Credit Crunch Light at the End of the Tunnel

When thinking about the economic slowdown now gripping the United States, one might think of the naked emperor of yore, who could not realize his condition until told by a child. By the time analysts and the White House recognize the extent of the credit crisis, its effects will probably not be noticeable. So where are we now Several times since last August’s signs of an imminent drop in growth, markets have rallied due to speculation that problems in the area of sub-prime mortgages have bottomed out. Alas, thus far it appears to have been in vain.

On April 25th, Reuters and the University of Michigan reported in their Survey of Consumers that consumer sentiment fell ever deeper in April to settle at 62.6 from 69.5 in the preceding month. Not only is this the third straight month that consumer’s outlooks have remained downbeat, but this month’s ratings are the lowest in 26 years. The last time consumers’ finances were as stressed was in 1982, which was due to the stagflationary economy of the time. Stagflation refers to a stagnating economy with low or limited growth prospects coupled to high inflation. The recent recession came from a different set of circumstances, but consumers are feeling the pinch all the same. While inflation remains a key factor for monetary policy makers and politicians, estimates of core inflation (which excludes volatile food and energy prices) remain low for now.

This is a good thing, because it has allowed the Federal Reserve a lot of leeway regarding monetary policy. They have cut the interest rate they charge for lending to commercial banks by nearly three full percentage points since the onset of the credit crunch last summer, and are poised to cut rates 25 further basis points at their next rate-setting meeting April 30th. However, interest-rate futures contracts also predict a 20% chance that they may not cut the rate at all, signaling a possible end to further monetary stimulus. It is unclear whether inflationary concerns or macro-economic stability is guiding the Fed’s decisions because, since rate cuts began, food and energy prices have also skyrocketed.

While this doesn’t normally affect core inflation to a significant degree, over a protracted period of time prices will continue to increase for everyone. In addition, the Treasury’s stimulus package is set to begin arriving to millions of American consumers at the end of April, four days ahead of schedule. The Bush administration and other prominent authorities have touted the $152 billion influx as a means to increase spending, which accounts for two-thirds of the US economy. While consumer spending should begin to pick up somewhat, surveys have shown that many people plan to spend their check one of two ways relieving personal debt (which reached epic proportions in 2007), or adding to savings. This reflects both how necessary a lump sum of cash is to many poor Americans, and how much spending has been curbed. Until spending picks back up, the service sector will continue to ache. Promising numbers in manufacturing orders for April also reflect strong fundamentals, even as the housing and construction industries continue to slump It may be presumptuous to assume that the US is out of the proverbial woods, but there may yet be light at the end of the tunnel.

Brownfield UK Land The Only Show in Town

The Government’s plans to focus residential development on Brownfield UK land is fraught with challenges, writes Alex Way.

The Government’s much vaunted commitment to delivering 3 million new homes on UK land by 2021 is considered unrealistic in some circles (given c.13% of UK land is in Greenbelts). Others however regard that target as inadequate for a burgeoning population (pointing out that 3 million new homes reflect not the future but the current requirement). Whichever view is correct, Brownfield UK land will feature prominently in the UK’s house-building programme.

For those unfamiliar with the term, Brownfield UK land is that which has been previously used for industrial or commercial activities, but not residential purposes. Such UK land may or may not retain ‘legacies’ of its former use (e.g. contamination).It is becoming clear is that the Government’s approach to land use planning on UK land has two dimensions Brownfield redevelopment and the creation of a number of ‘Eco-towns’. It is Brownfield UK land which is the subject of this article; ‘Eco-towns’ will be considered elsewhere.

Given the strategic importance of Brownfield UK land in ameliorating the UK’s housing shortage, many people involved in investing in land will likely consider Brownfield UK land for sale. There is of course no definitive answer with respect to whether such an acquisition is the best investment for someone buying land as a land investment it may well be so. But there are some peculiar challenges associated with Brownfield UK land development to which we can now turn.

The most profound barrier to residential property development on Brownfield UK land has already been mentioned in passing contamination. This can be particularly pronounced in respect of a UK land site formerly used for industrial purposes, (eg a chemical plant). However, ‘soil remediation’ in many cases can sufficiently decontaminate UK land sites of this type so that they can in fact be used for residential property development.

Those involved in buying land as a land investment or for residential property development purposes are (or should be) acutely aware that remediation work can be extremely expensive, and is not a panacea some Brownfield UK land sites cannot be made fit for human habitation owing to a former use.

Another consideration in developing Brownfield UK land sites is ‘bad neighbours’. This has nothing to do with ASBOs and everything to do with the fact that in many cases Brownfield UK land is surrounded by development land with a similar land use planning status industrial or commercial. Therefore even if the subject Brownfield UK land site is not contaminated, neighbouring sites may be so, and at any rate, an extended area used for industrial or commercial activities will often lack the features of sustainability which are considered prerequisites for UK land to be used for residential purposes, (eg public transport links, local services and amenities).

It goes without saying that the majority of people involved in buying land as a land investment or for residential property development does so on the basis of the financial viability of the project (ie the opportunity to extract profits). This necessitates a robust method of ‘risk assessment’. The associated issue here is that Brownfield UK land development projects can difficult to risk assess accurately.

Whilst it is known that land planning authorities will now tend to look favourably on sustainable residential property development proposals on Brownfield UK land sites, the only UK land planning directive in relation to the riskscosts involved in remediating a given piece of Brownfield UK land is the term ‘suitability of use’. Thus, without a set of clearly defined standards in this area, risk assessment particularly in relation to decontamination can be very challenging.

The issues mentioned above with respect to the challenges in developing Brownfield UK land are the most obvious, but there also many others. Indeed, in some observers’ eyes, Brownfield UK land is unlikely to be able to deliver the number of houses expected by the Government, (ie it is likely that the capacity of Brownfield UK land has been significantly overstated).

These observers reason that Brownfield UK land is being given such prominence because to do so is politically expedient the Government needs to be seen to be building significant numbers of new homes, but is acutely aware of the NIMBYs and the political risks in committing to ‘bulldozing’ UK land in the Greenbelts.

NIMBYs ‘Not in my back yard’ – the moniker given to those living in the heartlands of England who resist new development near their homes. The term is always used in a pejorative sense.