Editorial

Citation

French, N. (2020), "Editorial", Journal of Property Investment & Finance, Vol. 38 No. 2, pp. 89-90. https://doi.org/10.1108/JPIF-03-2020-165

Are we still uncertain?

… in this world nothing can be said to be certain, except death and taxes.

Benjamin Franklin (1789)[1]

In January 2020, the UK finally entered a period of some certainty in business and finance. The UK electorate has decided that a pro-Brexit party should be in power for the next five years with a majority of 80 seats. Business will be done. And after three years of faltering uncertainty, the markets reacted strongly. It was not the decision itself that was important, it was the fact that a decision had been made at last. I am pretty sure that had the populace voted for cancelling Brexit, then the market reaction would have, initially, been the same. Businesses and finance markets do not like uncertainty.

This is odd, because as Benjamin Franklin's quote above reminds us, nothing is actually certain. All that happened last week was that the new government was given the green light to complete the withdrawal from the European Union. The uncertainty of the form that a trade agreement will take is still uncertain; the logistics of imposing a “virtual” border between Northern Ireland and Eire is still uncertain; the future of the union, with the strong showing of the Scottish Nationalist Party (SNP), is definitely uncertain; the outcome of the US election is, with Trump's impeachment looming, unknown. And, underlying this all, the weight of global borrowing at historically high levels brings the uncertainty of recession to all developed markets. So many things can change and so many things will change. Small decisions will ripple through the markets and a new future will form only to be replaced by another reality.

So how will the property markets in the UK and abroad react? Initially, in the UK, there is so much pent up investment and occupational demand in the system, that I can see the UK economy and particularly the property markets bouncing on the back of the election result. Prices will rise in both commercial and residential markets, as yield fall and rents increase. Obviously, the degree of that impact will depend upon the location. London and the south will benefit most but, if the government keeps it pledges to invest more in the midlands and the north, then Keynesian magic will bring a positive boost to those markets too. It may be just a catching up period after three years of the Brexit uncertainty stagnation but it will be an upturn nonetheless. We will see 1–2 years of strong growth and confidence in the markets.

But there are demons lurking. As mentioned, the fundamentals in the UK and world markets are beginning to look very familiar with the prime indicators showing the same levels as before the Financial Economic Crisis of the late nineties. There is a financial cliff looming again. And for the property market, there is another urgency that will definitely have a negative impact on property prices in the UK and that is the carbon reduction targets that will mean that 95% of the existing let stock will need to be retrofitted, before it can be legally, let within the next 10 years as part of the UK stated target of carbon neutrality by 2050. That is a massive undertaking and cost and markets will adjust by re-indexing the price of all property affected. The legislation (Minimum Energy Efficiency Standards–MEES) is already in place and the target date of 2030 for the majority of properties to comply is already being mooted. This is a massive intervention in the property market unseen in my lifetime.

My career in property has taught me that markets shift and change constantly so the blip of certainty in the sea of uncertainty is nothing unexpected but something tells me that the impact of climate change (or more correctly the interventions needed to try to slow its progress) on world markets is not yet being priced into current yields and rents. Move over Brexit, a new bigger uncertainty is on its way.

Note

1. The source is a letter that was written from Franklin to French scientist Jean-Baptiste Leroy in 1789.