Share: Share on Facebook Share on Twitter Share on LinkedIn I recommend visiting cushmanwakefield.com to read:%0A%0A {0} %0A%0A {1}

Addressing the Widening Inequalities Created by Real Estate

Richard Pickering • 22/06/2020

Over the past few years, the tempo has been increasing to call out and address systemic inequalities and unfair treatment in society. Movements like #MeToo and #blacklivesmatter often start with a catalytic event, and in a world where mass communication transcends borders, spread like wildfire in a way that was not possible just 10 years ago. The recent movement, instigated in the US, arrives at a time where inequalities are being hastened by COVID-19. Sadly, real estate and the design of our cities have significant roles to play in creating and maintaining these inequalities. ‘Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many’. So said Adam Smith, the father of modern economics. The pressure will come on, and hopefully from within, the real estate industry to change. It is up to us to show strong leadership at this time, or be judged by our inaction retrospectively. 

COVID-19 is exacerbating inequalities in several ways. We know that older people and men in particular are much more likely to die from the virus. Topically, it appears that the BAME community has also suffered disproportionate health impacts. The recently published review by Public Health England confirms that people of Bangladeshi origin are twice as likely to die from the virus than white Britons. Whilst there was no clear indication of why this is, the report notes that a significant contributing factor is the increased prevalence of comorbidities (multiple health conditions) among these groups. This in turn is a function of other demographic factors, such as deprivation, occupation and locational factors. Be thankful if you live in the UK; during the Spanish Flu there was a x30 mortality difference between rich and poor countries. Ultimately wealth is a big driver of outcome.  

Social mobility tends to be better in the West than in the developing world, however, among this Western group, the UK, and notably the US, perform poorly relative to our peers. If you are born to a poor family in the UK, it takes on average 5 generations (125 years) to arrive at the median income. On average. If you suffer from other mobility barriers such as racial discrimination, you might never get there. The factors influencing the ability to change include: economic capital (conferred wealth), social capital (your network), cultural capital (common experiences and outlook), early years influence (family stability), education (hugely important), health (ability to work), and area-based influences (transport, amenity, dislocation). These factors tend to work in step and conspire to protect the status quo. Most correlate in some way with wealth. 

Importantly, for most of us wealth is protected and enhanced through property. Typically, our main asset is our house, and in a recent climate of escalating house prices, many homeowners have made more from capital appreciation than poorer earners have made through their labour. Those who have money earn more money through investment, whilst the labour share of GDP falls and renters suffer. At the other end of the spectrum, it is no surprise that the rich list is heavily skewed to those whose business is property, or who have significant property portfolios. 

This dates back centuries. Preeminent British economist David Ricardo realised that land is an ‘economic residual’. By this he meant that the price of land varies dependent on the activity carried out on it; not because it has fixed inherent value. As a result, when the economy does well, it is not the labour force or even the capitalists that gain. Due to competition for scarce land, the profits from the economic activity flows through to the landlords, (back then, typically the aristocracy).  

Moving to today the same principle holds true. Consider the high street. When the economy grows, more money rings though shop tills. Retailers have strong negotiating power over commoditised staff, particularly in increasingly automated operations, and so real wages barely rise. However, competition to be on the best spot on the high street where the most money can be earned translates to higher rental costs, and so the profits relocate from the retailer to the landowner. Ricardo concluded that ‘the interest of the landlord is always opposed to the interest of every other class in the community’.  

This sets the scene for what we see today. As the economy turns downwards, it will be the poor who suffer most, as they always do. They are more sensitive to the change, and they have less agency to address it. 

Take homeownership as an example. The rising cost of housing in recent years has left a gulf between renters and homeowners. For both renters and those homeowners without pre-existing wealth, housing costs have become a more significant percentage of their total income. The ratio of one’s fixed monthly expenses to one’s income is much higher for the working class than for those with wealth. Not only does this leave poorer people less able to address things like interest rate movements, but it also creates a wage slavery not present for the wealthy. If you live in constant fear of losing your job and home, you lose the luxury of choice, and the luxury of negotiation with your employer. Those with less financial sensitivity meanwhile can continue to roll the dice and find opportunity.  

Consider also the particular issues now associated with coronavirus. Many readers will be working from home right now. Teleworking is a luxury of clerical and professional workers, who tend to enjoy wider privileges such as education and greater earnings. You would not be working from home if you were a shop attendant, a nurse or a factory operative. This in turn either means that you would be more likely to be furloughed (often with a salary reduction), redundant (with limited short-term employment opportunities), or working (and at greater health risk). COVID-19 disproportionately impacts the poor.  

And what of those working from home?  

In the short term, the fortunes of those with a spare room and a garden are markedly different from those with a small flat share. Partly this is an age thing, but it is also a class privilege. Those young urbanites with middle class backgrounds may now have gone home to live with parents in the suburbs; but for many others this will not be an option. And what happens next for homeworking? If, as many feel might happen, home-working becomes a much bigger component of the work model; then the cost of providing office space will essentially be redistributed from the employer (in a traditional office) onto the employee (wherever). Those who live at distance from the office (typically higher paid, older, professional workers) may be happy with this trade off against their commuting costs; however, for the less well-paid urban workers, it might mean finding a bigger flat. Who will pay for this? 

