Land, Liquidity and Lords

By Richard Pickering, Head of Futures Strategy

Gunpowder Although we’re a little early for the 5th of November, the season for plots has already been sparked. However, fortunately for Theresa May, the rack of fireworks pointed in her direction appears to have fizzled out into a rather damp squib. The arch conspirator, Grant Shapps looks to have lacked the quorum of backers needed to trigger a leadership challenge. Speaking to his lack of credibility, Chelmsford MP, Vicky Ford, was quoted as saying, ‘He’s not even in our WhatsApp Group!’ (…#ouch); this presumably being the group of Tory MPs that Boris Johnson later messaged, remonstrating against those that seek to brief against May, ‘I’m frankly fed up to the back teeth with all of this’. Really, Boris? Paddy Power is offering polarising odds for Johnson; being simultaneously the most likely politician to leave his cabinet position this year (1/2) and also now the most likely to be the next leader of the Conservatives (3/1). Potentially it could be both.

Fat of the land It is perhaps an obvious point to make that the more densely we construct our cities, the more amenities there will be in close proximity. Amenity uses tend to be located at ground floor level. Hence, on the face of it there is double the commercial justification for ground floor coverage of say retail uses, when there is double the density of residential above. The result – a shorter walk to the greengrocer. Less intuitive, given this shorter walking distance is, according to a new study by Oxford University and the University of Hong Kong, that people living in dense urban areas are less likely to be obese. The translation is of course that beyond a certain distance, people don’t walk further – they get in the car. The least healthy density was found to be at 1,800 dwellings per sq km, with a linear reduction in BMI arising from greater density from that point up. From a policy perspective, the report suggests that increased planning density is therefore a potential ‘upstream-level public health intervention’.

Liquid lunch Efficiency is the economic aspiration of most markets and technology often provides the vehicle to achieve it. In the case of real estate, prominent inefficiencies include barriers to entry, information asymmetries and illiquidity. Proptech, big data and new trading platforms may ameliorate some of these issues, but what might be the effect? It is in our nature to overstate the requirement for liquidity. The instances where liquidity is required but unavailable (e.g. last year’s events with the open ended funds) are relatively rare, especially when portfolios are blended with more liquid assets. Therefore, some believe that markets irrationally over-reward illiquidity. Furthermore, as we have seen of late with indirect pricing, inefficiencies also smooth out price movements and lead to lower short term price volatility compared with more freely traded assets. Therefore, rather than being regarded as a problem for the industry, illiquidity might also be seen as a sustaining factor for long term performance. We should perhaps be wary of the benign forces which act to remove it.

Copyhold It has been pointed out to me that in last week’s blog I inadvertently stripped Lord Foster of his nobility, demoting him to the mere ‘Sir Norman Foster’. The Baron of Thames Bank was, of course, raised to the peerage in 1999. However, for the rest of us, undeserving of such a title, never fear – you can always buy one. Becoming a Lord of the Manor can cost anywhere from a few hundred pounds to the £171,000 that Earl Spencer secured for Lordship of the Manor of Wimbledon in 1996. And, if you thought that feudalism was ended with the Law of Property Act 1922, think again. Whilst the freehold interests within most manors have long since been flogged to third parties, Lords and Ladies of the Manor still, in some cases, hold the rights to hunt, shoot, fish, hold fairs and markets and extract minerals. Whilst fracking presents new opportunities for Lords in Lancashire to extract not just gas but also payments, those familiar with falling Scottish rod prices might now see less incentive to becoming a Laird of Lanarkshire.


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