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

hotel reception desk
Insights • Hospitality

Europe Hotel Operator Beat

This is an ongoing survey which started on the 21st of April 2023.
25/05/2023
card image - hospitality marketbeat 2022
MarketBeat • Hospitality

Europe Hospitality MarketBeat

Europe experienced healthy hotel investment activity in Q1 2023 (+18% vs Q1 2022) despite high financing costs and economic & geopolitical concerns; this was driven by several major transactions (e.g., The Westin Paris, Mandarin Oriental Bodrum, and Le Richemond Geneva).
25/05/2023
UK SELF STORAGE ANNUAL REPORT 2022
Research

UK Self Storage Annual Report 2023

The Self Storage Association UK Annual Industry Report provides a comprehensive overview into the self storage sector.
Philip Macauley • 16/05/2023
Life Sciences Golden Triangle Report
Insights • Lab

Life Sciences: Golden Triangle Report

Get insights on investment volumes, leasing take up, lab supply and pipeline, and investment into life sciences real estate across Cambridge, London, and Oxford.
Jamie Renison • 11/05/2023
Build to rent
Research • Residential

Build To Rent Quarterly Report

Our latest report takes a deep dive into US multifamily operational data.
Mark Clegg • 19/04/2023
obsolescence-emea-webcard
Article • Sustainability

Shaping a Sustainable and Successful Fashion Brand

Introducing the C&W Sustainability Series, the first in a series of regular articles published throughout 2023 on ESG in Real Estate.
Jennifer Milne • 18/04/2023
Data-Center-Update_EMEA_web-card-q32022
Research • Data Center

EMEA Data Centre Update

Opportunities remain for discerning investors in both large and small markets, with overall development activity in the region continuing to grow.
Jacob Albers • 13/04/2023
residential
Article • Residential

Where can lessons be learned from Scotland’s rent control legislation changes?

We look at introduction of rent caps in the Scottish residential market and its impact on the Build to Rent (BtR) sector.
Matt Pickering • 05/04/2023
C&W Lobby
Research • Office

Office Fit Out Cost Guide

An office fit out refers to the process of designing and constructing an office space to meet the specific needs of the occupier. This can include everything from furniture and equipment to mechanical and electrical systems.
Thomas Moore • 04/04/2023
London Moves
Research • Office

London Moves

The London Moves report highlights the who, what, where and why of office relocations across the capital. It analyses 590 Central London leasing transactions that took place across 2022, dissecting the data by a combination of metrics and categories including relocation type, submarket, business sector and size.
Ben Cullen • 04/04/2023
Ship with shipping containers
Insights • Retail

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 • Commentary

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. 
George Roberts • 04/11/2020

INSIGHTS

Residential market commentary
Article • Residential

Residential Market Commentary

Housing market activity has slowed, as rising interest rates, high inflation, and a weaker economy has impacted buyers’ confidence. However, there are some early signs of transactions and mortgage approvals picking up.
Millie Todd • 26/05/2023
hotel reception desk
Insights • Hospitality

Europe Hotel Operator Beat

This is an ongoing survey which started on the 21st of April 2023.
25/05/2023
card image - hospitality marketbeat 2022
MarketBeat • Hospitality

Europe Hospitality MarketBeat

Europe experienced healthy hotel investment activity in Q1 2023 (+18% vs Q1 2022) despite high financing costs and economic & geopolitical concerns; this was driven by several major transactions (e.g., The Westin Paris, Mandarin Oriental Bodrum, and Le Richemond Geneva).
25/05/2023
Sailboat in the Ocean
Research • Forecast - Outlook

European CRE Forecast

We are entering a period where real estate market conditions are expected to “settle” in H2 2023—that is, real estate markets find a new equilibrium.
Sukhdeep Dhillon • 18/05/2023
UK SELF STORAGE ANNUAL REPORT 2022
Research

UK Self Storage Annual Report 2023

The Self Storage Association UK Annual Industry Report provides a comprehensive overview into the self storage sector.
Philip Macauley • 16/05/2023
Life Sciences Golden Triangle Report
Insights • Lab

Life Sciences: Golden Triangle Report

Get insights on investment volumes, leasing take up, lab supply and pipeline, and investment into life sciences real estate across Cambridge, London, and Oxford.
Jamie Renison • 11/05/2023
Reworking the workplace
Article • Workplace

Re-working the Workplace

Follow our series of weekly blogs focusing on some of the most innovative developments in workplace strategy, researched from over 50 leading global companies.
Nicola Gillen • 02/05/2023
20 things to know about sustainability (image)
Article • Sustainability

Greenwashing and the Sustainability Disclosure Requirements

The FCA is aiming to create an investment environment in which consumers have access to clear, comparable criteria for qualifying sustainable investments, ensuring they are well-informed of what “green” looks like.
Rhiannon Jones • 02/05/2023
Lorry unloading at warehouse
Research • Logistics

UK Logistics & Industrial Outlook

The UK Logistics & Industrial National Outlook report analyses quarterly UK industrial and logistics property activity across the UK including demand, market supply and pricing trends with an outlook to future trends in this property sector. 
28/04/2023
obsolescence-emea-webcard
Article • Sustainability

Shaping a Sustainable and Successful Fashion Brand

Introducing the C&W Sustainability Series, the first in a series of regular articles published throughout 2023 on ESG in Real Estate.
Jennifer Milne • 18/04/2023
dna graphic
Research • Investment / Capital Markets

DNA of Real Estate

DNA of Real Estate tracks prime rents and yields in up to 45 cities across Europe, covering the key office, high street and logistics sectors. It provides an overview of quarterly performance for prime rents and yields.
Nigel Almond • 26/01/2023
tech cities
Research • Economy

Tech Cities: The Global Intersection of Talent and Real Estate

With a significant growth forecast for the global tech sector in the next 10 years, the evolution of tech cities around the world as hubs of tech talent and suitable commercial real estate will continue. In this report we assess how tech cities are competing for business across key talent, real estate, and business environment metrics.
David Smith • 08/08/2022

CAN'T FIND WHAT YOU'RE LOOKING FOR?

Get in touch with one of our professionals.
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