The Town and Country Planning Act of 1947 and Its Impact on UK Housing Supply

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A new study by Watling and Breach finds that Britain’s housing shortage began at the beginning of the post-war period, not at its conclusion.

England and Wales saw housebuilding rates drop by a third after the introduction of the Town and Country Planning Act of 1947, from 1.9 percent growth per year between 1856 and 1939 to 1.2 percent between 1947 and 2019, according to the study, which states that “even though public sector housebuilding increased from 0.2 percent a year before 1939 to 0.5 percent after 1947, annual private housebuilding fell by more than half, from an average of 1.7 percent before 1939 to 0.7 percent after 1947.” In 1955, the UK had a ratio of dwellings per person that was 5.5 percent above the European average, but by 1979 it was 1.8 percent below it, and by 2015 it had fallen further to at least 7.8 percent below the modern average, according to the study.

According to the UK Parliament, “Parliament saw it as essential to restrict the growth of large cities. The Town and Country Planning Act of 1947 laid down procedures to control urban sprawl into the countryside. All planning was to be subject to planning permission by local councils. Most importantly, every area of the country was to have a ‘development plan’ showing how each area was either to be developed or preserved.”

According to the English Housing Survey: Housing Stock Report, 2014-2015, published by the Department for Communities and Local Government (DCLG), 36.8 percent of the 2014 housing stock in England was constructed prior to 1945.

Expanding E-Commerce Market in Southeast Asia Fuels Demand for Industrial Space

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Savills reports that Southeast Asia’s e-commerce sector is projected to develop at a compound annual growth rate (CAGR) of 34 percent to USD $102 billion by 2025, up from USD $5.5 billion in 2015. From 2016 to 2021, the total value of e-commerce sales in Southeast Asia grew fivefold annually and e-commerce’s share of all retail sales surged from five percent to 20 percent, according to McKinsey. The McKinsey analysis states that the average e-commerce penetration rate (excluding food and beverage) in Southeast Asia is 20 percent, whereas, by comparison, China’s penetration rate is 47 percent.

The growing trend of online shopping in Southeast Asia has resulted in retail sellers recording strong sales growth, according to Business Wire, which states that in December 2022, Shopee (one of the leading e-commerce marketplaces in Southeast Asia) announced that its sellers have recorded a sales growth of 25 percent in Malaysia. Indonesia, with a population of 278 million, is the region’s largest market for online purchasing with sales of $43.4 billion in 2021 and year-over-year growth of 32 percent, according to Practical Ecommerce (citing data from Statista’s ecommerceDB). Despite its large population (112.7 million), the Philippines has relatively low e-commerce engagement with 2021 online sales somewhere between $5.5 billion (Global Data) and $12 billion (Statista) and an internet penetration rate of 68 percent—the region’s lowest, according to the report. However, B2C (business-to-consumer) e-commerce in the Philippines is expected to grow steadily, recording a CAGR of 18.24 percent during 2022-2026, according to Research and Markets (reported in GlobeNewswire).

Investment activity in Southeast Asia’s industrial real estate sector appears vigorous. Manila’s warehouse sector registered the highest lease rate growth half-yearly in Southeast Asia at 15 percent, according to Knight Frank’s H2-2022 APAC Logistics Highlights (reported in RETalk Asia). Shopee, the e-commerce platform of Singaporean global consumer internet company Sea Ltd. intends to construct a 1.4 million square foot mega logistics warehouse in Klang, Malaysia, according to TechNode Global. Furthermore, Apple, in an effort to reduce reliance on China and diversify its supply chain, is moving production of MacBooks to Vietnam, with production slated to begin in the Southeast Asian country as early as May 2023, according to Forbes. CBRE analysis suggests that every USD $1 billion of additional e-commerce sales requires an additional one million square feet of logistics space.

Southeast Asia consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Timor-Leste and Vietnam.

Healthcare Is the Silver Lining in Today’s CRE Market

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Healthcare real estate transaction volume hit a record high in 2022 with approximately $26 billion invested into the sector, according to a JLL healthcare survey. At 58 percent, medical office buildings comprised the largest portion of healthcare real estate investment in 2022, followed by ambulatory surgical centers (27 percent), according to the survey.

Colliers reports that net absorption for medical office space totaled 22.1 million square feet over the 12 months to mid-year 2022, up from 12.5 million square feet during the prior 12 months, and average net asking rents for medical office building space increased by 1.7 percent in the first half of 2022 to $23.06/sf. Medical office building occupancy is above 92 percent, according to REBusiness Online.

