Post-Pandemic Real Estate:

Reactionary Rent-Seeking or Building a Better World?

eal estate, both as an investment and as a career choice, has a certain marmite-like quality to it. While some people condemn it as mere rent-seeking behaviour that cements or even exacerbates existing divides along gender, racial and other lines, others point to the fact that the built environment holds the key to solving some of the world’s most urgent problems, including climate change, loss of biodiversity and socioeconomic inequality to name just the most prominent. And while the former group tends to see the pandemic as a new pandemonium of negative forces that has been unleashed on the world in a spiral of growing carbon emissions, entrenched ‘white male privilege’ and dizzying wealth disparities, the latter might view it much more favourably as a kind of ‘proof of concept’ that humankind is indeed capable of rapid and lasting change in the face of an existential crisis.

Franz Fuerst Professor of Real Estate & Urban Economics CULS Fellow

RThis debate is, of course not new and it is not specific to real estate. David Ricardo who is usually credited with injecting the term ‘rent’ into the economic discourse and highlighting the distinction between labour, capital and profits is perhaps the first in a long line of thinkers who see excessive profiteering as a drag on economic and social well-being. We can think of rent-seeking as a non-productive activity that extracts profits without contributing any positive value to the economy or the society at large. By doing so, it neither distributes wealth more evenly nor disseminates the more intangible societal benefits such as equality and a better quality of life to the labour force. Even worse for future prospects, it blocks improvements, innovation and re-investment to the capital stock. Put in more practical terms, rent seeking is any activity that destroys rather than creates ‘value’, for example by introducing costly barriers to entry that only benefit the gatekeepers or by transferring wealth into the hands of the ‘already-wealthy’ through a seemingly endless cycle of buying and selling inside an elite club of investors. There seems little doubt that rent seeking in all its forms erodes economic growth and societies as Murphy, Shleifer and Vishny point out in their seminal 1993 paper in the American Economic Review (1).

So is anyone working in the real estate sector, including those working in real estate research and education, guilty of rentseeking behaviour, either directly or indirectly? Economics Nobel laureate Robert Shiller certainly has his misgivings about the finance sector when he concludes that speculation and deal-making is a ‘wasteful activity that achieves nothing more than enabling the collection of rents on items that might otherwise be free’(2). And he certainly takes issue with the fact that many of the brightest and most educated people get diverted to finance and other rent-seeking activities, citing a New York Times survey that revealed that up to half of Ivy League graduates in the United States went into finance instead of becoming engineers, doctors, inventors or scientists (3). But it’s not just the jobs but also the very fabric of ownership structures that can be seen as deeply problematic. Here in the UK, 0.6% of the population own roughly half of the land while the remaining 99.4% own the other half (3). The numbers look similarly staggering or even worse in other parts of the world. The real estate sector seems more preoccupied with tilting this balance even further towards those wealthy few than achieving a healthier balance.

Not so fast, you might say. Before we engage in collective selfflagellation in an alumni organisation that counts a multitude of members in real estate related jobs among its ranks, let’s first ask this: how exactly can we distinguish useful from wasteful activities in the above sense? What might seem wasteful and rent-seeking to some, for example the sale of a large commercial real estate portfolio from Company A to Company B (and more often than not back again), might actually provide a mechanism for achieving more e cient and more sustainable use of the underlying assets, thereby perhaps creating more ‘value’ to society and the planet at large than an engineer working on novel methods to extract fossil fuels from previously unreachable places. Green real estate finance is another potential channel for allocating capital and resources where they are most needed and redressing injustices brought about by pursuing economic growth by some countries and individuals at the expense of others. Ultimately, whether something is considered rentseeking or useful to society is thus a moral judgement rather than an objectively quantifiable question.

What about the charge of perpetuating inequality? There is a broad consensus that the real estate sector needs to double and triple its e orts to achieve adequate equality and diversity in its workforce but recent reports also highlight some signs of steady improvement and progress over the years (4). Along this trajectory, the pandemic may have provided a watershed. While the transition to work modes that are more flexible across time and space may be the most empowering change in at least a century, it remains to be seen whether this change will stick and, more importantly, whether it opens the door to those who have previously been shut out of the real estate club. If not, it might just end up creating more inequality by turbo-charging the reach and capabilities of a tech-savvy elite to the detriment of a disenfranchised back-o ce workforce.

Similarly, the e orts to decarbonise real estate portfolios need to be scrutinised more closely and with better diagnostics to distinguish between green-washing that principally aims to be a smoke-screen and forestall stringent regulatory action from truly innovative voluntary measures by an industry that has finally woken up to the fact that combating climate change is not just a moral imperative but increasingly also a necessity for surviving as a business beyond the next few years. This, if nothing else, provides some measure of hope that the real estate sector is collectively prepared to act and embrace change rather than being dragged along by technological and social change and government regulations.

(1) Murphy, K.M., Shleifer, A. and Vishny, R.W., 1993. Why is rent-seeking so costly to growth?. The American Economic Review, 83(2), 409-414.

(2) Robert J. Shiller The Best, Brightest, and Least Productive? Sep 20, 2013.

(3) Rampell, C., 2011. Out of Harvard, and Into Finance. December 21, 2011, New York Times

(4) Inequality Briefing: Briefing 17: Who owns all the land?http://inequalitybriefing.org/brief/briefing-17-whoowns-all-the-land

(5) CREW: Annual Report 2020 and 2021. https:// crewnetwork.org/about/resources/industry-research/ gender-and-diversity-in-commercial-real-estate-202 (6) Bream, K. (2021): Why gender equality in real estate could be another victim of the pandemic https://www.egi. co.uk/news/why-gender-equality-in-real-estate-could-beanother-victim-of-the-pandemic/ )(09/02/2021)