Wednesday property news update - 7th April
Green mortgages, the K-shaped recovery and the new battleground of workplace culture
5 minutes to read
The K-shaped recovery
Most advanced economies will emerge from the coronavirus crisis with little lasting damage thanks to the swift rollout of the vaccines and huge increases in public spending, according to the IMF (full report and FT write up).
That makes the impact of the pandemic markedly different to the 2007/8 global financial crisis, after which economies emerged about 10% smaller than they would otherwise have been. A global expansion of 6% this year and 4.4% in 2022 will leave output in advanced economies just 1% smaller than their pre pandemic growth path by 2024.
There is still a lot of uncertainty and variation behind the forecasts. Emerging economies excluding China will remain 8% below their pre-pandemic growth path due to weak finances, poor access to vaccines and reliance on tourism. However, it is the long term growth prospects of China and the US that really catch eye. China's economy, which surpassed its pre-pandemic growth trajectory back in 2020, will contribute more than a fifth of the total increase in world GDP by 2026, followed by the US with almost 15% - Bloomberg has the chart.
Lockdown's cash pile
The IMF also raised its forecast for UK economic output to 5.3% for 2021, outpacing growth of 4.4% in the eurozone. That estimate could still prove too conservative, according to Capital Economics figures indicating households had saved a record £140 billion by the end of 2020.
The Bank of England estimates about 5% of the savings will be spent, with the bulk put into investments such as property. The latter is playing out already, and the UK property market smashed record after record in March; exchanges and offers accepted both hit levels not seen in a decade, according to analysis by Tom Bill. In an era of social distancing, it was also the fourth highest month in ten years for viewings.
This is about much more than the extension of the Stamp Duty Holiday, rather the strengthening economy and gradual return to normality are playing central roles. For these reasons, the surge seen last month is likely to continue until at least the summer.
Zoom fatigue
Google and Amazon are the latest large companies to shun remote work, with Google going as far as telling staff to seek approval if they wish to work remotely more than 14 days a year. That follows a recent study from KPMG suggesting CEOs globally are cooling on the idea of cutting back on office space.
This is all interesting, but the debate over remote work and the future of the office has morphed into a much broader conversation about working habits and conditions. Some of this was prompted by stories of burnout among junior employees at professional services firms and investment banks for whom remote work means few opportunities to log off.
As a result, companies are looking beyond just the number of days a week staff can or should work from home. See PWC allowing staff to choose when they start and finish work, KPMG testing a rainbow meeting system to combat zoom fatigue or the more than one million companies that may switch to a four-day working week as a result of the pandemic. Incentive systems that impact workplace culture are also coming under increased scrutiny - see the FT's sharp criticism of forced employee ranking yesterday.
Green mortgages
We've talked before about differences between residential and commercial sectors when it comes to green buildings. Whereas office developers, for example, face pressure from all sides to be green, whether that's from occupiers, investors or their own shareholders, it remains unclear to what extent homebuyers and renters are willing to pay premiums on any significant scale.
Attractive finance could be the factor that impacts the incentives of homeowners enough to truly move the needle on this issue. Last week Paragon Bank launched a 3.99% five-year fixed deal for buy-to-let landlords, one of the lowest on the market, however it will only be available for properties with high energy efficiency ratings.
Green mortgages have been around a few years but uptake has been poor relative to the potential size of the market. That could change if researchers are able to convince regulators that a) improving the energy efficiency of a property has a positive impact on property value, reducing a bank’s asset risk, and b) that energy efficient borrowers have a lower probability of default as a result of more disposable income in the household due to lower energy bills, reducing a bank’s credit risk.
A consortium of researchers under the Energy Efficient Mortgages Action Plan say there is enough academic research to prove these points and are working to have it recognised by regulators in the form of lower capital requirements due to the lower risk in this type of exposure. That would lead to a significant uptick in the availability of Green Mortgages and transform the way homeowners think about the energy efficiency of their homes.
New York taxes
A proposal making its way through New York’s state legislature could see top New York City earners paying nearly 16% in combined state and city taxes. That is generating headlines as to whether meaningful numbers of the wealthy will opt to leave the city over the coming years - see both Reuters and the FT yesterday.
There are bigger factors than tax rates keeping the wealthy in top global cities, so it's worth treating stories like this with scepticism, however the Knight Frank Super Prime lettings team in London are reporting rising interest from US tenants in response to the changing tax landscape.
In other news...
The opportunities in Asia-Pacific's multifamily sectors, Stephen Wong with an update on real estate markets across Asia, Samarth Kasturia on flexible working in Singapore and Claire Williams on the UK industrial market.
Plus, central Banks should not target house prices, FTSE 250 recovers all pandemic losses, US job openings jump to two-year high and employers are struggling to fill them, and finally, has the coronavirus shown its best tricks?
Photo by Stephen Bergin on Unsplash