The CMBS Market Reacts to Suboptimal Market Conditions

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Higher interest rates, decreased demand in the office sector and a rise in defaults have put the brakes on the CMBS market. Bloomberg reports that only about $4.27 billion in commercial mortgage bonds have been issued so far this year, down from $29.38 billion at this same point last year (data based on deals without government backing).

Fitch Ratings’ U.S. CMBS delinquency rate increased three bps to 1.85 percent in January 2023 from 1.82 percent in December 2022. Pursuant to an SEC filing, subsidiaries of the fund Brookfield DTLA Fund Office Trust Investor have defaulted on loans for the Los Angeles Gas Company Tower (555 West 5th Street) and 777 Tower (777 South Figueroa Street). On the right coast, after spending $104M on purchase $45M on renovation, Related Fund Management and BentallGreenOak (BGO) have agreed to a deed-in-lieu-of-foreclosure arrangement with their lender for The Point LIC, a two-building office complex in Long Island City, according to GlobeSt.com.

The horizon does not look too attractive. According to S&P (citing data from DBRS Morningstar), around $30 billion worth CMBS loans tied to roughly 400 commercial properties in Los Angeles and Orange counties in California will come due by the end of 2023, with only about $3.5 billion of the total already paid back.

CPTPP Membership Likely To Spur Additional Investment in Chilean CRE Market

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Signed on March 8, 2018 in Santiago de Chile, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a free trade agreement between Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam (the UK also intends to pursue accession to the CPTPP). Once fully implemented, CPTPP will form a trading bloc representing 500 million consumers and 13.5 percent of global GDP. According to the Peterson Institute for International Economics (PIIE), CPTPP members pledged to eliminate almost all tariffs and import charges on each other’s products and accepted common obligations on food regulations, environmental protections, the digital economy, investment, labor, and financial services, among others.

Chile has ratified the CPTPP, which will enter into force for the Andean country on February 21, 2023, according to The Star. Chile’s market-oriented policies general respect for property rights have created opportunities for foreign investment. According to the World Investment Report 2022 published by UNCTAD, FDI flows to Chile rose by 32 percent to USD 13 billion (compared to USD 8.4 billion in 2020). Chile also ranks high in GDP per capita among Latin American countries.

Ninety percent of Chile’s foreign trade is conducted by sea, according to the ITA, and Mordor Intelligence forecasts Chile’s freight and logistics market to register a CAGR of over five percent in the period 2023-2028. ITA also reports that the Outer Port in San Antonio (Puerto Exterior) and Terminal 2 of the Port of Valparaíso are planning expansion projects to increase capacity.

In the medium to long term, and barring unforeseen political instability, the CPTPP regime is likely to boost trade volume and also increase demand in Chile for logistics/industrial real estate—a sector which is already supply constrained. Santiago’s industrial sector ended H2-2022 with a zero-vacancy rate and because of this vacancy absence, companies are signing contracts for under construction projects, according to research from Cushman & Wakefield. During H1-2022, of the 188,905 sq. m. forecasted to be added to the market, 93 percent had already been leased, according to Cushman.

Valparaíso Harbor
Photo: Ramin Seddiq

Is Land Value Taxation a Good Idea?

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A land value tax is a levy on the assessed value of land without regard to the value of any improvements located on the land. By contrast, in a single-rate property tax system, land and the improvements upon it, are taxed as one unit and at the same rate.

A land value tax regime can be implemented in two variations: 1.) a split-rate property tax system in which land is taxed at a higher rate than the improvements on the land; and 2.) a pure land value tax regime which imposes a property tax on only the value of the land and not to the value of improvements on the land.

Martin Wolf, writing in FT, supports taxing land value. Wolf argues in part that the moral case for separating the return on natural resources (i.e., land) from that on other assets is that the former pre-exist human efforts. The appreciation of land value, Wolf argues, was the result of the efforts of all those who contributed to making the city richer (Wolf notes London as an example), yet a large part of the agglomeration value of productive cities is captured by those who happen to own the land.

The Wall Street Journal reports that Detroit is mulling replacing some property levies with a single tax on the land value only. A 2022 study by the Lincoln Institute of Land Policy states that a move by Detroit to a split-rate tax system holds the prospect of stimulating economic activity as it can both discourage the holding of vacant land and encourage capital investment in structures and improvements. Among the study’s recommendations for the city is phasing in a split-rate ratio that taxes land at at least five times the rate of structures and improvements (i.e., a 5:1 ratio). Based on the study’s models, a 5:1 ratio lowers Detroit’s tax rate on improvements to 57.3 mills, close to parity with the Detroit metro region and with the statewide average millage rate (52.7 mills in 2018).

