Wrong footed on interest rates, fate of global carbon pricing & construction's supply crunch easing?
Making sense of the latest trends in property and economics from around the globe.
4 minutes to read
Interest rates
Bank of England governor Andrew Bailey is on the ropes this morning for "walking the market up the hill" and then voting to hold interest rates at a record low 0.1%. Financial markets had put the odds of a rate hike at 90% as recently as Wednesday, in large part due to comments from Bailey and his fellow Monetary Policy Committee members during recent weeks.
Sterling dipped sharply but the decision to hold will make little difference in the property market. MPC members agreed a hike "will be necessary over coming months" and lenders have already been notching up rates in anticipation.
Whether it comes next month or early next year, a rise to 0.25% would leave the base rate below where it was at the beginning of 2020, when it was at 0.75%. It’s difficult to see any material impact on house prices or demand while it remains below that level, although the speed and direction of travel could unnerve some buyers.
The shift will mark new territory for significant numbers of borrowers. About a fifth of all mortgage debt is held on variable rates, equating to about £315 billion. In addition, more than 3.5 million first-time buyer mortgages have been issued since the base rate dropped to 0.5% in 2009. That is a large group who don’t know what it’s like when interest payments rise meaningfully.
The supply crunch
Some tentative signs that the worst of construction's supply chain crisis may have passed:
Construction companies continued to report widespread supply constraints and rapidly increasing purchase prices, though these trends were the least severe since April, according to the latest IHS Markit Purchasing Managers Index. The number of construction firms citing supplier delays, for example, fell to 54% in October, down from 63% in September.
Output has now been rising for nine months, with housebuilding the best performing category. The latest increase in residential work was the strongest for three months. Commercial construction also expanded at a quicker pace than in September, with survey respondents citing a sustained boost from looser pandemic restrictions.
COP26
World leaders may have left the COP26 conference but the real work will take place over the coming week as national negotiating teams work on the gritty details it will take to hit emissions targets. Perhaps most important will be further steps to establish a global carbon pricing market to underpin offsetting.
The UK, the EU and China already have systems in place, though policies and carbon prices differ significantly. Talks on carbon pricing derailed the last summit in 2019, though there has been some progress since. Lobbying groups have been pushing for a common approach and an announcement before the close of COP26 would be a watershed moment.
Outside of COP26 the property sector's push to decarbonise continues. Emma Barnstable discusses the leisure sector's approach to ESG in her new report this morning - Responding to an Experiential Crisis, and Kate Everett-Allen assesses how ski resorts are trying to burnish their environmental credentials, with a third now using 100% renewable energy.
Regeneration
We talked on Wednesday about Landsec's offer for U+I and what it reveals about the developer’s approach to regeneration as we emerge from the worst of the pandemic.
Rolling out these large, urban mixed-use schemes is not without its challenges, particularly for London’s historic estates. Anna Ward speaks to Grosvenor’s Belgravia director, Paul O’Grady to find out more about the landlord’s vision for the estate and its management post-pandemic. Paul discusses how Grosvenor is seeking to find a balance between preserving the historic district while also creating a greater mix of uses and ensuring it stays relevant.
Prime London
There are now unmistakable signs of recovery in the prime London sales market. Average prices in prime central London increased by 1.2% in the year to October, the fastest rate of growth since 2015. Annual growth has been positive for six months now, something last achieved before the Brexit referendum in 2016.
Meanwhile rents are now rising as steeply as they were falling at the start of the year. The flood of short-let properties onto the long-let market has dried up as lockdown restrictions have eased. At the same time, a number of owners attempted to sell during the stamp duty holiday, further driving down supply. Demand has also surged, triggered by the re-opening of universities and offices.
In other news...
The Telegraph reports on a story with big ramifications for the central London office market - London to retain Euro clearing.
Tilda Mwai on the shortage of industrial space in Lagos, Faisal Durrani on the surge in apartment prices in Saudi Arabia and Kate Everett-Allen on why Barbados is expected to shine bright this winter.
Elsewhere - Fed chief urges patient approach to rate rises as taper begins (FT), most furloughed workers returned to their jobs (Times), Airbnb revenue surges as countries open up for vaccinated travelers (Reuters), and finally, central bankers plot a course through the end of easy money minefield (Bloomberg).