And if you are working from home with no schools open, who does the task of looking after children typically fall to? Evidentially, women and those less able to afford private childcare.  

How can the real estate industry start to tackle inequality?  

We work in an industry that is about creating wealth for investors, and this might seem like a diametric opposition to the challenge. However, it is worth remembering that today’s landowners are in effect you and me. By value most commercial property in the UK is owned by vehicles such as pension funds - not high net worths or aristocrats. The biggest investors in private equity are similarly pension and sovereign funds. With this in view, we, and those that manage these funds need more licence to maximise societal wealth through the removal of systemic inefficiencies. This was Ricardo’s position: tax the landowners rather than people or the entrepreneurs, and it will ultimately remove inefficiencies and create more wealth for all, including the landowners. This however is not an easy pivot and would require a willingness to rethink how investment is incentivised. 

Secondly, the government has a significant role to play in accelerating housing delivery to reduce pricing and therefore ease household financial pressures. It is increasingly difficult to escape the conclusion that this requires a new, properly resourced public housebuilding programme.  

Thirdly, in an advanced society such as ours, the prospect for windfalls arising from planning gain should surely be shared by society and not accrue to landowners. This might be an unpopular opinion among this readership. However, windfalls are not part of the plan of most long-term real estate investors, and lead to pricing risk and misalignments. We need an effective and predictable planning system, which shares out wealth and proactively addresses amenity deficits and localised deprivation.  

Finally, chances are that if you are a recipient of this note, you enjoy similar privileges to me. I grew up in a white, middle-class family and went to a private school, (they do exist in Hull). Nevertheless, when I moved down to London and joined the property industry, I was shocked at how this background put me in a low socio-economic group relative to my peers. I’d like to say that a lot has changed since then, but I’m not sure it has. Relative to other industries our lack of diversity is becoming an embarrassment. Collectively, we need to work much harder to encourage the best talent from all backgrounds into our industry. This includes a frank assessment of why this has not worked so far. We need to be more introspective and recognise and dismantle the barriers that exist, and the ones that we might inadvertently create. 

Latest articles in this series

office buildings
Research

Complete Asset Optimisation Guide

Discover expert strategies for optimising logistics, retail, and office real estate assets. Gain insights to maximise returns and improve performance.
Andie Penman • 29/02/2024
Sustainability
Article • Sustainability / ESG

Sustainable Dilapidations – Shifting Trends in The Green Agenda

The real estate industry is slowly shifting more towards retaining and repairing as opposed to demolishing and replacing. Whilst financial pressures continue to drive dilapidations, the real estate industry is on the journey to ensure sustainability is at the forefront of dilapidations.
Alex Charlesworth • 26/02/2024
The Removal Of PDR Restriction
Insights

Unlocking New Opportunities: The Removal Of PDR Restrictions For Commercial-To-Residential Conversions

In a significant policy shift, Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, announced on 13 February, proposals to change Class MA Permitted Development Rights (PDR) so that current floorspace and vacancy requirements will be removed, allowing  commercial buildings of any size the freedom to be converted into new homes. 
Fred Clifford • 15/02/2024
Life Sciences Golden Triangle Report
Research

Life Sciences: Golden Triangle Lab Report

Inside our latest Life Sciences Lab Report you’ll find insight on investment volumes, leasing take up, lab supply and pipeline, and investment into life sciences real estate across Cambridge, London, and Oxford.
Jamie Renison • 29/01/2024
landlords vs tenants
Article • Sustainability / ESG

Landlords vs Tenants: Future MEES Conflicts

The pressure on Landlords is growing. Cushman & Wakefield is seeing evidence that investors are reducing purchase offers accounting for the capital expenditure required to meet minimum energy efficiency standards.
Alex Charlesworth • 22/01/2024
Big Ben
Insights • Economy

Unpacking The 2023 Autumn Statement

We unpack the 2023 Autumn Statement and what it means for real estate & infrastructure, housing, business rates, consumers, the environment, devolution & investment zones.
Daryl Perry • 23/11/2023
main streets across the world 2023
Research

Main Streets Across the World 2023

In this 33rd edition of Main Streets Across the World, we’ll explore the near-term outlook for the retail sector; headline rent and ranking changes for best-in-class urban locations across the world; key indicators and global main street rankings; and key trends to watch such as the cost-of-living crunch, e-commerce and more.
21/11/2023
Data-Center-Update_EMEA_web-card-q32022
Research

EMEA Data Centre Market Update

The EMEA region is experiencing continued growth in demand as well as investments in digital infrastructure. The region currently has 6.9GW of operational capacity, with 2GW under construction and a massive 5.4GW in planned stages.
Andrew Fray • 30/10/2023
Young people around table with laptop
Research

