 

Roger thinks otherwise. 

“I strongly believe we will not see a repeat of the nineties,” he writes. “The collapse in prices in 1990-92 was primarily because NatWest and Barclays were insolvent and called in loans, pushing firms out of business and repossessed 300,000 homes which they dumped onto the market, willing to accept any price so long as it covered the debt.”

Today, on the other hand, UK banks are well capitalised, the UK labour market is much tighter, average earnings are up, energy bills will be lower than expected in the autumn and 80% of mortgages are now joint. 

So, in nominal terms, Roger expects prices to reduce by just 3% by the end of the year.

Get the Full Economic Update

Interested in reading the full update? 
Get your free copy of Roger’s Economic Update here.