Economist Tyler Cowen is skeptical about land value taxation. Writing in Bloomberg Opinion, Cowen states that “[i]t’s not the tax system that drives high rents and NIMBYism; it’s the power of interest groups. Even with a pure land-value tax, that power won’t just go away. The more likely outcome is an intensification of conflict — and a higher cost of building.”

Retrofitting and Green Financing in Commercial Real Estate

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According to the IEA, the buildings and construction sector accounted for 36 percent of final energy use and 39 percent of energy and process-related carbon dioxide (CO2) emissions in 2018, 11 percent of which resulted from manufacturing building materials and products such as steel, cement and glass. At times and depending on the circumstances, retrofitting an existing property may be more beneficial (from both cost and environmental standpoints) than new construction. A May 2022 report by the American Council for an Energy-Efficient Economy (ACEEE), estimates that comprehensive retrofits of commercial buildings can achieve up to 40 percent energy savings compared to single-measure improvements. Architect Carl Elefante explains that “[r]etrofitting existing buildings to improve their performance can achieve energy efficiencies equivalent to new buildings, substantially reducing operational emissions while avoiding the immense embodied emissions from constructing a new building.” According to Holland & Knight, green renovation also comes with public health benefits such as improved indoor air quality and reduced exposure to carcinogens and other harmful substances. Green financing is often used for retrofit projects.

UK law firm TLT defines green loans as “a financial product that’s specifically designed to fund green projects (as defined in the Loan Market Association’s (LMA’s) Green Loan Principles), and which offers borrowers [favorable] terms in order to [incentivize] them to spend money on sustainability improvements, thus helping the lender to meet its own green finance targets.” Green bonds are often used to finance climate-friendly projects and fund green loans. According to the U.S. Department of Energy, a green bond is “a fixed income debt instrument in which an issuer (typically a corporation, government, or financial institution) borrows a large sum of money from investors for use in sustainability-focused projects.”

In 2022, China issued the highest amount of green bonds aligned with the commonly accepted global definition, totaling $76.25 billion, followed by Germany with $60.77 billion, according to S&P Global (reporting data from Climate Bonds Initiative). California-based logistics REIT Prologis, which estimates that 2.5 percent of the global GDP passes through its warehouses, has issued 16 green bonds and three green private placements of debt in the past four years, according to the U.S. Green Building Council (quoting Tim Arndt, chief financial officer at Prologis). Prologis boasts over 240 projects using LEED, according to the report.

A World Bank report provides examples of strategies used by lenders to improve and increase green financing.

Egypt’s Economy Is in the Doldrums

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Egypt’s annual urban consumer inflation rate rose to 21.3 percent in December 2022—the highest since the end of 2017, according to Asharq Al-Awsat (reporting data from CAPMAS). MEI reports that by the end of August 2022, international reserves had declined to $32.2 billion, made up mostly of deposits by oil-rich Persian Gulf countries (e.g., UAE, Saudi Arabia, and Qatar) that rushed to help their key ally.

Egypt recently started a $3 billion IMF program that calls for reducing the state’s footprint in the economy, liberalizing the exchange rate, rationalizing spending, and includes a goal of raising $2-2.5 billion by mid-year from the sale of state assets, according to Reuters.

Located about 28 miles east of Cairo, Egypt’s yet-to-be-named new administrative capital has been under construction since 2015 and is estimated to have cost $59 billion, according to The New York Times. The megaproject includes construction of the Iconic Tower which, at 393 meters (~1,289ft), will be Africa’s tallest building, according to The B1M.

The Slow Recovery of Manhattan’s Retail Sector

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Midtown and Lower Manhattan are nine percent and one percent below their pre-pandemic retail spending levels and 35 percent and 36 percent below pre-pandemic restaurant and bar spending levels, with foot traffic still down by 23 percent and 18 percent respectively, according to Making New York Work for Everyone, the state and city’s post-pandemic recovery plan.

As of Q1-2022, total citywide employment was 288,000 below that in Q1-2020, according to a recent study by The New School Center for New York City Affairs. Manhattan had 56 percent of all New York City jobs in the pre-pandemic first quarter of 2020. As of two years later, it had absorbed 75 percent of the 288,000 citywide job loss, according to the study.

Paper: Less Than Nine Percent of Western Firms Have Divested From Russia

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According to a paper by Evenett and Pisani, in April 2022, a total of 2,405 subsidiaries owned by 1,404 EU and G7 companies were active in Russia. By late November 2022 (nine months after the Russian invasion of Ukraine), only 8.5 percent of this pool of companies had divested at least one of their subsidiaries in Russia. While U.S. companies have divested more often than their EU and G7 counterparts, to date fewer than one in five (18 percent) have completed exits, according to the paper.