UK Student Accommodation Report

The Student Accommodation Annual Report provides insight into the trends in student accommodation demand, supply and investment during the year to date.
Andrew T Smith • 26/09/2023
Ship with shipping containers
Insights

Retail & Supply Chain

2021 will continue to see growth in e-commerce and logistics demand and new retail supply chain models will be required to capitalise on the structural shifts in the sector.
04/11/2020
George Roberts Cushman & Wakefield
Insights • Economy

How 2021 Might Reshape The Real Estate Industry

We will look back at 2020 as the year in which COVID-19 accelerated forces of change. These forces will shape the industry for many years to come and for those that are able to interpret and take advantage of them, the opportunities are enormous. 
04/11/2020

INSIGHTS

office buildings
Research

Complete Asset Optimisation Guide

Discover expert strategies for optimising logistics, retail, and office real estate assets. Gain insights to maximise returns and improve performance.
Andie Penman • 29/02/2024
Sustainability
Article • Sustainability / ESG

Sustainable Dilapidations – Shifting Trends in The Green Agenda

The real estate industry is slowly shifting more towards retaining and repairing as opposed to demolishing and replacing. Whilst financial pressures continue to drive dilapidations, the real estate industry is on the journey to ensure sustainability is at the forefront of dilapidations.
Alex Charlesworth • 26/02/2024
The Removal Of PDR Restriction
Insights

Unlocking New Opportunities: The Removal Of PDR Restrictions For Commercial-To-Residential Conversions

In a significant policy shift, Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, announced on 13 February, proposals to change Class MA Permitted Development Rights (PDR) so that current floorspace and vacancy requirements will be removed, allowing  commercial buildings of any size the freedom to be converted into new homes. 
Fred Clifford • 15/02/2024
Residential-Market-Commentary-Hereo-Banner-Small
Article

Residential Market Commentary

Following a series of successive interest rate hikes, the UK economy is currently in a ‘wait and see’ period, to assess the effects on the substantial inflationary pressures that have impacted the economy over the last two years.
Millie Harper • 06/02/2024
Build to rent
Research

Build To Rent Quarterly Report

We are pleased to share with you the latest edition of our quarterly residential insights for the UK. 
Mark Clegg • 01/02/2024
landlords vs tenants
Article • Sustainability / ESG

Landlords vs Tenants: Future MEES Conflicts

The pressure on Landlords is growing. Cushman & Wakefield is seeing evidence that investors are reducing purchase offers accounting for the capital expenditure required to meet minimum energy efficiency standards.
Alex Charlesworth • 22/01/2024
pillows on hotel double bed
Research

Hospitality Market Trends & Data

The latest hospitality market insights are based on the in-depth analysis of our extensive data sets, surveys of investors, operators and lenders and up-to-date market intelligence from our team members on-the-ground in all major European markets.

Bořivoj Vokřínek • 09/01/2024
office with lights
Research • Economy

European Outlook 2024

Tailored for investors and property owners, our insights offer a clear path through the complexities of today’s market.
Sukhdeep Dhillon • 11/12/2023
emea-macro-outlook-mobile
Research • Economy

European Macro Outlook: What’s in a number?

Two consecutive quarters of negative growth is the technical definition of a recession. There has been a great deal of debate on whether the economies of the euro area and the UK are in a recession.
Sukhdeep Dhillon • 03/03/2023
UK Residential Development Land report
Research

Residential Development Land Report

The London residential land market has seen mixed success in recent times, whilst the South East is seeing record land values being achieved.

Charles Whitworth • 13/06/2022
office of the future
Research • Workplace

Office of the Future Revisited

Our latest insight establishes three realities: demand for office space is accelerating, hybrid is here to stay, and the role of the office has changed—and we explore their implications for office-using companies and workers.
Despina Katsikakis • 26/04/2022
Car Park
Research

Out of Town Retail

Retail has faced considerable Covid-19 related adversity over the past 24 months, but key consumer shifts have driven success and resilience in the Out of Town Retail market.
David Tonks • 03/03/2022

CAN'T FIND WHAT YOU'RE LOOKING FOR?

Contact Our Team for a Personalized Consultation 
With your permission we and our partners would like to use cookies in order to access and record information and process personal data, such as unique identifiers and standard information sent by a device to ensure our website performs as expected, to develop and improve our products, and for advertising and insight purposes.

Alternatively click on More Options and select your preferences before providing or refusing consent. Some processing of your personal data may not require your consent, but you have a right to object to such processing.

You can change your preferences at any time by returning to this site or clicking on Cookies.
MORE OPTIONS
Agree and Close
These cookies ensure that our website performs as expected,for example website traffic load is balanced across our servers to prevent our website from crashing during particularly high usage.
These cookies allow our website to remember choices you make (such as your user name, language or the region you are in) and provide enhanced features. These cookies do not gather any information about you that could be used for advertising or remember where you have been on the internet.
These cookies allow us to work with our marketing partners to understand which ads or links you have clicked on before arriving on our website or to help us make our advertising more relevant to you.
Agree All
Reject All
SAVE SETTINGS